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Saturday, October 13, 2007 11:28 AM

Kiss Levitt Goodbye & Pucker Up For Beazer

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The continued housing crunch is putting the Future of Fort Lauderdale-based home builder Levitt in doubt.

The future of historic home builder Levitt and Sons is in doubt as the nation's housing market continues to decline.

The company's parent, Fort Lauderdale-based Levitt Corp., said Friday it's taking a pretax charges of at least $160 million associated with losses on Levitt and Sons' home-building inventory. The charge will be reflected in Levitt Corp.'s third-quarter results and is in addition to charges and write-offs of $99 million in prior periods.

Levitt and Sons is trying to restructure its outstanding debt, but no long-term agreement has been reached. Without a pact, "Levitt and Sons' viability is uncertain," Levitt Corp. said in a statement.

The builder did not pay $2.6 million of interest payments due to its five lenders this week. Levitt Corp. said it loaned $84 million to Levitt and Sons through Sept. 30 to help meet its cash requirements but is unwilling to loan more money unless Levitt and Sons' debt is restructured.
Kiss Levitt Goodbye

Meanwhile, Fitch, S&P cut Beazer deeper into junk.
Fitch Ratings and Standard & Poor's on Friday cut their ratings on Beazer Homes USA Inc (BZH) deeper into junk territory and said they may cut the ratings again as the company's balance sheet continues to deteriorate in a weak housing market.

"The downgrades acknowledge significant internal and external challenges confronting Beazer's management team and the uncertain economic impact stemming from accusations of fraud in the Beazer Mortgage Co. subsidiary," S&P said in a statement.

S&P cut Beazer one notch to "B-plus," four levels below investment grade, from "BB-minus," and kept the company on watch for a further downgrade.

Fitch cut Beazer one notch to "BB-minus," three levels below investment grade, from "BB."
Cancellation Rate a Whopping 68% At Beazer

Reuters is reporting Beazer to restate results back to 2004.
Home builder Beazer Homes USA Inc (BZH) said on Thursday it would restate financial results back to 2004 due to accounting errors uncovered by an internal investigation that also found violations of federal housing regulations.

The company also reported preliminary results that showed its business fell sharply in the quarter ended Sept. 30.

Beazer shares rose after release of the long-awaited report on the probe. Agency Trading Group senior analyst Alex Barron cited relief.

"People are going to interpret this as a net positive simply because it quantifies how much we're talking about and gives a sense of what the issues were," Barron said. "In some ways, it kind of puts it behind them."

The investigation by its Audit Committee found evidence that employees of Beazer's mortgage unit, Beazer Mortgage Corp, violated certain U.S. Department of Housing and Urban Development (HUD) regulations, Beazer said. The violations relate to HUD's Down Payment Assistance programs in certain Federal Housing Administration-insured loans (FHA) originated by Beazer Mortgage Corp, dating back to at least 2000. The company declined to elaborate.

Analysts said they were more concerned about Beazer's preliminary quarterly results, which showed that Beazer was affected more by the U.S. housing market decline than its peers. Beazer's sales fell 39 percent in the fiscal fourth quarter ended Sept. 30, new orders declined 52 percent, and its order cancellation rate soared to 68 percent.
"People are going to interpret this as a net positive simply because it quantifies how much we're talking about and gives a sense of what the issues were," Barron said. "In some ways, it kind of puts it behind them."

Things might be bottoming for some homebuilders (not housing itself) but barring some kind of miracle, it's time to kiss Levitt and Sons goodbye. And as for Beazer, I don't care what anyone says about things being a "net positive". Beazer cannot survive with 68% cancellation rates. Who would want to order a house (and make a down payment) fearing the house might not be built?

Consumer psychology might be such that it will be impossible for Beazer to turn things around. Pucker up.

Mike Shedlock / Mish

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