WCI: Icahn agreement, revised credit terms both good news in tough market

By Lisa Kerner

Charlotte, N.C., Aug. 22 - WCI Communities, Inc. president and chief executive officer Jerry Starkey admits it continues to be a "tough environment" for homebuilders throughout the country. His company has been particularly hard hit by conditions in Florida. Starkey wasn't all doom and gloom during the company's second-quarter earnings call on Wednesday.

Starkey said WCI is doing what it can now to prepare for an eventual upturn in the housing market, even though that may be four or five quarters away. WCI's focus is generating cash flow and stepping up its efforts to liquidate inventory. WCI's land position continues to be a strong asset, according to the CEO.

The recent end to a proxy contest with Carl Icahn allows WCI to move forward with a "very balanced board," Starkey said. He explained that the proxy contest has been dropped and WCI agreed to changes in the company's board. According to Starkey, it is an "excellent agreement."

It was previously reported that under the agreement, WCI will nominate for election and approve at the meeting current board members Don E. Ackerman, Charles E. Cobb Jr. and Hilliard M. Eure, III, and Icahn Group candidates Carl C. Icahn, Keith Meister and David Schechter.

In addition, WCI and the Icahn Group agreed to nominate and approve Craig W. Thomas, of S.A.C. Capital Advisors, LLC, Nick Graziano of Sandell Asset Management Corp., and Yale Law professor Jonathan R. Macey.

The Icahn Group agreed to vote its shares in favor of the nominees.

WCI also agreed to "raise the trigger" under its limited duration shareholder rights plan to 25% from 15%, Starkey said.

Regarding its financials, WCI highlighted key points of its amended credit facility. On Aug. 17, WCI said it also amended its term loan agreement and the revolving credit $390 million construction loan.

The changes to the board of directors are allowed under the modified terms. Other term modifications to the credit facility include:

• Leverage ratio at 2.15x through fourth-quarter 2007, then 1.75x, from 1.85x;

• Facility size now $700 million through second-quarter 2008, $600 million through second-quarter 2009, then $550 million, from $850million through third-quarter 2007, then $800 million; and

• Pricing changed to Libor plus 300 bps and Libor plus 350 bps, from Libor plus 200 bps and Libor plus 250 bps.

The term loan agreement has been reduced to $262.5 million from $300 million, with a subsequent reduction to $225 million on July 1, 2008.

WCI said as of June 30, the balance on the revolving credit facility was $360.6 million, the balance on the term loan agreement was $300 million and the balance on the tower facility was $353.7 million.

The company reported total liquidity of $315 million at Aug. 17 and letters of credit of $43.6 million were outstanding as of the same date.

Additional key financial points from the call include a quarterly net loss of $33.2 million, compared with a gain of $22.7 million in the second quarter of 2006. WCI reported diluted loss per share at a $0.79, versus a gain of $0.52 for the same period a year ago.

Revenues for the second quarter of 2007 were down 54.2% at $241.8 million from $527.7 million in the prior-year period.

WCI generated $119.8 million in cash flow from operating and investing activities and expects to end 2007 having generated a combined $530 million to $730 million, down from its original guidance of $1 billion.

The company's total homebuilding net orders fell 96.2% over the same period a year ago to $9.1 million, while the number of unit orders declined 82.6% to 50.

WCI is a Bonita Springs, Fla., builder of master-planned lifestyle communities.

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