The rumor mill says Beazer Homes is filing for chapter 11.
Here is yesterday’s chart.
(click on chart for a sharper image)

At one point today BZH was down 40% to $8.10

Timing Award

I do not know whether the chapter 11 story is a rumor or a fact as BZH is now down a mere 20%. What I do know is that congratulations are in order to BZH insider Ian J. McCarthy who on November 14, 2006 exercised an option to buy 179,535 shares at $8.02 and on the same day unloaded all 179,535 shares for $43.07.

On April 17,2006 Ian J. McCarthy did the same thing with 13,149 shares. Ian J. McCarthy is the president and CEO of Beazer Homes. No doubt this was all part of a broader diversification strategy.

Addendum

Bloomberg is reporting Beazer Shares Plunge; Company Denies Bankruptcy Rumor.

Shares of Beazer Homes USA Inc., the homebuilder facing investigations by the FBI and securities regulators, plunged the most ever on speculation the homebuilder may file for bankruptcy. Beazer said in a statement there was no truth to the rumor.

“We do not know where these scurrilous and unfounded rumors started,” Beazer said in a statement distributed by Business Wire.

Atlanta-based Beazer’s shares fell $2.53, or 18 percent, to $11.46 as of 11:59 a.m. in New York, after earlier dropping as much as 42 percent to $8.10.

Beazer led shares of U.S. homebuilders lower. The worst housing slump in 16 years has left eight homebuilders nursing losses of $1.97 billion and expenses of more than $3.1 billion as property values fall and land purchases are abandoned. D.R. Horton Chairman Donald Horton said last week the housing market remains “challenging” because of a glut of inventory, higher interest rates and tight lending standards. Beazer last week reported a net loss of $123 million, or $3.20 a share.

“We’re hearing Beazer is supposedly going bankrupt,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. “If in fact that comes to fruition, the market’s going to be in a world of hurt.”

FBI Probe

The Federal Bureau of Investigation said in March it was investigating Beazer for potential fraud after the Charlotte Observer newspaper reported the company sold homes to low-income buyers who couldn’t afford them, financing the purchases with mortgages based on expectations the borrower’s income would rise.

Addendum #2

I think a second addendum is a first for this blog but I feel obligated to report that Joe Snider at Moody’s says Bankruptcy talk about Beazer is Much Ado About Nothing.

The company said last week it entered into a four-year $500 million revolving credit agreement and it expects to end the year with more than $300 million in cash.

“We’re confident that what’s going on today is much ado about nothing,” said Joseph Snider, a senior credit officer at Moody’s Investors Service in New York. “If anything, they’re more liquid than they were before and they’re coming into their fourth fiscal quarter of the year, where they generate the most cash. So we think it’s just a bear raid on the company.”

Beazer’s $350 million of 8.38 percent notes due 2012 fell 6 cents on the dollar to 78 cents, according to Trace, the bond- price reporting system of the NASD.

Well perhaps this bankruptcy rumor is just that but inquiring mind just might be wondering if this is all “much ado about nothing“.

Other inquiring minds might be just be wondering about that “strong fourth quarter” given that inventories are rising, prices are dropping, enormous numbers of ARMs are going to reset, and credit risk on homebuilders is rising. That is not exactly a friendly set of fundamentals.

But the most inquisitive of inquiring minds just might be asking “What was it that Joe Snider himself said about Beazer Homes just 5 days ago on July 26th?

I am being flooded with telepathic questions. They all go something like this “Ok Mish, just what did Joe Snider say about Beazer Homes on July 26th?”

Let’s take a look at an article in CNN Money called US Home Builders Further Darken Housing Outlook.

The picture was equally grim for Beazer, the country’s seventh-largest builder, which has recently seen its stock fall because of a Securities and Exchange Commission investigation. The stock fell 8.7% Thursday to $15.56.

Beazer Homes said it cut prices to spur sales and took major charges to write down the value of unsold inventory. The company also announced a new $500 million revolving credit facility that was just half the size of the one it replaced.

Other home builders could see a similar reaction from creditors when they need to refinance existing facilities, said Joe Snider, vice president and senior credit officer for Moody’s Investors Service. Companies may need to secure their credit revolvers or accept tighter restrictions.

“This is likely to have pretty significant consequences,” he said of the industry’s travails.

Joe Snider Recap 2007-08-01

  • “We’re confident that what’s going on today is much ado about nothing.”
  • “If anything, they’re more liquid than they were before and they’re coming into their fourth fiscal quarter of the year, where they generate the most cash.”

Joe Snider Recap 2007-07-26

  • Beazer Homes said it cut prices to spur sales and took major charges to write down the value of unsold inventory.
  • The company also announced a new $500 million revolving credit facility that was just half the size of the one it replaced.
  • Other home builders could see a similar reaction from creditors when they need to refinance existing facilities.
  • “This is likely to have pretty significant consequences,” he said of the industry’s travails.

Somehow we went from Beazer’s being able to only secure half the credit line it originally had “is likely to have pretty significant consequences” to “If anything, they’re more liquid than they were before” in the face of widening credit spreads and sinking stock prices, all in the course of the last 5 days. What an amazing turnaround in liquidity.

Mike Shedlock / Mish/