The South Florida Business Journal is reporting WCI files for Chapter 11.

WCI Communities (WCI), a Bonita Springs-based developer and homebuilder, along with about 130 of its subsidiaries, has filed for Chapter 11 bankruptcy reorganization.

President and CEO Jerry Starkey has resigned from his posts, effective immediately, after agreeing to a “mutually satisfactory severance package.”

My Comment: A severance package? Starkey should not get a dime. He was offered $22 a share for WCI in April 2007 by Carl Icahn but the WCI board rejected his offer as “opportunistic and inadequate.” See Palm Coast Real Estate Developer WCI in Transaction Talks with Icahn.

Excluded from the filings are brokerage firm Prudential Florida WCI Realty, WCI Mortgage and certain unnamed joint ventures in which WCI is a partner.

The move was not unexpected, as WCI was in default on a number of its loans and failed in a last-ditch attempt to stave off a call on a $125 million convertible note payment due Monday. It had offered replacement notes paying 17.5 percent for the 4 percent notes that it lacked the cash to redeem.

Icahn confirmed that the note holders had rejected its exchange offer and insisted on being paid in cash. That offer was officially cancelled with the bankruptcy filing, and the exchange agent was directed to return any notes tendered for the exchange, Icahn said.

One smart money investor group, Stamford, Conn.-based SAC Capital Advisors, started voting with its wallet. Beginning in Mid-May with 4,012,000 shares – about 9.5 percent of the total outstanding – it steadily unloaded WCI stock selling the final batch last Friday, according to numerous Securities & Exchange Company filings.

My Comment: Smart Investor Group? If they were smart, they would not have been holding 4 million shares in the first place.

WCI Press Release

WCI issued a Press Release on Restructuring Debt under Chapter 11.

WCI Communities, Inc. (WCI), a leading developer, builder and seller of luxury homes and tower units, announced today that it and approximately 130 of its wholly-owned subsidiaries had filed voluntary petitions to restructure their debt and capital. Excluded from the filing is the company’s Watermark real estate brokerage, which does business as Prudential Florida WCI Realty, as well as its WCI Mortgage business and certain other joint ventures in which WCI is a partner.

Prudential Florida WCI Realty will continue to provide a full menu of real estate services, including new home and resale brokerage services, as well as foreclosure and rental management services. The company said realtors, brokers and customers will see no interruption in these services. All commissions and other obligations will be honored and paid. WCI Mortgage, an affiliate of Well Fargo Home Mortgage, will continue to offer competitive mortgage packages and will honor all of its existing obligations.

Carl C. Icahn, chairman of WCI’s Board of Directors said, “The company, with all diligence, has attempted to avoid a bankruptcy filing. However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the company’s entire $1.8 billion of debt may soon be in default.

“While WCI remains cash-flow positive and our asset base is strong, our ongoing operations have been adversely impacted by the continuing downturn in the real estate sector and the overall economy,” said David L. Fry, the company’s interim president and chief executive officer. “Like other large homebuilders across the country, WCI continues to experience declines both in pricing and the sale of new homes and condominiums, as well as dramatic increases in cancellation rates.

“As a result, we need to restructure our debt and bring our capital structure in line with today’s marketplace realities. We believe Chapter 11 provides the most efficient and timely process for accomplishing this,” he said.

“Day-to-day operations will continue as usual, while we work with our stakeholders to restructure the balance sheet,” Mr. Fry said. “We will continue to sell, build and deliver homes without interruption. Construction and sales activities will continue; employees will come to work and be paid.”

This was an expected filing but nonetheless a major one. Expect to see more major homebuilders go under as well.

Mike “Mish” Shedlock
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