Macro Tsimmis

intelligently hedged investment

Beazer Homes (BZH) update #2

Posted by intelledgement on Mon, 15 Oct 07

Beazer Homes (BZH) management announced today that they had decided to throw the “vulture investors” who own $1.53B of their corporate debt some raw meat. After filing suit in August to preempt the bondholders from declaring Beazer in default for not filing their 10-Q with the SEC—BZH management have said that a series of investigations that have turned up problems prevent them from doing so—the company is now offering the bondholders a “consent fee” if they agree to an amendment to the terms of the debt. Said amendment spells out that failure by Beazer to file their 10-Qs with the SEC does not constitute grounds for default on the bonds, although Beazer would be subject to annual penalties of 50 basis points if after 15 May 2008, they don’t file with the SEC and deliver copies to the bondholders “on a timely basis,” according to today’s press release.

Beazer claimed in their preemptive suit that the debt intstruments as presently written do not obligate them to file with the SEC, merely to provide the bondholders with copies of the filings within 15 days should they do so. As conceptually the corporate paper market would be a very different place without the built-in presumption on the part of investors that the SEC filing requirements provide critical transparency, this “vinegar” tactic by Beazer seems quixotic at best. Credit Beazer management for engaging in this “sugar” maneuver. We’ve always wondered if vultures like sugar; there should be some good data on the hypothesis that they do by around 24 October, when the Beazer offer expires.

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