Macro Tsimmis

intelligently hedged investment

Beazer Homes (BZH) update #4

Posted by intelledgement on Mon, 29 Oct 07

The results are in and vultures, while lacking in teeth, do apparently have a sweet tooth.

Bondholders of Beazer Homes’ (BZH’s) $1.525B debt instruments overwhelmingly consented last week to management’s offer to waive default claims attendant to the company’s failure to file their 10-Q reports, the company reported this morning. There are six classes of debt and bondholders in five of the six consented nearly unanimously; 83% of the April 2012 8 3/8% Senior Notes class bondholders consented. In their press release, the company stated, “In accordance with the Indentures, the amendments are binding on all holders, including non-consenting holders.”

Beazer’s settlement with their bondholders eliminates the threat of a demand for immediate repayment, which would bankrupt the company (and presumably not be in the interest of the bondholders anyway, aside from a few who may be short the stock). It also appears to moot the court case the company had initiated to preempt the bondholders from declaring default on the grounds that the company failed to file their 3Q07 10-Q with the SEC. The bondholders have now agreed to allow Beazer until 15 May 2008 to file and if the company misses subsequent deadlines, they only have to pay the bondholders an additional 50 basis points per year.

BZH shareholders are giddy at this settlement; the stock is up 31% since a week ago Friday and we are now in the red on the position—the stock closed today at $11.87 and we shorted in September at $11.18. Well, we shorted because the fundamentals are terrible and Beazer management appears to have made some grievous errors that has made matters worse still…not because we thought the bondholders were likely to cut off their own noses to spite their faces and drive the company into immediate bankruptcy. If we were smarter, we might have predicted the market would react this way—housing industry investments are extremely volatile here—and cashed in when we were ahead 25% earlier this month and be shorting again here. Well, we didn’t think of that, but we are thinking that if you agree with our thesis and are not short Beazer, this would be a good entry point.

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