November’s been a month to forget in a year to forget for shareholders of Irvine-based homebuilder Standard Pacific Corp.
The country’s 11th-largest builder by sales has seen its already-depressed shares drop some 40% this month alone.
Shares for the company are off nearly 90% for the year, making it the worst-performing stock of any major homebuilder in 2007.
Standard Pacific,which cracked the Fortune 500 list for the first time in 2006,now counts a market value of about $170 million. That’s down more than $3 billion from its peak in mid-2005.
The latest declines this month,prompted by a sell-off by one of Standard Pacific’s biggest institutional investors, debt concerns and ongoing jitters in the mortgage market,has added more fuel to analyst speculation that a bankruptcy might be in the cards for the company.
The company’s last earnings-related an-nouncement came in late October, when its third-quarter earnings showed a loss of $119.7 million. The company, which builds in once-hot housing markets such as California and Florida, said at the time it was taking appropriate steps to improve its heavy debt load, which totals close to $2 billion.
But those steps haven’t stopped Wall Street from punishing Standard Pacific’s stock further. Shares began falling again in mid-November, after it was disclosed that a unit of investment bank Legg Mason Inc., one of Standard Pacific’s biggest shareholders, sold off most of its stake after only a few months.
Baltimore-based Legg Mason had swooped up a 10.3% stake in the company in late August.
A Nov. 12 filing with the Securities and Exchange Commission showed Legg Mason reducing its holdings to just 1.3%. It is estimated the investment bank lost about $35 million, or a little more than half of its initial investment, in about two months.
The sell-off “could be a red-flag with respect to the builder’s future prospects,” said a report by Frank Lee, an analyst with New York-based researcher CreditSights.
The analyst last month cited the company’s high levels of debt as a cause for alarm, and raised the potential for bankruptcy.
As of Oct. 18, other big investors in the homebuilder included an affiliate of Boston-based FMR Corp., which had a 13.3% stake; Atlanta-based Earnest Partners LLC, which had a 9.4% stake; and New York’s Goldman Sachs Group Inc., with a 6.2% stake.
None have reported reductions in their holdings as of late.
Another red flag for investors showed up in mid-November. A report noted a steep decline in the price of Standard Pacific’s subordinated bonds, which mature in 2012 with a junk rate yield of 9.25%. The declines are likely due to bondholders’ increased concern about the builder’s ability to stave off bankruptcy.
Standard Pacific and other builders also took a hit last week following news that Freddie Mac, the second-largest buyer of mortgages, posted a $2 billion loss for the quarter and said it may have to raise money to get through the credit crisis.
Money raised would be used to offset losses on loans Freddie Mac already owns, rather than buy new mortgages, which would be another blow to the homebuilding industry.
