Beazer Homes USA Inc. (BZH), the builder
that’s piled up $1.8 billion of losses since the collapse of the
U.S. housing market, is buying time until the U.S. economy
recovers by replenishing its capital with stock and bond sales.
Beazer sold $300 million of secured debt, raised about $160
million selling stock and hybrid securities and said it would
buy back $250 million of bonds last week. The Atlanta-based
company’s $300 million of 9.125 percent notes due June 2018 have
returned 19 percent in the past six weeks and now trade at more
than 97 cents on the dollar, according to data compiled by
Bloomberg.
The fundraising bolsters Beazer’s prospects by giving it
cash to buy land amid signs that housing is bottoming even
though it hasn’t generated enough money to cover its interest
expenses for five years. The deals last week will save about $10
million in interest, while adding to Beazer’s cash supply, said
Stefan Lingmerth, an analyst at Phoenix Investment Adviser LLC
in New York.
“They’re doing the right things, cutting the interest and
the margins are going up every quarter,” said Lingmerth, whose
firm has about $500 million of high-yield assets under
management and has invested in Beazer’s bonds and stock. “If
you get more price increases, these guys could be profitable
sooner rather than later.”
Beazer, which builds in developments such as Surprise Farms
in Surprise, Arizona, sold 3,249 houses in the 2011 fiscal year
that ended Sept. 30 for an average price of about $220,000, it
said in a Nov. 15 regulatory filing. It’s been losing money
since 2006, as the decline in U.S. housing prices made it
difficult to sell new homes and forced it to write down the
value of its holdings.
Profit Outlook
Jeffrey Hoza, Beazer’s treasurer, declined to comment on
the company’s financial situation.
Beazer may make money before interest, taxes, depreciation
and amortization this year, Allan Merrill, its chief executive
officer, said on a conference call in May. It would be the first
time since 2007, Bloomberg data show.
“Like all the public homebuilders, they survived this by
being able to sell homes at a lower price,” Lingmerth said.
“They’ve cut a lot of costs.”
U.S. homebuilders may have enjoyed a fifth consecutive
quarter of growth based on results from Lennar Corp. and KB Home
in the March-June period, according to Bloomberg Industries.
Purchases of U.S. new homes have begun to rebound as low
mortgage rates help attract buyers amid a limited supply of
existing properties.
Confidence Grows
Confidence among U.S. homebuilders increased in July by the
most in almost a decade. The National Association of Home
Builders/Wells Fargo confidence index climbed 6 points to 35
this month, the highest level since March 2007, a report from
the Washington-based group showed today. The gauge exceeded the
most-optimistic projection in a Bloomberg News survey of 46
economists.
Beazer’s 9.125 percent notes, which traded for 82 cents on
the dollar on June 1 and as low as 56 cents in October, climbed
to 97.3 cents yesterday, according to Trace, the bond-price
reporting system of the Financial Industry Regulatory Authority.
Credit default swaps on the company fell to 8 percent
upfront yesterday, according to data provider CMA, which is
owned by McGraw-Hill Cos. and compiles prices quoted by dealers
in the privately negotiated market. That means it would cost
$800,000 initially plus $500,000 a year to insure against losses
on $10 billion of bonds for five years. The contracts cost as
much as 72 percent upfront in March 2009, implying 98 percent
odds the company would go bankrupt.
Beazer Expansion
Beazer expanded through a series of acquisitions after its
spinoff from Hanson Plc in 1994. To finance its push across the
U.S., Beazer borrowed, increasing its long-term debt to $1.84
billion in 2006 from $395 million in 2001, according to data
compiled by Bloomberg. Debt was $1.43 billion as of March 31.
As the housing market froze, sales dropped to 12,020 in
2007, then 6,697 the next year, down from about 18,000 in the
2006 fiscal year, Bloomberg data show. Beazer posted a net loss
of $411.1 million in 2007 and hasn’t profited over a full fiscal
year since, the data show.
Beazer promoted Merrill, a former UBS AG investment banker
who advised on its initial public offering, to CEO last year. He
replaced Ian McCarthy, who last year agreed to return $6.5
million to the company after the U.S. Securities and Exchange
Commission said the company committed accounting fraud during
his tenure. Beazer settled with the SEC in 2008 without
admitting or denying wrongdoing.
‘Overriding Objective’
Merrill said on the May conference call that returning to
profitability was his “overriding objective” and that he’s
trying to earn more by selling more houses, increasing margins,
holding down fixed costs and cutting interest expenses.
“He’s done a very, very good job,” Susan Berliner, a bond
analyst at JPMorgan Chase Co., said in a telephone interview.
“They’re very focused on getting profitable which we think will
happen down the road.”
While Beazer’s bonds are approaching par, the company’s
stock has dropped to $2.82 at 10:50 a.m. in New York from a peak
of $82.03 in 2006, cutting its market value to $347.2 million,
according to data compiled by Bloomberg.
Beazer’s depressed shares have attracted investment from
hedge funds. Brigade Capital Management LLC and John Paulson’s
Paulson Co. each own about 2 percent of the company, Caspian
Capital LP has a 1.5 percent stake, and Boaz Weinstein’s Saba
Capital Management LP owns about 1 percent, Bloomberg data show.
Blackstone Investment
GSO Capital Partners LP, the credit arm of Blackstone Group
LP, also owns about 1 percent. The stock is an “option on a
recovery in housing,” according to Darren Richman, a partner at
the firm in New York.
“There’s a bifurcation between how the debt and equity
markets are viewing the homebuilders,” Richman said in a
telephone interview. “It’s a very easy bet to make that Beazer
will be solvent for an extended period of time.”
After raising about $60 million in the stock market and
selling $100 million of hybrid securities, Beazer issued $300
million of 6.625 percent second-lien notes on July 11. The
offering size was increased from $275 million.
Beazer said the money will be used to redeem the $250
million of 12 percent notes that it sold in 2009. Blackstone’s
GSO stands to benefit from the refinancing. It helped backstop
the 2009 offering, which was issued at 89 cents on the dollar,
Richman said.
‘Few Friends’
“The company had very few friends on Wall Street,”
Richman said. “It caught the market by surprise that somebody
would be willing to give them money.”
Beazer also said last week that it plans to buy about $100
million of land in Florida, California, Texas, North Carolina
and Arizona.
Home prices are 25 percent below the May 2007 peak, and
values in more than half of major U.S. markets will probably
reach a bottom by December, Zillow Inc. said in April.
“Homebuilders need to have sufficient inventory as demand
increases otherwise they won’t be able to maximize their
sales,” Brian Bogart, an analyst at KDP Investment Advisors
Inc. of Montpelier, Vermont, said in a telephone interview.
“The equity issuance gives them more flexibility to meet rising
demand without having to increase their debt.”
To contact the reporter on this story:
Zeke Faux in New York at
zfaux@bloomberg.net.
To contact the editor responsible for this story:
Alan Goldstein at
agoldstein5@bloomberg.net.
A Sign Stands Outside A Beazer Home
Mike Fuentes/Bloomberg
Beazer Homes USA Inc., the builder that’s piled up $1.8 billion of losses since the collapse of the U.S. housing market, is buying time until the U.S. economy
recovers by replenishing its capital with stock and bond sales.
Beazer Homes USA Inc., the builder that’s piled up $1.8 billion of losses since the collapse of the U.S. housing market, is buying time until the U.S. economy
recovers by replenishing its capital with stock and bond sales. Photographer: Mike Fuentes/Bloomberg
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