Standard & Poor's has lowered WCI Communities' corporate credit rating from a CCC to a CC and some of its debt from CC to C on concerns it won't be able to repay $125 million of the $650 million that could come due in August.

"The downgrades acknowledge that WCI is unlikely to have sufficient liquidity to repay $125 million of 4% contingent convertible senior subordinated notes due 2023 should note holders exercise their option to redeem the notes on the Aug. 5, 2008 put date," S&P wrote in its note about the credit rating change.

The Bonita Springs, Fla.-based WCI executives have publicly expressed doubt that it will be able to repay the note holders if they ask for repayment. It has hired an advisor to negotiate a restructuring of the notes.

Not paying off the notes could trigger the company's demise as a going concern.

"If WCI is unable to satisfy its obligations under the terms of the convertible notes, the note holders would have the right to accelerate the maturity of these notes, which could in turn trigger the acceleration of substantially all of the company's debt," S&P said in the release announcing the downgrade.

The company's leverage is substantial--84% of capital at the end of its first quarter. And it has limited financial flexibility with just $49 million in cash at the end of March and $62 million of available borrowing on its revolving line of credit, which the company was compelled to securitize last year.

Its borrowing capacity will be further constrained if appraisals of the company's property now being conducted by its lenders reveal that the land is worth less than its stated value.

WCI also isn't going to have much revenue in the near future. Its backlog is just $203 million and proceeds from closing its tower units are earmarked to pay off construction loans and unavailable to pay off the notes, S&P said.

The company, with the exception of its real estate sales division, has no goodwill left on its books. It wrote all that off early this year.