Facing a capital call it couldn't make, and absent a cash-rich suitor stepping in to bail it out, WCI Communities filed for bankruptcy court protection from its creditors on Monday, Aug. 4.

With the filing came the dismissal of the company's CEO Jerry L. Starkey, who became its CEO at the company's peak in 2005. He will be replaced on an interim basis by David L. Fry, its chief operating officer.

"The company, with all diligence, has attempted to avoid a bankruptcy filing," said Carl C. Icahn, chairman of WCI's board. "However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default."

Meanwhile, WCI said it will continue to operate using $50 million in cash to which its principal lenders have agreed to allow it access. Some of its senior lenders are offering to provide another $100 million through debtor-in-possession financing, which would have to be approved by the bankruptcy court.

"Day-to-day operations will continue as usual while we work with our stakeholders to restructure the balance sheet," Fry said. "We will continue to sell, build, and deliver homes without interruption. Construction and sales activities will continue; employees will come to work and be paid."

Not included in the filing was its real estate brokerage arm, Watermark, which does business as Prudential Florida WCI Realty, as well as WCI Mortgage, an affiliate of Wells Fargo Mortgage.

In the end, the bankruptcy trigger was $125 million in convertible bond debt that the holders asked to be repaid tomorrow, Aug. 5. There wasn't enough cash left to make the payment.

In a last-ditch attempt to stop its freefall, the Bonita Springs, Fla.-based developer and builder offered the bondholders a premium to swap their 4% interest notes for 17.5% notes with an earlier due date plus the right to buy 33.7392 shares of stock for every $1,000 in debt at a nominal rate. It would take approval by at least 90% of the bondholders to make the swap happen.

Apparently there were not enough takers and, with the filing, the offer was rescinded.

The lack of cash necessary to pay off the bondholders already put WCI in default of its revolving loan, its term loan, and tower construction loan agreements, effectively crippling the company by cutting it off from operating capital.

In addition, the company's lenders are in the process of appraising the company's land and have found some that is worth less than its book value--further reducing the company's ability to borrow money, which could cause the banks to demand repayment of those loans as well. If, at the conclusion of that appraisal, the company is found to have less in assets than its outstanding debt, it could move from a Chapter 11 restructuring to a Chapter 7 liquidation bankruptcy case.

Without cash, or demand for its products, WCI is unlikely to be able to build itself out of its mire. At the end of its second quarter this year, the company only had $120 million in orders. It also lost $100 million, or $2.38 a share--almost twice as much as its stock was trading for at market close Friday, Aug. 1.

WCI's fall was even more precipitous than that of most other high-volume home builders. The company's stock, which closed at $1.26 on Friday, traded at a two-year high at more than $23 a share almost 18 months ago.

The company began its operations in Florida and then expanded into the Northeast and Mid-Atlantic areas as a builder of single-family homes as well as luxurious condominium towers.

At the peak of the market it was flying high. Buyers were lining up to put down 20% on $1 million-plus, amenity-rich, waterfront condominiums. With tiny historical cancellation rates, those deals looked like sure things to close, and CEO Jerry Starkey boasted that there would be $1 billion in the bank by the end of 2007--enough to start de-leveraging the company whose debt had grown to nearly 70% of its capital.

With only a blue-sky view, the company's leaders recoiled when billionaire Carl Icahn swooped onto the scene in December 2006, expressing an interest in helping the company unlock its value and buying up nearly 15% of its stock in early 2007.

WCI's board hurriedly adopted a poison pill provision to ward off Icahn's advances, shunned his tender offer to buy the company for $22 a share in May 2007--a slight premium at the time--and looked for other potential buyers.

Within a month, Icahn had revoked his offer, and other suitors failed to show as the company's metrics were starting to swiftly unravel with the home building market as a whole.

By the end of that summer, Icahn and some of his cohorts were on the company's board, and management's attention had turned from staving off billionaire takeovers to survival. The unthinkable had begun to happen: Condominium buyers, many of them investors, began to walk away from their substantial deposits. By the end of 2007, the company actually posted negative eight sales.

As WCI struggled to renegotiate its debt at the end of 2007, the company's executives told analysts that having Icahn--with his deep pockets--on the board gave it a good chance to find the cash to bail the company out.

A few weeks ago, an SEC document indicated Icahn might be negotiating with the company to buy its assets, but that option appears to have passed by the wayside.

As a stockholder, Icahn potentially could lose his stake in bankruptcy court. But with his stock falling to roughly 1/15 of his investment even before the bankruptcy filing, he effectively already has.