For the most part, Gordon Milne, The Ryland Group senior vice president and CFO, had a better-than-average story to tell investors at the 2007 Credit Suisse Home Building Conference today (Sept. 18) in New York. The California-based company's historically low-risk profile and balance sheet discipline has protected it from the market's severe blows, limiting its injury to bumps and bruises in comparison to some competitors. However, one vulnerability remained clear: With credit tightening virtually eliminating Alt-A lending, roughly 10% of Ryland's business is poised to evaporate.

Through good times and bad, management has been able to limit the company's land exposure through diversification; no more than 10% of assets have been concentrated in a single market. This conservative strategy has kept the company from having to exit any markets, although Milne noted that the company has rolled its Fort Myers division into its Tampa division and reduced centers of operations for four California markets to two. However, he said those decisions were made to "streamline overhead."

The company's overhead, in the form of SG&A, is still above management's comfort zone at 12% of revenues. "It's hard to get costs to go down as fast as revenues are going down," Milne said. But with benefits from a 30% reduction in forces about to hit the balance sheet, he remained confident that SG&A would be down to a target level of 10% of revenues in the near future.

One thing that clearly wasn't going to improve in the near term was Ryland's exposure to tightening lending standards. Milne said Ryland's mortgage company continues to have a relationship with Countrywide Home Loans despite Countrywide's recent cash crisis.

"They're still open and doing business," Milne said. "But they're much more limited in the types of loans that they'll buy from us."

He noted that since August, Alt-A loans, loans often secured with little documentation, were virtually dead. And though Alt-A loans account for 10% of all its mortgages, Milne admitted, "We're scrambling a bit to find loans for home buyers." Fewer sources of buyer financing could mean the company's 16% drop in sales will deepen.

The near elimination of Alt-A lending has jeopardized the company's ability to not only net but close sales. The company's cancellation rates--which have been reigned in since the back half off of 2006 when they hovered near 50%--could creep up in future quarters.

"With the change in the Alt-A product, it's difficult to keep your buyers all the way through to closing," Milne said.

Milne also announced that while the company has always had an emergency lending facility in case its relationship was compromised, it is looking at several other backup facilities. Moreover, Milne said it was talking to Fannie Mae and Freddie Mac to explore ways to do business directly with the lending institutions rather than going through a third party.

Despite this challenge, Milne said management's "focus is on cash generation, liquidity, and making our banks feel good, our credit agencies feel good, and our board feel good."

He noted that the company has maintained a dept-to-capitalization of roughly 40% and has secured mostly long-term debt at attractive interest rates. One loan will be due for repayment next year, but Milne was quick to point out that management paid off roughly half of the amount early and expected to only have to shell out $75 million next year, which he said he hoped would come from cash flow.