Standard Pacific Homes has no plans to spend its $626 million of cash on hand to buy distressed builders or land assets, the company's new CEO Kenneth Campbell announced in his first investor call Wednesday, Feb 17.
"Obviously, given the market today, we probably need to conserve our cash," Campbell told analysts.
That's a marked turn-around from the ebullient assertions of the company's former CEO Jeffrey Peterson, who said several times that the company would become an acquirer of distressed assets in the wake of MatlinPatterson Global Advisors' cash infusion into the company last summer.
"I'm pretty sure the thought was [then] that there would be enough cash to take advantage of the asset buy," said Campbell, a MatlinPatterson partner who now has the reins of the Irvine, Calif.-based builder. "But the market has gotten worse since June of last year. We expected it to get worse. It's gotten worse than we expected."
The company logged a net loss of $396.6 million in the last quarter of 2008, largely driven by soaring impairment charges of $443.6 million.
That doesn't mean Standard Pacific won't be bottom-feeding on assets in the future, possibly funded by more contributions from MatlinPatterson. "I think we have an advantage in that we have a very big shareholder who is still very interested in investing in the home builder space," Campbell said.
In the meantime, Standard Pacific's negotiations to buy the assets of TOUSA out of Chapter 11 bankruptcy are over, Campbell told analysts.
"The TOUSA thing is kind of dead," he said. TOUSA turned down Standard Pacific's offer, which "did not involve any cash on the part of Standard Pacific," Campbell said. "It did involve debt, but the debt was non-recourse to Standard Pacific. In other words, there was some dilution involved. It would optimize the use of our infrastructure because their assets are sort of in the same place where our assets are.
"I think what they decided in the end, the company/senior debtors, is they think they can do better by selling the assets off in liquidation," he added. "I think they're wrong, but whatever. ... We didn't like all the assets. We weren't even buying all of them, but some of them we would have rather left behind anyway."
Standard Pacific spent $3 million on due diligence for the acquisition. "Just because we spent a few million doesn't mean we need to move ahead and acquire it at the wrong price," Campbell said. "I'm not concerned about missing the chance of a lifetime."
The company's large impairment number drew questions from analysts who asked why Standard Pacific's charge was so large in relation to its peers in the same quarter.
Campbell said he couldn't answer about the company's peers' impairments, but provided detail as to how Standard Pacific determined how much to impair its assets. "Obviously we have impaired a lot already," he said. "This impairment was done with a little more structure than prior ones."
The company built in assumptions that the market would continue to decline in 2009 by 8% to 10%, that the market in 2010 will be about the same as 2009, and that improvements will begin in 2011 through 2013 before it gets back to a normal rate.
Campbell said the company will focus intensely on its operations during the next few months, trying to downsize to meet the falling number of home sales. That will involve more layoffs, beyond the more than 60% reductions the company has had since its high point in June 2006, as well as a structural reorganization.
"There will be fundamental changes in how we attack our business," he said, adding that the details of those changes are still being sorted out. But the end result will be a much smaller business by the end of the year.
Campbell cautioned against viewing any up tick in sales over the past couple as months as anything more than seasonal.
"An up tick from those levels isn't all that interesting," he said. "We are still talking about levels that are substantially below last year. To try to project a sign of improvement in the market in the last few weeks is risky business."
Unlike other builders, who are redesigning product to be smaller, Standard Pacific is standing by its existing product lines for the time being.
"We are not trying to build a little home or come out with a mini version," he said. "I'd almost rather wait until people want to buy our product again rather than try to chase sales in 2009. We are trying to become as efficient a builder as we can in 2009 ... rather than trying to figure out how to build a different house."
Campbell, however, said he has great faith that Standard Pacific will outlast the downturn, "whether it takes to 2011, 2012, or 2013."