Standard Pacific announced a series of three financial moves Tuesday that it says will position the company to aggressively buy discounted land during the market's slowdown.
One of the three moves increases Standard Pacific's cash holdings, but it also ups MatlinPatterson Global Advisors' ante in the company it rescued from the brink of bankruptcy and, at the same time, dilutes the company's stock.
As part of the MatlinPatterson investment in Standard Pacific two and a half years ago, MatlinPatterson had the ability to receive 40 million shares of the company's stock for no cash. Instead, a deal was struck to sell MatlinPatterson 89 million shares in return for $187.5 million in cash. CEO Ken Campbell said Tuesday morning that the deal equates to selling MatlinPatterson stock for $4.69 a share, more than the stock has been trading for recently. The downside, of course, is that it dilutes other shareholders' pieces of the company.
Investors voted with their feet. The news triggered a massive selloff of Standard Pacific shares, sending the stock down more than 10% before it recovered to close on Tuesday at $3.48, down 9.3% on the session. Volume was nearly nine times normal.
"It's a lot of shares [to issue], but obviously we think we can put the money to work, and we will be doing it while other [builders] are slowing down so the price of land will be more attractive."
Campbell said the extra $187 million from the MatlinPatterson stock sale is one piece of a three-part plan that will give the company the liquidity it needs to pursue land deals aggressively while the market is depressed and make Standard Pacific a less risky investment in the long run.
"What it does do is gives us the capital that we can invest in land, which, of course, increases the upside of the company because we will be bigger, and we will be bigger with land that was bought [at lower prices] during the downturn," Campbell said.
The other two parts of the plan include buying back roughly $500 million of the company's debt that is due in 2012, 2014, and 2015 and replacing it with new debt that won't be due until 2019 and 2020. The company also announced Tuesday a tender offering to buy back the older notes.
The deal will leave Standard Pacific with only about $100 million in short-term debt due over six years remaining, allowing it to spend the money it would have had to use for debt payments in the next few years on land instead, Campbell said.
A third planned move is to acquire a $200 million revolving credit facility that could be used for working capital, freeing up even more cash for investments.
Campbell said the moves were necessary because the market has not improved as quickly as was anticipated. "When the market continued to deteriorate and remain stuck at this very low level, we had to conserve more cash than we thought we had to pay off debt."
"We were in the position where we weren't going to be able to take advantage [of low land prices in the downturn]," Campbell said. "This is a more aggressive pursuit of the strategy that we have been talking about for years now because we still believe that stocking up on land during the downturn in the housing market is a better idea than waiting for when the market recovers and starting to buy then."