Two More Homebuilders Go Bust

The Wall Street Journal is reporting Two More Builders Buckle.

Two more home builders have filed for Chapter 11 bankruptcy protection in the face of declining home sales and troubled credit markets.

Oakridge Homes LLC in California and M.W. Johnson Construction Inc., which builds homes in Minnesota, Wisconsin and Florida, both sought Chapter 11 protection Friday. The companies are two of many home builders in bankruptcy proceedings, including Levitt and Sons LLC and Tousa Inc.

M.W. Johnson, of Lakeville, Minn., reported assets and debts in the range of $50 million to $100 million in its bankruptcy petition and said it has between 200 and 999 creditors. The home builder's affiliate, M.W. Johnson Construction of Florida Inc., also filed for bankruptcy.

Oakridge Homes didn't state in court papers whether it intends to reorganize or liquidate its assets during its stay in Chapter 11. An attorney for the company didn't return a call seeking comment by Tuesday afternoon. Oakridge, of Valencia, Calif., listed assets and debts in the range of $10 million to $50 million in its bankruptcy petition.

Cascade Of Bankruptcies

In the grand scheme of things, the amounts here seem small. However, dozens of subcontractors will not get paid and hundreds of subcontractor employees will not get paid. To anyone not getting paid this is a big deal. Numerous people are headed for bankruptcy over this and some small regional bank or creditor is going to going to take a very big (for them) hit over this. These things all add up and they are adding up all over the country.

We have yet see one of the huge national builders blow sky high, but we will. And we have not seen a large regional bank blow up yet either but we will.

Ambac (ABK) To Terminate Contract With Fitch

In other news, Bloomberg is reporting Ambac Financial to Terminate Fitch Ratings Contract.

Ambac Financial Group Inc., the second-largest bond insurer, is terminating its ratings contract with Fitch Ratings.

"Our decision to refocus and realign our business around our core expertise in the public finance and infrastructure sectors has led us to re-evaluate our ratings needs," New York- based Ambac said today in a statement. "As part of this review, we have asked Fitch to remove its ratings on Ambac and all its subsidiaries effective immediately."

Ambac's request follows one by rival MBIA Inc., which in March asked Fitch to stop providing a financial strength rating on its insurance unit. Bond insurers lost their top ratings after straying from backing municipal bonds, which rarely default, to guaranteeing securities such as collateralized debt obligations, which package pools of securities, including those backed by subprime mortgages, and slice them into pieces of varying risk.

The Point Is Moot

Since Ambac's guarantee is worthless, there is not going to be much if any new business for Fitch to rate. And as for getting back to "core expertise" (assuming Ambac has any which I highly doubt), I have to ask: What good is expertise when your business model is dead and you have no customers?

One final point: The equity markets have finally realized that Ambac and MBIA have a date with Zero but the ramifications of the inevitable downgrade of hundreds of municipal bond issues has certainly not been felt .... yet.

Comments

[Ishortyou]

In respect to Ambac and MBIA, they need to keep and save their cash they already have and any cash coming into their coffers, deleverage from annoying debts, obligations and risks, stop paying dividends to increase their book value and once their book value is adequate and sound reinstate their triple A ratings again to start writing down new public bonds insurance only in low risk areas of the market. This strategy in itself is the best advertisement to recruit new business because the new clients will precieve that " if these folks were able to survive the credit crisis then they can survive anything".

AMBAC and MBIA are already doing this strategy, so now its a matter of time for their book value to appreciate quarter by quarter to reinstate their triple A again, you dont have to be a rocket science to figure this out.

[vittello]

It amazes me that people still criticize ABK/MBIA at their current share prices. "Potential" losses have been overpriced into the stock. Not only have insiders been buying over the last few months, but institutions have been adding to their positions as well. It looks like a few of their smaller competitors are going out of business and the banks have certainly become weary of credit default swaps that cut into ABK's market share. Seeing as reduced tax bases in many municipalities will lower their credit worthiness, I think they will not only need to raise funds at the lowest rates possible, but will require the insurers high grade wrapper to get this done. Even at Aaa/AA, ABK is in better shape than most banks, municipalities and competitors. Ex-unrealized gains and losses, this stock has a book value around $30. At $2, this is one of the best opportunities I have ever seen in my last 20 years of investing. Jump all over it!!!

And, the way you short sellers make money-by disconnecting share prices from fundamentals based upon unrealized losses is anti-American. The real life pain you, the market makers and media inflict on undeserving quarry via the use of down-tick shorting, dark pool trading and fear mongering is absolutely criminal in intent and consequences. "Ganging up" on a share price to force it down to the point where people are losing their livelihoods so people like you can make an illegitimate profit does not illustrate investment savvy, it just displays the blunt ethics of a sadistic scumbag.

[fxtrader07]

@vitello: and there he is again allover the media: bill ackman with yet another, even gloomier prediction, i.e. wish, for abk and mbi. what annoyes me is that these guys get away with their selfish efforts to put the entire financial system at risk only to make money for themselves. I am certainly aware of the fatal mistakes made by mbi and abk when they took risks they should never have taken. But ackman and his buddies are now trying to trigger key-events that would unleash a financial storm of epic proportions. This is not about hammering the stock price anymore. this is about trying to affect the real underlying business by putting up ever more public pressure. It#s like pulling all strings available to ignite a run on a major bank - no matter how and no matter the consequences for society.
crooks are running many companies and ruin them. and crooks are running many hedgefunds and ruin companies with massive naked short selling, unscrupoulos continuous attacks and bashing.
the financial 'markets' finally start eating main street after 'just milking' them for decades

[zimmyzee]

Mish, you've been forecasting Deflation since at least 2004 and yet prices are skyrocketing. Your "analysis" has been completely botched. Why don't you try to figure out where you went wrong and why you should be believed at this point? Your credibility is nonexistent.

[notsosmart]

wow-people finnally figuring out the system is full of crooks,uneticals,know little or nothings who have been laughing all the way to the bank for a long time.nobody cared while things were great.in fact if you went against the tide you were accusedf being anti-american.

[Snuggles]

MBIA short interest is currently at 26%, 6 days to cover. That is high but certainly not enough to provoke a death-spiral for the company. All you guys blaming the shorts for the stock price action need to take a step back and look at the fundamentals for these companies. Fact is they got caught with their pants down insuring CDO / subprime toxic waste and now their continued survival is no longer guaranteed (short a bailout).
Go figure that this turn of events should materially effect their respective stock prices? Perhaps we should outlaw short selling to protect these "pillars of the economy" from failure?

[Ishortyou]

AMBAC and MBIA book values will speak for themselves, it will not matter if you are a short or long trader, the book value will dictate the trend to follow, so as long as they keep gradually deleveraging quarter by quarter and saving every penny they collect they will regain their triple A again.

[Malkiel]

Short-covering rallies have been a great source of wealth for shareholders during the bull market and they seem to go on in the bear market, so I say, short away. Investors have gotten used to the credit disaster, losing their AAA ratings doesn't look like the end of the world any more for these companies since everyone else in the sector is taking a hit, and I think these stocks are a good buy. The only possible negative here is whether bond issuers will trend toward going into the market uninsured and we'll see whether buyers care any more, but so far it's not happening...