UPDATE 1-Champion Enterprises says in talks for recapitalization

* In discussions with third party for capital investment

* Says was not in compliance with financial covenants

* Posts Q2 loss $0.17/shr vs EPS $0.04 yr ago

* Shares up 11 pct after the bell

Aug 13 (Reuters) - Champion Enterprises Inc CHB.N said it was not in compliance with its financial covenants and was in active discussions with a third party that has expressed interest in making an investment in the company.

The maker of factory-built homes, which has obtained a 30-day waiver, said it was working with its lenders for a permanent solution in connection with or as an alternative to this potential recapitalization.

The company has been hit by the prolonged downturn in the housing industry and has cut jobs and closed facilities to save costs.

Champion Enterprises posted a second-quarter loss of $13.3 million, or 17 cents a share, compared with a net income of $3.4 million, or 4 cents a share, a year ago.

Revenue fell 55 percent to $129.5 million.

Cash, cash equivalents and short-term investments totaled $26.5 million as of July 4, the company said.

Champion Enterprises shares, which have fallen about 86 percent in the last 12 months, were up 11 percent at 63 cents in trading after the bell. They closed at 57 cents Thursday on the New York Stock Exchange. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Deepak Kannan)