Struggling home builders find unexpected saviors

By Chelsea Emery - Analysis

NEW YORK (Reuters) - The precipitous slide in home values and a glut of unsold properties are pushing U.S. home builders to the brink of insolvency, but a posse of unexpected saviors could help keep the companies out of bankruptcy court until home buyers return.

Hedge funds, private investors and even larger cash-flush home builders are eyeing valuable swathes of land held by troubled companies, according to bankruptcy attorneys and restructuring specialists. As long as private firms have the cash to keep a struggling home builder running, they think they can profit when the real estate market picks up again.

"I don't think we'll see as many free-fall bankruptcies as in past crises, due to the presence of distress investors willing to take control, restructure and work with undervalued companies," said Corinne Ball, a partner at law firm Jones Day and co-head of the firm's New York restructuring and reorganization practice.

Restructuring specialists Alvarez & Marsal recently formed a group focused on home builders and their constituents and company directors say their focus is on helping companies find alternatives to bankruptcy. The group has received a slew of calls from hedge funds and other investors, who believe there is value in companies battered by the current housing crunch.

Troubled home builder Standard Pacific Corp (SPF.N: Quote, Profile, Research, Stock Buzz), which builds homes in Florida, California and other major metropolitan areas, may be catching the eye of hedge funds. Hedge fund Tiger Global Management LLC has taken a 3.55 million share stake in the company, making it the fifth-largest institutional shareholder, according to Reuters. The firm declined to confirm the data or comment further.

Hedge funds are finding they can offer operating cash or long-term equity financing to distressed companies.

"If there's a home builder who has a project that is partially built, with the infrastructure and amenities in and homes in construction ... if you can get the price low enough, a hedge fund might be interested," said Harvey Miller, a senior partner at law firm Weil, Gotshal & Manges LLP.

And some larger home builders with cash to spare can snap up land at fire sale prices, a deal that can offer a lifeline to a smaller peer.