Cash-Strapped Home Builder
Works to Avoid Going Under

Could Levitt Corp. be one of the first casualties among builders from the housing bust? The answer will partly depend on the success of the company's rights offering, which is under way.

Levitt, of Fort Lauderdale, Fla., played an important role in the history of the nation's home-building industry and was among the first companies to produce suburban tract developments. The company has been ailing for years because of management missteps.

Now Levitt's future seems uncertain as it rushes to raise cash. Last month, the company reported a loss of $58.1 million, or $2.93 a share, in the second quarter, and analysts don't expect a profit anytime soon. While stock prices of all home builders have fallen sharply in the past year, Levitt's stock has been hit harder than others and has plummeted more than 80%, the weakest performance among the 37 companies in the Dow Jones U.S. home-construction stocks index. Levitt's shares were down 11 cents to $2.23 yesterday in 4 p.m. composite trading on the New York Stock Exchange.

A rescue by the company's controlling shareholder, BFC Financial Corp., would have strengthened the company's finances but was dashed last month when BFC abandoned its acquisition plan. Theodore Kovaleff, a senior bank and thrift analyst at Sky Capital LLC in New York who owns shares in Levitt and BFC, said the deal may have fallen through because some BFC shareholders were scared off by Levitt's plummeting stock price and worried that BFC would be dragged down if it acquired Levitt. When the deal was announced in January, it valued Levitt at $14.41 a share, then a 32% premium.

Alan Levan, chairman and chief executive of both BFC Financial and Levitt Corp., couldn't be reached to comment. But Levitt now has a new plan to raise cash. The company is offering to sell investment notes, offering as much as 9.15% of interest for 48 months -- though the rates could change without notice, the company points out.

In addition, it also offered shareholders as of Aug. 27 a rights offering of as many as 100 million shares priced at $2 apiece, a modest discount to the current $2.23 price. The strategy -- designed to reward those willing to increase their stakes and potentially dilutive to those who don't -- is uncommon and used "when other ways of raising capital are having trouble or don't make sense," said Jim Wilson, a JMP Securities analyst who covers BFC Financial, which will likely participate in the offering. With the stock price falling rapidly, shares could dip below $2 before the Oct. 1 deadline. If that happens, "a buyer could question participation," Mr. Wilson said, though he still thinks the offering will happen.

Mr. Kovaleff believes most Levitt shareholders will participate in the offering. At a BFC investors meeting in New York last week, he said he spoke to a number of Levitt shareholders who plan to exercise this option. Mr. Kovaleff says he will also do so to protect "my ongoing percentage interest in the company."

The latest turn of events is a sharp contrast to the company's early days, when then-Levitt and Sons borrowed assembly-line techniques to build houses east of Manhattan. It limited the selection to just a few models to keep production costs low. Each house sat on concrete slabs instead of above basements. Dozens popped out of fields each day.

At first, the houses were rented, though they were later sold for just a few thousand dollars each. War veterans, looking for a place to raise their growing families, snapped up the 17,000-plus homes. A similar project followed near Philadelphia.

The original Levitt reportedly said it was the first builder to achieve $100 million in sales. In the late 1960s, it was sold to International Telephone & Telegraph for $92 million. Different owners followed, including Starrett Housing Corp. and BankAtlantic Bancorp, which spun it off in 2004. (BFC Financial controls 23% of BankAtlantic and 55% of its vote.)

Today the famous Levitt moniker is used to draw Levitt's original tenants and their children, the baby boomers, south, primarily to Florida. "They would be familiar with the Levitt name, have a positive feeling about it," said Mr. Wilson, with JMP Securities. "It's of marketing value."

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