Clock ticking as WCI Communities' debt comes due

Time is running out for WCI Communities Inc WCI.N to raise new capital or restructure its debt, or sink into bankruptcy, after holders of its convertible notes last week told the company they would exercise their option to be repaid.

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Cross default mechanisms in WCI's debt means that if the builder fails to pay its convertible notes then all of its debt becomes due. S&P added that "in a recent call with investors, WCI's management acknowledged that the company has retained an advisor to assist in the possible restructuring of the convertible notes."

WCI had only $48.5 million in cash and cash equivalents as of March 31. A WCI spokesman did not immediately return a call for comment.

Analysts say that it's in the best interests of equity and debt holders to keep the company out of bankruptcy, as the cost of a bankruptcy filing would further deplete the assets backing its obligations.

Carl Icahn, who is Chairman of WCI and owns a 15 percent stake in the builder, is also expected to agitate to keep the company viable.

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One complication to negotiations may be that the convertible notes are being actively traded by hedge funds with only a short-term horizon, meaning different people turn up to the negotiating table each time, said Bryan.