Aug. 4 (Bloomberg) -- WCI Communities Inc., the homebuilder whose chairman is billionaire investor Carl Icahn, filed for Chapter 11 bankruptcy protection after failing to obtain new financing and losing 90 percent of its value in the past year.

``Like in all distressed industries, there is a cycle, much like in the casino and energy companies of seven or eight years ago,'' Icahn said in a telephone interview. ``In housing, there is still a bumpy road ahead.''

Chief Executive Officer Jerry Starkey will leave and Chief Operating Officer David Fry, 48, will take over as interim CEO, Bonita Springs, Florida-based WCI said in a statement today. WCI is in talks to receive $100 million in debtor-in-possession financing from several lenders, the statement said.

WCI, which began developing master-planned communities in 1946, joins at least a dozen homebuilders that have sought bankruptcy protection since June 2007 as the worst housing slump since the Great Depression has battered sales. Existing home sales in Florida, WCI's biggest market, fell 5 percent in June to 11,700 and the median price tumbled 16 percent to $205,500, the Florida Association of Realtors said on July 24.

``The banks have been saying since December, `Pay us,''' said Vicki Bryan, senior high yield analyst at Gimme Credit, who first urged WCI to accept Icahn's $22-a-share buyout offer in June of 2007. ``They were trying to reduce their exposure as fast as they could.''

`Failed Effort'

In the company's statement, Icahn said the builder tried ``with all diligence'' to avoid a bankruptcy.

``The filing became necessary because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default,'' he said in the statement.

Entities controlled by Icahn own about 6.1 million shares, or 15 percent of WCI, making him the largest shareholder, Bloomberg data show. WCI fell as much as 58 percent in early trading in New York. The shares last traded at 66 cents before the filing was announced. Later in the day the New York Stock Exchange suspended trading.

New York-based ratings companies Moody's Investor Service Inc. and Standard & Poor's Ratings Services lowered the builder's rating to ``D'' for in default.

Icahn's Stake

Icahn paid an average $18.46 a share, or about $112.6 million, for his stake in WCI, which is worth about $4 million at today's share price of 66 cents, bringing his loss to $108.5 million. WCI's shares traded at a high of $35.63 on Feb. 25, 2005.

Icahn's biggest loss has been on Schaumberg, Illinois-based Motorola Inc., the telephone and communications company. He paid $13 a share, or about $2.3 billion for a 7.6 percent stake in it in May, an investment worth $1.5 billion based on yesterday's closing share price of $8.81.

Icahn built his reputation in the 1980s as a corporate raider, targeting companies such as Texaco Inc. and Trans World Airlines Inc. He forced Time Warner Inc., the world's largest media company, to buy back more stock, add new directors and pledge to cut costs by $1 billion over two years.

Last year, he waged a campaign to win a seat on the Motorola board. He's also chairman of experimental cancer drugmaker ImClone Systems Inc., which is battling a $4.3 billion buyout offer by Bristol-Myers Squibb Co. Icahn and ImClone's board said the takeover proposal is too low.

Yahoo Inc., owner of the second-most used Internet search engine, agreed to expand its board to 11 members and make room for two of Icahn's nominees after settling a proxy fight with him in July.

Board Seats

Icahn first disclosed an almost 15 percent stake in WCI in January 2007, and a month later said he wanted to oust the company's board. In March 2007, he made a $22 a share offer for WCI worth $956 million, which was rejected by the board as inadequate.

Icahn and two allies won seats on WCI's board in August 2007 and he was elected chairman a month later. Soon after, the company dropped plans to seek a buyer.

WCI has posted a net loss for seven straight quarters and in 2007 lost more than $570 million. The company's shares traded as high as $35 in June 2005, as the U.S. housing market was peaking. As of Aug. 1, it had a market value of $27.8 million.

WCI's 9-1/8 percent bond maturing in May 2012 was trading at 32 cents on the dollar today. The Standard & Poor's Supercomposite Homebuilding Index has declined 39 percent during the past 12 months.

Lender Deal

In today's statement, Icahn said some holders of the company's $125 million convertible notes rejected its exchange offer and insisted on being paid in cash in full on Aug. 5.

``I'm sure all weekend they were sitting over rubber chicken and fruit cups trying to get somebody to agree'' to refinance the company's debt, said Bryan at Gimme Credit. ``The banks had no reason to take this one step further.''

Before the filing, WCI reached an agreement with its principal secured lenders to give the company access to more than $50 million of cash to continue operating. It is seeking court permission to use the cash. The developer said it will continue to sell, build and deliver homes.

The homebuilder is seeking court permission to continue building and selling homes. WCI said it is party to more than 255 contracts to design, build and sell residential real estate and other real property.

Contracts

WCI said it has collected about $51.7 million in deposits related to pre-bankruptcy contracts that have not yet closed and about $17.6 million remains in escrow. The homebuilder seeks permission to apply those customer deposits at closing.

It's also seeking authority to return deposits in the event it is obligated to do so under the terms of a contract. WCI says it may owe about $1.8 million of deposits that need to be returned to buyers. A deposit may be returned due to a breach or termination of a contact by the homebuilder or if a buyer is unable to obtain financing.

``The continuation of the debtors' core business -- the design, construction and sale of homes and residences and the sale of other property -- is critical to their efforts to reorganize,'' Ernest Scheidemann, WCI's chief financial officer, said in court papers.

Without the authority to return deposits when required, ``the debtors' reputation in the marketplace will be damaged such that the debtors will be unable to generate sufficient funds,'' Scheidemann said.

Once Best

WCI, named America's Best Builder in 2004 by the National Association of Home Builders and Builder Magazine, has properties in Florida, Connecticut, Maryland, New Jersey, New York and Virginia. Homes range in price from the high-$100,000s to more than $10 million.

The company listed debt of $1.9 billion and assets of $2.2 billion as of June 30 in Chapter 11 papers filed today in U.S. Bankruptcy Court in Wilmington, Delaware.

By debt, the company is the second-largest to file for bankruptcy. Tousa Inc., based in Hollywood, Florida, was the largest, filing Jan. 29 with debt of $2.24 billion. Kimball Hill Inc., Levitt & Sons LLC, Kara Homes Inc. and Neumann Homes Inc. also pursued protection from creditors.

WCI is the second-largest homebuilder by debt and assets to seek bankruptcy protection. About 130 WCI units also filed for bankruptcy, including Mansion Ridge Sewer Co. and Florida Lifestyle Management Co.

The case is WCI Communities Inc., 08-11643, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware, at dmmcarty@bloomberg.net; Sharon L. Lynch in New York at sllynch@bloomberg.net.

Last Updated: August 4, 2008 16:58 EDT