KB Home to Pay Lenders Up to $225 Million to Settle South Edge Claims

KB Home (KBH) agreed to pay lenders as much as $225 million to settle claims for its share of the bankrupt South Edge community near Las Vegas, more than previously announced, the builder said today.

The company, which specializes in houses for first-time buyers, previously estimated a $211.8 million obligation while awaiting a court settlement, according to an April 11 regulatory filing. JPMorgan Chase Bank NA and two other lenders filed an involuntary Chapter 11 bankruptcy on the property, which was upheld on appeal in April.

KB Home said in a filing today that its total obligation would be from $216 million to $240 million, including legal fees and other costs. The Los Angeles-based builder had $735.8 million in cash on hand as of Feb. 28. It has reported losses totaling $1.88 billion over the last five years, with only five quarters of profits during the period, Bloomberg data show.

“We believe that the resolution of this matter is a positive, and we expect that it will provide a short-term relief for the stock,” Megan McGrath, an analyst with MKM Partners LLC in Stamford, Connecticut, wrote today in a note to investors. “However, several other issues with KBH continue to put us on the sidelines with the name.” McGrath has a “neutral” rating on the shares.

KB Home rose 21 cents to $11.15 as of 4:15 p.m. in New York Stock Exchange composite trading. Its shares have lost 17 percent this year, compared with a 5.2 percent decline for the 12-member Standard & Poor’s Supercomposite Homebuilding Index.

‘Fully Discounted’

The settlement, which is subject to bankruptcy court approval, “represents a resolution to an issue that has been fully discounted by the company’s current stock price,” Michael Rehaut and Jason Marcus, analysts with JPMorgan Chase & Co. (JPM) in New York, wrote in a note to investors today. They have an “overweight” rating on the shares.

KB Home owned 48.5 percent of the 1,950-acre (789-hectare) community, also known as Inspirada, in Henderson, south of Las Vegas, which fell into default in 2008 after the housing market collapsed.

Las Vegas home prices have fallen 59 percent since peaking in August 2006, more than any other area in the S&P/Case-Shiller index of values in 20 U.S. cities. Las Vegas also leads the country in foreclosures for cities with a population of more than 200,000, according to RealtyTrac Inc., and has the highest rate of “underwater” homes, in which the outstanding mortgage is larger than the value of the house, Zillow Inc. said.

Cash Settlement

Toll Brothers Inc. (TOL), the nation’s largest luxury homebuilder, which owned 10.5 percent of Inspirada, reached a cash settlement of undisclosed size with lenders.

“The company believes it had made adequate provision in prior reporting periods,” the Horsham, Pennsylvania-based company said today in a filing. Toll Brothers wrote down $29.6 million for joint ventures during its two most recent quarters, according to a June 7 filing.

Beazer Homes USA Inc. (BZH) estimated it owes Inspirada’s lenders from $15.7 million to $17 million, the Atlanta-based homebuilder said today in a filing. Meritage Homes Corp. (MTH), based in Scottsdale, Arizona, said it owed $13.2 million under the bankruptcy settlement.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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