BEAZER HOME

Aug. 22 (Bloomberg) -- Beazer Homes USA Inc., the Atlanta- based builder that specializes in homes for first-time buyers, asked a federal court to block its bondholders from declaring the company in default on $1.3 billion in debt.
Beazer sued U.S. Bank N.A., the bondholders' trustee, asking an Atlanta judge to prevent it from trying to accelerate debt repayment after the homebuilder announced this month that it had delayed filing a quarterly report with the U.S. Securities and Exchange Commission.
``The motivation for this effort is clear: many of the noteholders, including various hedge funds and other opportunistic investors, have purchased Beazer's bonds at depressed prices in the market and are now improperly seeking to secure a windfall by demanding accelerated repayment in full,'' Beazer said in its complaint, a copy of which was filed yesterday with the SEC.
Beazer told the regulator Aug. 15 that it could not meet a demand to accelerate the debt and may not be able to refinance. In its complaint, the company said the possibility bondholders will declare a default is threatening its share price and access to credit.
Steve Dale, a spokesman for U.S. Bank's Minneapolis-based parent U.S. Bancorp, didn't immediately return a voicemail message before business hours today.
In the complaint, Beazer said uncertainty about the bondholder claim caused Moody's Investors Service and Standard & Poors to put its credit ratings under review for a possible downgrade. Fitch Ratings downgraded Beazer's debt this month.
FBI Probe
The FBI is investigating Beazer for potential fraud after the Charlotte Observer newspaper reported the company sold homes to low-income buyers who couldn't afford them, financing the purchases with mortgages based on expectations the borrowers' incomes would rise. Beazer said last month that the SEC had started a formal investigation.
Beazer announced an internal investigation this month to determine whether the company's former chief accounting officer improperly recorded reserves and accrued liabilities.
On Aug. 1, Beazer shares had their biggest ever decline, falling as much as 42 percent, on speculation the company may file for bankruptcy. Beazer said the rumors were ``unfounded.''
The case is Beazer Homes USA Inc. v. U.S. Bank National Association, U.S. District Court, Northern District of Georgia (Atlanta).








OK, so whats the play? These hedge funds swoop in and buy the senior bonds on the cheap. Then they cry default and force BZH to pay the bonds back in full. A quick and dirty profit right? But wait, bond holders many times short the stock as a hedge. So lets say they succeed in getting payment on the bonds, the outlay of cash can cause further defaults down the bond food chain or even better - drive them into Bankruptcy!!! It's senior debt so it gets dibs on the assets to repay the bond (that they already purchased cheaply) and a score on the short stock. In fact, BZH may voluntarily go into bankruptcy just for the opportunity to renegotiate with creditors. Worst case, BZH survives and continues to make interest payments on time and you get a capital gain on the cheap bonds....