Fitch Comment on Standard Pacific's Pending Recapitalization

On May 27, 2008, Standard Pacific Corp. (NYSE:SPF) announced that it had entered into a definitive agreement with MatlinPatterson Global Advisers LLC (MatlinPatterson), on behalf of its affiliated funds, under which MatlinPatterson committed to invest in aggregate more than $530 million in equity in Standard Pacific.

MatlinPatterson will purchase $381 million of a new series of senior convertible preferred stock representing 125 million shares of common stock with a conversion price of $3.05 per share, or 37% over the closing price of Standard Pacific's stock on May 23, 2008. Additionally, MatlinPatterson will also exchange $128.5 million of senior and subordinated debt for warrants to acquire preferred stock representing 89.4 million shares of common stock at an exercise price of $4.10 per share. The debt being exchanged, which represents approximately 10% of the company's outstanding bonds, is as follows:

--$24.45 million of 5.125% senior notes due April 1, 2009;

--$2.0 million of 6.5% senior notes due Aug. 15, 2010;

--$21.55 million of 6.0% convertible senior subordinated notes due April 15, 2012;

--$79.496 million of 9.125% senior subordinated notes due Oct. 1, 2012.

Following these transactions, Standard Pacific will also commence a $152.5 million ($3.05 per share) transferable rights offering for 50 million common shares, in which stock holders of record will be eligible to participate on a pro-rata ownership basis. MatlinPatterson has also agreed to purchase any unsubscribed shares in the rights offering.

The investment agreement is subject to the completion of a satisfactory amendment to the company's bank credit facility. Standard Pacific is currently under negotiations with its bank group regarding modifications to its credit agreements. At the end of the first quarter, Standard Pacific was not in compliance with the consolidated tangible net worth and leverage covenants contained in its bank credit agreements. The company sought and received a waiver from March 2008 to mid-May and then received an extension of the waiver to Aug. 14, 2008 and expanded the scope of the proposed amendments. The pending equity transactions should benefit the company as it negotiates the amendments to its bank credit facilities.

The infusion of $533.5 million of new equity enhances the company's liquidity position and provides financial flexibility to meet upcoming debt maturities and to fund potential joint venture (JV) remargining contributions as well as targeted termination of certain JV partnerships. Standard Pacific has $103 million (as of March 31, 2008) of senior notes coming due on Oct. 1, 2008 and $124.55 million of senior notes maturing on April 1, 2009 (assuming the exchange of $24.45 million of the 2009 notes for equity). The company's next bond maturity is on Aug. 15, 2010 when $173 million of notes becomes due (assuming the exchange of $2 million of the 2010 notes for equity).

On a pro forma basis and assuming that the company receives $500 million of net proceeds from the capital infusion and with a cash balance at the end of the first quarter of $328.8 million, Standard Pacific would have approximately $600 million of cash after the required debt repayments in 2008 and 2009, exclusive of any cash flow generated during the second half of the year. While the company has not provided guidance as to the specific use of the cash proceeds from the new capital, Fitch expects some of the proceeds to be used for additional debt reduction (beyond the upcoming debt maturities). Standard Pacific currently has $415 million of bank debt comprised of $90 million outstanding under its revolving credit facility, $100 million term loan A maturing in May 2011 and $225 million of term loan B coming due on May 2013.

In addition to upcoming debt maturities, potential cash uses include re-margining contributions to unconsolidated joint ventures and termination of certain JV partnerships. Standard Pacific and its JV partners generally provide credit enhancements in connection with JV borrowings in the form of loan-to-value maintenance agreements. During the three months ended March 31, 2008, Standard Pacific made one loan remargin payment in the amount of $15.7 million. At March 31, 2008, approximately $352.2 million of its unconsolidated JV borrowings were subject to these credit enhancements. Standard Pacific is solely responsible for $69.3 million and the company is jointly and severally responsible (with its JV partners) for $282.9 million of debt.

Under the provision of its most restrictive bond indenture, Standard Pacific is currently prohibited from making restricted payments, which include investments in JVs. However, investments in JVs (and other restricted payments) may continue to be made from funds held in its unrestricted subsidiaries. Based on current estimated funding requirements and assuming that the company is successful in unwinding the JVs that have been targeted for termination and in extending certain JV maturities, the company believes that the funds in its unrestricted subsidiaries are sufficient to fund its JV obligations for the foreseeable future.

Subsequent to March 31, 2008, the company purchased and/or unwound two JVs with total assets and debt as of March 31, 2008 totaling approximately $282.6 million and $103.4 million, respectively. Management also said that it is targeting the unwind of three other JVs. Since these unwindings are essentially acquisition of JV assets, they are not considered restricted payments and are not prohibited under the bond indentures.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Contacts:

Fitch Ratings
Robert Curran, 212-908-0515 (New York)
Robert Rulla, 312-606-2311 (Chicago)
Brian Bertsch, 212-908-0549 (Media Relations, New York)

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