Beazer Homes USA is delaying payments to subcontractors in Nashville as a way to weather one of recent history's most turbulent housing declines.
The Observer obtained a letter dated Nov. 5 and signed by Beazer's Nashville division President David Hughes, who said, "It is unfortunate, but we cannot continue the prompt payments you have received in past years."
The letter is addressed to Beazer "trade partners."
I was talking to some subcontractors in Florida a few weeks ago who had been doing quite a bit of work for Beazer until the market tanked. They happened to comment that all of the builders had pushed their pay cycles out but that Beazer had gotten overly zealous with it when they did it. Most immediately thought it was a cash crunch given Beazers problems and actually saw this maneuver as a good thing because it forced them to go find work in other areas instead of continuing to follow Beazer until it fell apart.
They are not delaying payment they are going to screw the subs and file for bankrupsy then change the name and do it all over again this is the cycle of the builders, sell and screw buy and screw build and screw,, go on nice vacations change name and screw some more.
Kimball Hill just did this a couple of weeks ago. Stopped paying subs for few months banked $50 million, filed BK and started over saying they were in a great position with all this cash. I hope the BK judge throws them out and forces Chapter 7.
Knowing a subcontractor who has received this letter (Northern Virginia) and actually read it- it does in fact state that this is arrears. Not to be simplistic here people, but if they are not paying subs in arrears than that means those subs have expenses that are already out the door, this will kill the small companies, which Beazer uses a lot of.
Most subs have no problems with 45 day pay, especially in this market, they WILL have a problem with not getting paid for work that has been already completed under a quick pay contract. Don't be surprised if you here of subs walking off Beazer jobs
Why is this a big deal? Before I got laid off at one of BZH's competitors in Cincinnati, I sent out a letter saying that if subs wanted 7 day terms they had to offer a 2% discount in return. 30 day terms are not unusual or out of line with industry standards.
If they were going to 45 or 90 day terms it would be of more concern.
I bet it won't be good whatever happens. For anyone smart enough to know what this is, it is looking the shorts are about to be rewarded soon enough.
That chart coupled with the move to stop paying contractors is a desperate move made during desperate times. Danger is near.