Beazer Homes USA Inc., the builder that's piled up $1.8 billionof losses since the collapse of the U.S. housing market, is buyingtime until the U.S. economy recovers by replenishing its capitalwith stock and bond sales.

Beazer sold $300 million of secured debt, raised about $160million selling stock and hybrid securities and said it would buyback $250 million of bonds last week. The Atlanta-based company's$300 million of 9.125 percent notes due June 2018 have returned 19percent in the past six weeks and now trade at more than 97 centson the dollar, according to data compiled by Bloomberg.

The fundraising bolsters Beazer's prospects by giving it cash tobuy land amid signs that housing is bottoming even though it hasn'tgenerated enough money to cover its interest expenses for fiveyears. The deals last week will save about $10 million in interest,while adding to Beazer's cash supply, said Stefan Lingmerth, ananalyst at Phoenix Investment Adviser LLC in New York.

“They're doing the right things, cutting the interest and themargins are going up every quarter,” said Lingmerth, whose firm hasabout $500 million of high-yield assets under management and hasinvested in Beazer's bonds and stock. “If you get more priceincreases, these guys could be profitable sooner rather thanlater.”

Beazer, which builds in developments such as Surprise Farms inSurprise, Arizona, sold 3,249 houses in the 2011 fiscal year thatended Sept. 30 for an average price of about $220,000, it said in aNov. 15 regulatory filing. It's been losing money since 2006, asthe decline in U.S. housing prices made it difficult to sell newhomes and forced it to write down the value of its holdings.

Jeffrey Hoza, Beazer's treasurer, declined to comment on thecompany's financial situation.

Beazer may make money before interest, taxes, depreciation andamortization this year, Allan Merrill, its chief executive officer,said on a conference call in May. It would be the first time since2007, Bloomberg data show.

“Like all the public homebuilders, they survived this by beingable to sell homes at a lower price,” Lingmerth said. “They've cuta lot of costs.”

U.S. homebuilders may have enjoyed a fifth consecutive quarterof growth based on results from Lennar Corp. and KB Home in theMarch-June period, according to Bloomberg Industries. Purchases ofU.S. new homes have begun to rebound as low mortgage rates helpattract buyers amid a limited supply of existing properties.

Confidence Grows

Confidence among U.S. homebuilders increased in July by the mostin almost a decade. The National Association of Home Builders/WellsFargo confidence index climbed 6 points to 35 this month, thehighest level since March 2007, a report from the Washington-basedgroup showed today. The gauge exceeded the most-optimisticprojection in a Bloomberg News survey of 46 economists.

Beazer's 9.125 percent notes, which traded for 82 cents on thedollar on June 1 and as low as 56 cents in October, climbed to 97.3cents yesterday, according to Trace, the bond-price reportingsystem of the Financial Industry Regulatory Authority.

Credit default swaps on the company fell to 8 percent upfrontyesterday, according to data provider CMA, which is owned byMcGraw-Hill Cos. and compiles prices quoted by dealers in theprivately negotiated market. That means it would cost $800,000initially plus $500,000 a year to insure against losses on $10billion of bonds for five years. The contracts cost as much as 72percent upfront in March 2009, implying 98 percent odds the companywould go bankrupt.

Beazer expanded through a series of acquisitions after itsspinoff from Hanson Plc in 1994. To finance its push across theU.S., Beazer borrowed, increasing its long-term debt to $1.84billion in 2006 from $395 million in 2001, according to datacompiled by Bloomberg. Debt was $1.43 billion as of March 31.

As the housing market froze, sales dropped to 12,020 in 2007,then 6,697 the next year, down from about 18,000 in the 2006 fiscalyear, Bloomberg data show. Beazer posted a net loss of $411.1million in 2007 and hasn't profited over a full fiscal year since,the data show.

Beazer promoted Merrill, a former UBS AG investment banker whoadvised on its initial public offering, to CEO last year. Hereplaced Ian McCarthy, who last year agreed to return $6.5 millionto the company after the U.S. Securities and Exchange Commissionsaid the company committed accounting fraud during his tenure.Beazer settled with the SEC in 2008 without admitting or denyingwrongdoing.

'Overriding Objective'

Merrill said on the May conference call that returning toprofitability was his “overriding objective” and that he's tryingto earn more by selling more houses, increasing margins, holdingdown fixed costs and cutting interest expenses.

“He's done a very, very good job,” Susan Berliner, a bondanalyst at JPMorgan Chase & Co., said in a telephone interview.“They're very focused on getting profitable which we think willhappen down the road.”

While Beazer's bonds are approaching par, the company's stockhas dropped to $2.82 at 10:50 a.m. in New York from a peak of$82.03 in 2006, cutting its market value to $347.2 million,according to data compiled by Bloomberg.

Beazer's depressed shares have attracted investment from hedgefunds. Brigade Capital Management LLC and John Paulson's Paulson& Co. each own about 2 percent of the company, Caspian CapitalLP has a 1.5 percent stake, and Boaz Weinstein's Saba CapitalManagement LP owns about 1 percent, Bloomberg data show.

GSO Capital Partners LP, the credit arm of Blackstone Group LP,also owns about 1 percent. The stock is an “option on a recovery inhousing,” according to Darren Richman, a partner at the firm in NewYork.

“There's a bifurcation between how the debt and equity marketsare viewing the homebuilders,” Richman said in a telephoneinterview. “It's a very easy bet to make that Beazer will besolvent for an extended period of time.”

After raising about $60 million in the stock market and selling$100 million of hybrid securities, Beazer issued $300 million of6.625 percent second-lien notes on July 11. The offering size wasincreased from $275 million.

Beazer said the money will be used to redeem the $250 million of12 percent notes that it sold in 2009. Blackstone's GSO stands tobenefit from the refinancing. It helped backstop the 2009 offering,which was issued at 89 cents on the dollar, Richman said.

'Few Friends'

“The company had very few friends on Wall Street,” Richman said.“It caught the market by surprise that somebody would be willing togive them money.”

Beazer also said last week that it plans to buy about $100million of land in Florida, California, Texas, North Carolina andArizona.

Home prices are 25 percent below the May 2007 peak, and valuesin more than half of major U.S. markets will probably reach abottom by December, Zillow Inc. said in April.

“Homebuilders need to have sufficient inventory as demandincreases otherwise they won't be able to maximize their sales,”Brian Bogart, an analyst at KDP Investment Advisors Inc. ofMontpelier, Vermont, said in a telephone interview. “The equityissuance gives them more flexibility to meet rising demand withouthaving to increase their debt.”

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