Homebuilders - who'll be the first to go?

As the US Housing market slumps further homebuilders continue to do it tough. The only thing missing from the scenario so far is a major player going belly-up. The last 24 hours have thrust a couple of candidates to the fore for that honor:

Fitch Rates Standard Debt As "Junk"
Monday September 24, 6:00 pm ET Fitch Issues "B" Rating for Standard Pacific Debt Offering Amid Challenging Housing Market

NEW YORK (AP) -- Fitch Ratings assigned a "junk" rating to homebuilder Standard Pacific Corp.'s proposed $100 million convertible debt offering.

The ratings agency assigned a "B" rating, which means the debt is speculative and subject to very high credit risk. The non-investment grade rating also means Standard Pacific will have less favorable borrowing terms than if the debt received an investment grade rating.

Fitch also noted its "Negative" outlook for the company, due to "a more challenging outlook for homebuilders during the balance of calendar 2007 ... and probable future weakening in the housing market in 2008."

In aftermarket trading shares of Standard Pacific shares fell 1 cent to $7.04, after falling $1.05, or 13 percent, during Monday's trading session.

On the positive side at least Standard Pacific was able to get funding. However, will it be enough to sustain them through what could be a very prolonged housing downturn or are they just putting off the inevitable? The company also announced that they will eliminate the quarterly cash dividend. Desperate times call for desperate measures. In other news just out today:

Lennar posts big quarterly loss on write-offs, adjustments

WASHINGTON (MarketWatch) -- Lennar Corp. (LEN) reported a net loss of $513.9 million, or $3.25 a share, for the third quarter ended Aug. 31, a reversal from the prior year's net earnings of $206.7 million, or $1.30 a share.

The Miami-based home builder's quarterly revenue plunged to $2.34 billion from $4.18 billion in the third quarter of fiscal 2006. Analysts, on average, had been looking for revenue of $2.39 billion, according to estimates compiled by Thomson Financial.

Valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and financial-services notes receivable totaled $856.8 million in the latest quarter, equating to $3.33 a share, Lennar said.

On an adjusted basis, gross margins on home sales narrowed to 14.0% from 19.5%, primarily reflecting higher incentives. Home deliveries dropped 41% in the latest quarter, with the average sales price of homes delivered off 6%.

CEO Stuart Miller said Lennar's cut the size of its work force by 35% and expects to make further reductions during the fourth quarter

In short, very ugly stuff, the company will probably cut back half it's workforce before it's done. Considering that housing is going to get worse before it gets better how long can these guys weather the storm? I'm convinced we'll see a major homebuilder go under before the storm passes.

Homebuilders have been doing it tough and they are going to do it tougher. With Existing Home Sales and home prices today. New Home Sales and a shocker earnings report expected on Thursday from KB home (KBH) it's shaping up as a nasty week for homebuilders.