WCI Communities lives to fight another day

WCI Communities (NYSE: WCI), a Florida condo developer struggling to stay afloat, has managed to get through another round of negotiations with lenders without bankruptcy. The company reduced (subscription required) the amount of its credit line and agreed to "increase the pricing of the loans," but few details are available for now.

Billionaire investor Carl Icahn, who owns about 14% of the company, certainly wasn't predicting this mess when he began to acquire shares in the company more than a year ago. The WCI stake has given the legend's hedge funds their first quarterly loss in history.

But WCI Communities impacts the entire industry, not just Mr. Icahn. Yesterday's Wall Street Journal described (subscription required) the shock waves that a bankruptcy would have sent through the housing market: "If WCI is forced to seek bankruptcy protection, it would become the largest publicly traded builder to fail, sending shudders through an industry that has remained largely in the good graces of its lenders."

But with the housing market in trouble, banks simply don't want to take ownership of half-built condos and vacant land. They'd rather play nice rather than risk jolting a housing market that is already more fragile than it's been at any time in recent memory.