Billionaire investor Carl Icahn has received his second blow in three days. Immediately after investors reposed confidence in his bete noir Yahoo CEO Jerry Yang, (See: Yahoo board wins vote of confidence) notwithstanding the recent bonhomie between the two, his homebuilding company WCI Communities became the latest casualty of the housing market crisis yesterday, filing for Chapter 11 bankruptcy protection after it failed to get additional financing in the face of massive losses.

Icahn, chairman of WCI's board, said the filing, which excludes Prudential Florida WCI Realty and the WCI Mortgage business, was necessary, in spite of several efforts to prevent such an occurrence.

"The company, with all diligence, has attempted to avoid a bankruptcy filing. However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default. This was confirmed when certain holders of the company's $125 million convertible notes informed the company that they rejected its exchange offer and instead insisted on being paid in cash in full on August 5, 2008,'' he said.

The company also dismissed CEO Jerry L Starkey and replaced him on an interim basis with David L Fry. Starkey, who had been at the helm of company affairs since 2005, agreed upon a severance package with WCI. Fry had joined WCI in 1995 and was appointed as chief operating officer in November 2007. In addition to his new responsibilities, he will continue to be responsible for WCI's operations nationwide.

WCI and about 130 of its subsidiaries filed petitions to restructure their debt and capital. Companies that file for protection under Chapter 11 of the US Bankruptcy Code seek a court order to prevent creditors from immediately seizing the company's assets.

WCI was founded in 1946 as Coral Ridge Properties which evolved into a division of the old Westinghouse Electric Corp. In 2002, WCI Communities, Inc. issued an initial public offering and became a publicly-traded company on the New York Stock Exchange, trading under the symbol: WCI.

WCI Communities builds retirement homes and "lifestyle communities" in Florida, mostly for retirees and wealthy vacationers from the New York and the Washington, DC areas.

WCI already had received multiple loan extensions from two banks - Bank of America Corp. and KeyCorp's Keybank - as it sought flexibility to pay the interest on its debt. The banks agreed in January to new terms on WCI loans and credit that were set to expire next June.

Icahn was named chairman last September after he attempted to take over the board and force the sale of the company. He said he viewed WCI as "a unique vehicle to take advantage of the current market disarray."

In advance of the filing, the company reached a definitive agreement with its principal secured lenders regarding the terms on which the company will have access to over $50 million of cash on hand to continue operating its business on an interim basis.

A motion for approval of that arrangement has been filed with the Bankruptcy Court. In addition, WCI has received a proposal from certain of its senior lenders to provide an additional $100 million of excess liquidity through a debtor in possession (DIP) loan facility. WCI and its lenders are in advanced stages of negotiations regarding the terms of the proposal, which if accepted by WCI, would be subject to definitive documentation and Court approval.

"While WCI remains cash-flow positive and our asset base is strong, our ongoing operations have been adversely impacted by the continuing downturn in the real estate sector and the overall economy," said Fry.

"Like other large homebuilders across the country, WCI continues to experience declines both in pricing and the sale of new homes and condominiums, as well as dramatic increases in cancellation rates. As a result, we need to restructure our debt and bring our capital structure in line with today's marketplace realities. We believe Chapter 11 provides the most efficient and timely process for accomplishing this," he added.

"Day-to-day operations will continue as usual, while we work with our stakeholders to restructure the balance sheet. We will continue to sell, build and deliver homes without interruption. Construction and sales activities will continue; employees will come to work and be paid,'' he concluded.

Shares of WCI fell 60 cents, or 48 per cent, to 66 cents in morning trading.