March 5, 2007
New Century May Face Liquidation
Posted by Tom Davie
NEW YORK (Dow Jones) — Several analysts agreed Monday that New Century Financial Corp., one of the nation’s largest subprime mortgage lenders, likely faces liquidation or bankruptcy following revelations that it’s under criminal investigation and in violation of debt covenants with several lenders.
"New Century is more likely to enter the death spiral we had feared, as filing delays, financial difficulties, likely restricted liquidity and regulatory/ criminal investigations could conspire to limit its options outside of bankruptcy," Merrill Lynch analysts wrote early Monday.
As troubles continue to roil the market for subprime mortgages, New Century ( NEW) disclosed late Friday that it’s technically in default with several lenders and that federal regulators have begun an investigation.
New Century shares fell 56.7%, plummeting $8.31 in premarket action, after dropping in Friday’s session as well.
Subprime mortgages are offered to homebuyers who fail to meet the strictest lending standards. Lenders specializing in such loans, like New Century, rely in part on big banks to finance their operations. Known as warehouse lenders, these institutions require that subprime lenders meet certain minimum financial targets or they otherwise have the right to end the business relationship.
Analysts at Jefferies & Co. also said the company has moved into worst-case scenario territory with its Friday filing. They cut their rating on the shares to underperform from hold.
New Century said it had received waivers for being out of compliance with debt covenants from six of 11 lenders, but deals with others remain uncertain.
