New Century Financial Corporation announced this morning that it had filed a voluntary petition for relief under chapter 11 of the U.S. Bankruptcy Code. As part of the widely-expected move, the company said it will layoff 52 percent of its workforce — roughly 3,200 employees — effective immediately. In conjunction with the filing, The CIT Group and Greenwich Capital Financial Products, Inc. have agreed to provide New Century up to $150 million in debtor-in-possession (DIP) financing, subject to court approval. The financing provides New Century with a $50 million commitment level at closing with the potential to increase the commitment to $150 million. The DIP financing is expected to provide New Century with funding to facilitate the chapter 11 process. New Century also announced it has entered into deal worh approximately $139 million to sell its servicing assets and servicing platform to Carrington Capital Management, LLC and its affiliate. The deal is subject to court review and to terms that a better offer doesn’t arise for the company’s servicing assets during the course of the restructuring process. “The agreement to sell our servicing assets to Carrington is a significant and positive development as it provides stability for holders of certain securities issued by New Century and Carrington’s securitization trusts,” said Brad A. Morrice, president and CEO. In addition, New Century has agreed to sell to Greenwich Capital Financial Products, Inc. certain loans originated by the company, as well as residual interests in certain securitization trusts owned by the company, for an aggregate price of $50 million. “The decision to pursue the sale of the company’s assets and operations through the bankruptcy process was a difficult but appropriate decision for our Board to make,” stated Mr. Morrice.
“This was a very hard step for me personally and clearly not the outcome I would have preferred. However, given the sudden and significant challenges facing our industry and New Century specifically, bankruptcy is the best means available to allow the company’s assets and operations to be sold through an orderly process. “The Board and I particularly regret the impact that the bankruptcy filing will have on our dedicated associates. But after diligently exploring a variety of other potential solutions that would have enabled New Century to continue its operations, the chapter 11 process provides the best means for selling our servicing and loan origination operations to financially sound parties. It is our hope that potential buyers will be in a stronger position than we are to employ many of our Associates on an on-going basis.” “Although this is a difficult day for our associates, they can be proud of what they have accomplished over the years,” added Mr. Morrice. “Since the company’s founding, the associates have generated approximately 1.4 million loans, totaling more than $225 billion. These loans have helped millions of Americans, many who might not otherwise have been able to access credit or to realize the benefits of home ownership.” The non-prime sector will remain an important part of the American economy and we are hopeful that the platforms and operations that New Century has built will continue to be utilized to help support the growth of this critical segment of the mortgage industry.”