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Politics & MoneyIPO / M&A

NovaStar Gets $100M Lifeline from Wachovia, Puts Itself on Auction Block

NovaStar Financial, Inc. (NYSE:NFI), one of the nation’s largest subprime lending operations, said late Wednesday that Wachovia Capital Markets, LLC has extended the embattled subprime lender $100 million in credit. Industry sources have characterized the funding arrangement as a “liquidity lifeline” needed to keep the company afloat. In conjunction with the financing commitment, NovaStar also said it will “explore a range of strategic alternatives” for the company. Such language usually refers to a decision to seek to sell the company, although NovaStar officials did not return calls Wednesday evening seeking clarification. Loan proceeds from the additional financing facility will be used for general corporate purposes, the company said in a press statement. NovaStar said it collaterized the financing agreement with its existing mortgage servicing rights as well as its existing residual security holdings.

Today’s news is the latest in string of bad news involving the nation’s 16th largest subprime lender, which began when the company reported February 21 that fourth quarter earnings fell more than 150 percent. Earlier last week, Housing Wire broke the story that NovaStar had shuttered its warehouse lending arm, WarehouseUSA Capital Corp., in response to troubles in the subprime market. On March 27, rating agency Fitch Ratings had warned about possible trouble at the Kansas City-based lender, noting its concern that NovaStar’s ability to fund its ongoing servicing operation and maintain servicing quality could come under pressure from emerging liquidity problems at the company. And on March 16, the lender said it would slash 17 percent of its workforce in an effort to reign in costs and adjust to what it called “changing conditions in the mortgage market.” Industry sources that spoke with HW said the company faces much more dire financial distress than the company disclosed in its press statement, although none would go on record with information supporting their claims. NovaStar is at least the fourth lender to announce its intention to find a buyer as the subprime crisis has continued to worsen, with H&R Block-owned Option One, FBR-owned First NLC, and San Diego-based Accredited Home Lenders all actively seeking buyers.

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