NovaStar Plans More Job Cuts, Cancels Convertible-Stock Sale

Source: Wall Street Journal

September 4, 2007 10:54 a.m.

Struggling mortgage lender NovaStar Financial Inc. announced another round of restructuring that includes more job cuts and tighter lending practices, while also announcing the cancellation of a planned $101.2 million sale of convertible preferred stock due to the ongoing market turmoil.

At the same time, NovaStar said its independent auditor has doubts about the company being able to remain in business.

The offering, announced in July at the same time Capital Partners LLC and funds managed by a Jefferies Group Inc. affiliate purchased $48.8 million of convertible preferred stock, was intended to help raise capital for NovaStar. The company canceled to offering, saying, "There were certain conditions that management believed the company would not be able to satisfy in the current environment."

In part because the troubles facing NovaStar and others in the lending business, Deloitte & Touche LLP has told NovaStar that the lender's reissued 2006 financial statements must include an explanatory paragraph about the uncertainty of NovaStar's ability to continue as a "going concern."

The company also announced further actions to keep its operations going. They include focusing on managing the company's portfolio of securitized residential loans, which totaled $15.45 billion as of June 30, and mortgage securities.



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