Luminent Mortgage Capital
Shares of the San Francisco-based real estate investment trust soared on the New York Stock Exchange Monday.
Arco Capital, a San Juan, Puerto Rico-based holding company, would receive five-year warrants to buy up to 51 percent of Luminent at 18 cents per share, which is 76 percent below Friday's closing price. The investment would give Arco a 49 percent voting stake.
In addition, Luminent said Arco would inject up to $60 million of capital, buy $65 million of mortgage securities, and may buy other company assets. Four new directors would join Luminent's board.
Luminent this month suspended its quarterly dividend and said it received default notices for about $2.3 billion of debt as the secondary market for mortgage securities "seized up."
The REIT said it decided not to get shareholder approval for the warrants, saying any delay may "seriously further jeopardize" its financial viability.
"Even with the possibility of sizable dilution to existing Luminent stockholders, the transactions ... create the best path both to attempt to protect current value and grow potential value," Chief Executive Trez Moore said in a statement.
Arco did not immediately return a call seeking comment.
According to its Web site, Arco engages in lending and acquisitions in emerging markets. It said it is managed by Arco Capital Management, which is partially owned by Gramercy Advisors, a Greenwich, Conn., hedge fund firm.
Luminent said it plans in the future to be a manager for asset-backed securities. It said the Arco transactions require completion of final agreements and other conditions, and may not address its liquidity shortfalls.
The REIT said it ended June with $9.5 billion of assets and $9.06 billion of liabilities.