NovaStar Financial shares fell as much as 63 percent Thursday after the troubled subprime mortgage lender posted a $598 million third-quarter loss and said bankruptcy is possible.
Its stock was down $2.80, or 61 percent, to $1.80 in afternoon trading on the New York Stock Exchange, after earlier falling to $1.72. They began the year at $106.60, after adjusting for a reverse stock split. NovaStar projected a "high likelihood" that its shares will be delisted.
The quarterly loss equaled $64.05 per share, and compared with a year-earlier profit of $25.3 million, or $2.91 per share. Results reflected a nearly ten-fold increase in bad loans, mortgage write-downs, higher legal expenses, and a charge to end NovaStar's real estate investment trust status.
NovaStar has stopped mortgage lending, and in its quarterly report filed Wednesday with securities regulators said it could not guarantee it would remain a "going concern."
The Kansas City, Missouri-based company outlined several scenarios under which it might seek bankruptcy, including a failure to extend a waiver expiring Nov. 30 of a net worth covenant under financing agreements with Wachovia.
It said that as of Nov. 13, it owed Charlotte, North Carolina-based Wachovia $83.9 million in short-term debt and $11.8 million of commitment fees. NovaStar said it ended September with $51.5 million of unrestricted cash.
"The goal is to pay down Wachovia as quickly as possible," Chief Executive Scott Hartman said on a Thursday conference call. "From there, we'll see where it goes."
Wachovia spokeswoman Christy Phillips-Brown declined to comment.
NovaStar said margin calls, legal bills and "unforeseen adverse liquidity events" could also trigger bankruptcy.
Scott Valentin, a Friedman, Billings, Ramsey & Co. analyst, wrote that bankruptcy is likely absent a waiver from Wachovia.
Price Target of Zero
Barring a sudden improvement in fortune, "we do not believe NovaStar has sufficient liquidity to remain solvent," he wrote. Valentin's price target for NovaStar is zero.
Subprime lenders make home loans to people with poor credit. Dozens have quit the industry this year as defaults soared and home prices fell, and several have gone bankrupt, including New Century Financial Corp.
NovaStar has this year let go all but a few hundred staff from its 2,048-person workforce, after making $11.2 billion of home loans in 2006. Operations now consist of managing a mortgage securities portfolio and running a retail brokerage.
The company has also halted or suspended dividend payouts. Last week, it said it completed a sale of mortgage servicing rights to Morgan Stanley affiliate Saxon Mortgage Services Inc., and paid down debt with most of the $147.1 million of net proceeds.