Subprime Lender NovaStar Mulling Sale of Company

NovaStar Financial, a struggling U.S. subprime lender, said late Wednesday it is exploring strategic alternatives, including a possible sale of the company, sending its shares up more than 17% in after-hours trading.

The Kansas City, Mo.-based company has been one of many providers of home loans to people with poor credit histories to struggle with rising delinquencies and defaults.

It joins many others that are up for sale, including Fremont General's residential lending unit and H&R Block'sOption One Mortgage Corp. unit.

More than 30 subprime lenders have sold their businesses or quit the industry in the last year. Several, including New Century Financial, have sought bankruptcy protection.

NovaStar last month fired 350 people, or 17% of its work force, to cope with the rapidly contracting market.

In a Wednesday filing with the U.S. Securities and Exchange Commission, NovaStar said it made $314.8 million of non-conforming loans in March, 58% less than a year earlier. First-quarter volume fell 21% to $1.44 billion.

NovaStar said it hired Deutsche Bank Securities to advise on its strategic review.

It also said it obtained a $100 million financing commitment arranged by Wachovia Capital Markets. NovaStar said the commitment provides for the parties to begin talks to replace and perhaps expand existing financing from Wachovia.