Finova shares tumble after Leucadia cash disappears
(UPDATE: Recasts; adds details throughout, byline, previous SCOTTSDALE, Ariz.)
By Jonathan Stempel
NEW YORK, Jan 24 (Reuters) - Finova Group Inc.'s (NYSE:FNV - news) shares tumbled and the company moved a step closer to a possible bankruptcy on Wednesday as it and Leucadia National Corp. (NYSE:LUK - news) said they ended an agreement in which Leucadia was to invest up to $350 million in the troubled lender.
The termination, coming eight months after Finova first said it was exploring ``strategic alternatives,'' may also affect billionaire Warren Buffett, who reportedly in the fall bought several hundred million dollars of Scottsdale, Ariz.-based Finova's distressed bonds.
Finova shares closed Wednesday on the New York Stock Exchange at $1-1/8, down 1/8, or 10 percent, after trading up during the day as much as 40 percent. Their 52-week high is $34.
``My initial impression is that this has to be viewed negatively'' for Finova, said Michael Vinciquerra, an equity research analyst for Raymond James & Associates Inc. in St. Petersburg, Fla. ``To me, Leucadia's backing out takes away Finova's best lifeline.''
Finova, which lends mainly to small- and medium-sized businesses, said it intends to keep working with creditors and present a restructuring plan in the ``very near future.''
Leucadia shares closed on the Big Board at $33-5/8, down 13/16. Shares of Berkshire Hathaway Inc. (NYSE:BRKa - news), Buffett's investment vehicle, closed at $67,000, down $300.
Finova's ``distressed'' notes showed little movement after the announcement.
Traders bid its 7.25 percent notes maturing on Nov. 2004 at 71 cents on the dollar and offered them at 73 cents on the dollar. about 13 cents higher than immediately before reports of an investment by Buffett first surfaced.
Finova and Leucadia declined further comment. Berkshire Hathaway were not immediately available for comment.
UNABLE TO PLEASE CREDITORS
In a joint statement, Finova and Leucadia said Finova's bank lenders and bondholders were the main roadblocks to any planned restructuring. In a recent filing with the Securities and Exchange Commission, Finova said it had about $4.7 billion of bank debt and $6.6 billion of bonds.
``The termination was agreed to after it became evident that the parties would not likely conclude a restructuring agreement with Finova's bank lenders and public debt holders on terms deemed mutually acceptable to Finova and Leucadia,'' the companies said.
When the companies first announced the investment on Dec. 21, Finova said substantially all of its lenders would have to agree to any restructuring for Finova to avoid having to seek a bankruptcy reorganization.
Leucadia's withdrawal, Vinciquerra said, ``indicates to me there is a significant problem in (Finova) renegotiating its bank lines. It would take someone with a very highly rated balance sheet to better negotiate with the banks.''
New York-based Leucadia last July 19 pulled out of a deal to buy Reliance Group Holdings, the troubled insurance company run by the family of financier Saul Steinberg.
In another securities filing, Finova said it has $1.6 billion of credit lines maturing on May 15.
``The bank lines start expiring in May, so that seems to be the drop dead date,'' said Vinciquerra.
Finova Capital Corp., a unit of Finova, carries a senior debt rating of ``Caa1,'' a low junk grade, from credit rating agency Moody's Investors Service, and a rating of ``B,'' a medium junk grade roughly two notches higher, from Standard & Poor's. |
