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Strategies & Market Trends : John Pitera's Market Laboratory

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To: pcyhuang who wrote (7593)	2/27/2007 5:04:56 PM
From: John Pitera	Read Replies (1) of 33421

NEW -- New Century has 3 lines of credit that are expiring tomorrow (the last day of February.) They have 11 billion in lines of credit that may well not be renewed in the next 6 months. I am watching NEW but the last time we looked at it we were wondering if it would stay in business when they get through telling all the bad news and the liquidity vanishes. a few notes below ... John ------------------------------ Chart 6: Credit facilities & warehouse lines set to expire in the next six months Credit Line ($ bil) Amount Utilized ($ bil) Lender Borrower Expiration Date $3.00 $1.50 Morgan Stanley New Century Feb-07 $0.45 $0.09 Goldman Sachs New Century Feb-07 $0.13 $0.07 Guaranty Bank New Century Feb-07 $0.15 $0.13 Deutsche Bank New Century Apr-07 $0.95 $0.14 Citigroup New Century Jun-07 $2.00 $0.88 Bank Of America New Century Jul-07 $1.00 $0.39 Bank Of America New Century Jul-07 $1.00 $0.22 Barclays Bank New Century Mar-07 Source: Company reports ¦ One covenant that NEW has clearly violated is the True and Correct Information clause in several of the repurchase agreements with warehouse lenders. This clause requires all financials to be reported according to GAAP. We believe NEW should be able to correct this violation if restated financials are made available on a timely basis. Our near-term view is that warehouse lenders are likely to work with NEW, given the size of the company (#2 market share in the subprime market) and the potential disruption to the RMBS market that a liquidity crisis at NEW would cause. However, we do worry that continued headwinds and credit getting even worse than anticipated could create a situation where the warehouse lenders start to become more cautious. We note that it typically takes just one warehouse lender to pull a line, before others follow. We believe that indicators to watch for such an event would be ¦ A subprime lender with a large servicing portfolio declares bankruptcy. In such a situation, delinquencies on the servicing portfolio would deteriorate rapidly, forcing several downgrades of CDOs and reducing investor appetite for subprime backed paper.

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