NovaStar's Shares Plunge on $600M Loss
Thursday November 15, 12:29 pm ET
Shares of NovaStar Financial Plunge As Lender Posts $600 Million Loss
NEW YORK (AP) -- NovaStar Financial Inc.'s stock plummeted Thursday after the beleaguered home lender posted a nearly $600 million loss, said its shares are likely to be booted off the New York Stock Exchange and warned of heightened risk of bankruptcy.
Many of NovaStar Financial's competitors -- including American Home Mortgage Investment Corp. and New Century Financial Corp. -- have gone out of business this year. NovaStar Financial has laid off much of its staff and stopped issuing mortgage loans this year as the mortgage industry plunged into distress.
For the third quarter, NovaStar lost $598 million. This stemmed from various charges reflecting how much value its portfolio has lost.
Also, NovaStar Financial is classified as a real estate investment trust, meaning it distributes most of its profit to shareholders through dividends. Sine NovaStar suspended its dividend to preserve its cash, the company lost its REIT status. The company recorded a charge reflecting the loss of tax benefits from being a REIT.
The New York Stock Exchange will review next month whether to continue listing NovaStar Financial's stock. The company said it believes it is "highly likely" the stock will be delisted.
"Our opinion that NovaStar's financial viability remains highly uncertain has increased," Friedman Billings Ramsey analyst Scott Valentin wrote in a client note. Valentin's price target on NovaStar's stock is zero.
The most prominent stumbling block to NovaStar's solvency is its debt to Wachovia Corp., Valentin said. NovaStar owes Wachovia $83.9 million in debt and $11.8 million in fees. For now, Wachovia has waived certain agreements that would force NovaStar to repay the bank immediately. However, if Wachovia does not waive the agreements again, NovaStar's $51.5 million in cash could vanish, he said.
Barring a sudden improvement in the industry, "we do not believe NovaStar has sufficient liquidity to remain solvent," he said.
NovaStar's shares plunged as low as $1.93, the cheapest trade in the stock's nine-year history. The shares, which peaked at more than $250 in 2004, have lost more than 97 percent of their value this year.
In morning trading Thursday, the stock sank $2.54, or 55.3 percent, to $2.05.
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