...Events Leading up to Chapter 11
21. By the Spring of 1999, it became obvious that the Company (ContiFinancial Corp.) would not be able to continue its operations without a significant equity infusion. To that end, the Company solicited offers from third parties that might be interested in purchasing the Company, including Residential Funding Corp. ("RFC"), a subsidiary of General Motors Acceptance Corporation.
On May 14, 1999, the Company signed an indication of interest letter with RFC under which RFC indicated its interest in acquiring all of the outstanding common stock of the Company.
On July 2, 1999, a second indication of interest letter was signed with RFC, again for the acquisition of all of the outstanding common stock of the Company, but on revised business terms. Definitive documentation for the acquisition was then negotiated with RFC.
On July 14, 1999, just prior to the expected signing of the definitive documentation. RFC informed the Company that it had determined not to proceed with the acquisition. The Company continued to have discussions with others regarding an acquisition or equity investment. While a number of other entities expressed an interest in pursuing such a deal, in the end, it was not possible to consummate any such transaction in sufficient time and with sufficient certainty prior to the impending expiration of certain of the Company's credit facilities, including its line of credit with the Bank Group.
22. In light of the failure to consummate the transaction with RFC, and with the impending expiration of these credit facilities, I [Alan Fishman, president and chief executive officer of ContiFinancial Corp. (CFN) and chairman of ContiMortgage Corp. (CMC)] was hired as chief executive officer of CFN by CFN's Board of Directors and was named as Chairman of the Board of CMC. Following a thorough review of the Company's business operations, capitalization, financial condition and future prospects, the Company's senior management determined that they should pursue a plan (the "Restructuring Plan") of reducing the size of the Company, negotiating for the restructuring or extension of the Company's credit facilities and recommencing the search for an equity investor in the Company or a buyer of the Company's business.
23. Pursuant to the Restructuring Plan, in August 1999, the Company entered into a definitive agreement with Greenwich Capital Financial Products Inc. ("Greenwich"), a subsidiary of Greenwich Capital Markets Inc., to provide CFN with a $500 million revolving servicing-released whole loan purchase facility with a maximum aggregate purchase commitment of $1.5 billion, at the Company's option, through March 31, 2000.
Greenwich also agreed to provide a warehouse facility of up to $250 million on a revolving basis (the "Greenwich Facility") to CFN. The Greenwich Facility also was scheduled to expire on March 31, 2000. In addition to the two facilities, Greenwich agreed to underwrite an approximately $800 million securitization of home equity loans that were funded under CFN's various warehouse facilities. That securitization successfully closed in August 1999. In addition to the August securitization transaction, CFN also entered into several whole loan sales in order to generate much needed cash flow and to repay remaining amounts outstanding under various warehouse lines.
24. Continuing to deal with its various debt obligations, on August 19, 1999, the Company reached an agreement with the Bank Group to extend the maturity date of the Bank Facilities from August 20, 1999 to March 31, 2000. The Company also agreed to certain modifications of the Bank Facilities including a $20 million minimum liquidity covenant. In consideration of this extension, the Debtors agreed to pledge to the Bank Group certain ESRs.
25. Also, in August 1999, the Company began the implementation of a workforce reduction plan which resulted in the termination of approximately 30% of the Debtor's employees in order to achieve the strategic goals of focusing the Company's origination on the channels with the greatest potential and reducing the overall size of the Company. As a result of these actions, the Company successfully executed a Restructuring Plan that allowed it to repay in excess of $1 billion of warehouse loan debt, extend its other credit facilities, pay interest on the various issues of Senior Notes and reduce the Company's size and refocus its business operations.
26. With the objectives of the Restructuring Plan well underway, the Company re-launched its efforts to explore strategic alternatives. With the assistance of its professionals, the Company has pursued various strategic alternatives including but not limited to a sale of the Company, sales of one or more of the business operations and/or assets of the Company with or without additional equity capital...