Last week brought another sign that subprime mortgage lenders are struggling to retain their Wall Street funding arrangements as profitability dwindles.
Fieldstone Investment Corp., a Columbia, Md., real estate investment trust, revealed it had renegotiated its credit agreements with units of JPMorgan Chase & Co., Credit Suisse, and Lehman Brothers to avoid being in breach of net worth and operating profit requirements. The amendments are good through Jan. 31, and Fieldstone is trying to get them extended.
"Our lenders suggested that we wait before making some of the covenant changes permanent, to allow more time to determine the proper long-term thresholds," Mark Krebs, Fieldstone's director of investor relations, said Friday.
Fieldstone now must maintain a tangible net worth of at least $365 million, down from the previous minimum of $400 million, he said. The credit agreements were also modified so that Fieldstone will not be considered in breach of profitability covenants if it posts a fourth-quarter operating loss as expected, on top of a $45 million third-quarter loss that was due to delinquencies on new loans.
The company "expects to be in compliance" with the modified agreements at yearend, Mr. Krebs said.
Warehouse lenders can call their loans to mortgage companies if they fail to meet certain conditions. Such covenant violations have become a huge concern in the industry because of the surprise closure this month of Ownit Holdings LLC, an Agoura Hills, Calif., nonprime lender that failed to get a capital infusion from its main warehouse lender, Merrill Lynch & Co., after a margin call.
Fieldstone, whose shares have plummeted 67% in the past year, also announced that it plans to close seven of its 16 operating centers; take a $500,000 charge in the fourth quarter; and eliminate 50 to 60 jobs, or 5% of its work force.
The company declared a fourth-quarter dividend of 5 cents a share, which was at the low end of analysts' forecasts and 29 cents lower than the third-quarter dividend.
Michael J. Sonnenfeld, Fieldstone's president and chief executive, said in a press release issued Wednesday that the company has "adequate working capital" and is working with its subservicer to "improve the general performance of our loans held for investment."
Scott Valentin, an analyst at Friedman, Billings, Ramsey & Co. Inc., wrote in a research report Thursday that "near-term risks remain high," given Fieldstone's high cost structure.
Still, he wrote, "the fact that warehouse lenders are allowing for net losses rather than closing the warehouse lines appears to indicate that they believe Fieldstone will eventually achieve profitability or possess enough capital to alleviate warehouse collateral concerns."
