The comeback trail continues to be rocky for Altiva Financial Corp.

The Atlanta subprime home equity lender missed an interest payment due Dec. 1 on $30 million of subordinated notes. If the payment is not made by the end of the month, the company could go into default, according to Duff & Phelps Credit Rating Co.

The rating agency last week downgraded the notes to Ccc, from B-minus, and said its outlook for the company's debt is negative. "Unfavorable market conditions for whole loan sales of subprime home equity loans have led to further losses and a strain on financial resources at Altiva," Duff & Phelps said.

Before the financial market turmoil that began in August of last year, Altiva, then known as Mego Mortgage, was selling its loans in the secondary market for as much as 107% to 108% of face value, said Brian Quinn, an analyst at Duff & Phelps. Now prices are down to 103% to 104%, he said.

"Fundamentally, market conditions have not improved the way they [Altiva] expected them to," Mr. Quinn said. Altiva's chief financial officer, J. Richard Walker, could not be reached for comment by press time.

The company has a recapitalization plan to save itself from default, Duff & Phelps said. Altiva has told holders of the subordinated notes that it plans to let them exchange their bonds for $12.9 million of new notes plus 22.5% of the company's stock.

Altiva also plans to raise $7 million by issuing convertible bonds.

Issuance of the common stock that would be given to the bondholders is subject to approval by shareholders, who are scheduled to meet Feb. 15.

According to Mr. Quinn, 95% of Altiva's bondholders have given their blessing to the plan, under which Altiva would not have to pay interest on the new notes until June 2001. The other 5% have dissented. "We think those 5% will get paid" by Dec. 31, Mr. Quinn said.

But "there's still a lot of risk here," he said. "Business conditions are still challenging. It will take a while before" Altiva generates enough volume to cover its overhead.

The company will have to meet its aggressive growth targets and still keep expenses under control, Mr., Quinn said. Altiva's warehouse line has a term of only six months, so the company's ability to renew the line is also a worry, he added.

The company changed its named from Mego Mortgage Corp. in March. Mego had suffered from unexpected refinancings of loans it had securitized. The higher prepayment rates forced it to write down the value of the interest-only bonds it retained from its securitizations, and this hurt the company's earnings and stock price.

Today Altiva avoids that problem by selling most of its production in the whole-loan market, releasing the servicing rights. But with other big securitizers out of the market, there are fewer buyers for subprime loans.

Altiva has been struggling to re-establish itself in the subprime market. This year it bought two production platforms - the Las Vegas retail platform of failed Dallas lender FirstPlus Financial's consumer finance unit in January, and Money Centre, a Charlotte, N.C. lender, in July.

The company originated $119 million of loans in its last fiscal year, which ended Aug. 31, down from $339 million the prior year. In its annual report, Altiva explained that it spent most of the fiscal year rebuilding and did not generate much volume until after the July purchase of Money Centre.

Tuesday morning Altiva's stock was trading at $1.25, off 17% from Monday's close and off 85% from its 52-week high of $8.50.

There are some signs of improvement. Altiva lost $1.39 a share in its fourth quarter, compared with a loss of $24.65 a share a year earlier. Last week the company said it had hired three executives to build up its loan production.

Richard Rappa, a veteran of Associates First Capital Corp., ITT Financial, and Mortgage Lenders Network, was named senior vice president of operations. David Gowen, who has worked for Ford Credit, Contifinancial, and Bank One, was named vice president of sales for the Atlanta wholesale division. James Costello, formerly of Green Tree Financial and Household International, was named general manager of the Las Vegas retail office.

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