In the year since it stopped funding loans, Impac Mortgage Holdings Inc. has been "laying in the weeds," as its chairman and chief executive, Joseph R. Tomkinson, has put it.

Now the Irvine, Calif., company is taking its first steps toward going back on the offensive as a buyer of distressed loans and other assets.

Impac said Thursday that its warehouse lender, UBS AG, had agreed to convert the former home lender's only remaining line of credit, on which it owes $200 million, into a 12-month loan that could be extended for up to an additional 18 months if certain targets are met. The conversion would remove the company from technical default, Impac said, and eliminate the risk of its being hit with further margin calls on its inventory.

In a press release, Mr. Tomkinson said the agreement would give Impac "more time to maximize recovery on the sale or refinance of the loans" and "allow the company to focus on new initiatives and strategies." (Impac did not say when it expects to complete the deal.)

The next step will come Thursday, when Impac's shareholders are scheduled to vote on a proposal authorizing it to issue 20% more common shares.

The company has said it is in final negotiations to buy a small servicing platform that would form the foundation of its new business plan. Last year Impac started a business that auctions foreclosed properties; it has said it expects the business to sell more than $3 billion of such assets this year, about triple the amount it sold last year.

"They have a good plan in place and the path is there for them to be one of the few survivors," said Matthew Howlett, an analyst with Fox-Pitt Kelton Cochran Caronia Waller.

Impac would ask preferred shareholders to swap their shares with the newly issued common ones. Doing so would eliminate the fixed dividend it pays those investors, thereby conserving cash. A spokesman for Impac said Thursday that last year the company paid out $14.8 million in such dividends.

Of course, issuing the shares would further dilute common stockholders — beyond the warrants to buy up to 7% of the company that UBS is to receive as part of its agreement with Impac. But the shareholders may not have much to lose by approving the proposal.

Impac has been losing money for the past six quarters and is behind in filing its financials with the Securities and Exchange Commission. Its shares closed at 73 cents a share Thursday, down from $4.55 a share a year earlier. As of yearend — the most recent period for which data is available — 14.6% of Impac's assets were 90 days or more delinquent.

In May, Mr. Tomkinson said in a press release that the possible offer to swap preferred for common stock "could have a very positive effect on the liquidity of the company," and if successful, "not only will reduce our fixed dividend expense, it will also strengthen the company's capital structure."

Mr. Howlett said that after the swap of shares and the conversion of the warehouse line, he expects the company to try to raise additional capital for its new business.

Mr. Tomkinson said in May, on Impac's last conference call with investors, that its buying would probably not be limited to so-called scratch-and-dent loans.

"I'm not so sure that the smartest opportunity is just going after distressed mortgages," he said. "I think a lot of people have probably already had their heads handed to them when they started buying these assets last summer. I continue to believe that there is going to be further deterioration."

Rather, he said, such purchases may be one end of a "barbell" strategy. On the other end, "we may take some of our capital and invest in some of the triple-A securities that are out there." Another possibility, he said, is for Impac to buy small home loan portfolios of high quality owned by banks that are under pressure to "unload some of the balance sheet."

Mr. Tomkinson said the auction business is "doing very well," and "will give us some fairly significant cash flows" this year.

The business was created specifically for Impac to unload its repossessed properties, he said. "I don't know how long that business will be there, but as that business declines, what we have found in the past is, the mortgage business or the housing market conversely improves."

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