Southern Pacific Funding Corp., on the block for months, is unlikely to find a buyer and could be forced into bankruptcy, analysts say.

The Lake Oswego, Ore., company said in a late-night press release last Wednesday that it would have to take a $60 million to $70 million charge in the third quarter after revising assumptions of loan performance.

Southern Pacific also said it no longer would securitize mortgages and instead has arranged to sell all the loans it originates this quarter.

The company is "changing the way it does business" so it can again raise external capital, Robert Howard, chief executive, said in a conference call Thursday.

Specialty finance companies have suffered downturns this year as loans prepaid sooner than expected, forcing the lenders to readjust earnings and scaring investors from the sector.

Southern Pacific is also discontinuing its strategic alliances because of high costs, restructuring its production mix, and beginning companywide cost reductions.

Standard & Poor's downgraded Southern Pacific's long-term and senior unsecured debt Wednesday to CCC-plus, from BB-minus. Both ratings are non- investment-grade. "The company's financial flexibility has been impaired," the rating agency wrote.

S&P has changed its outlook on the company to negative from stable. "With negative investor sentiment toward the subprime mortgage industry during a period when a number of other competitors are pursuing a similar strategy, Southern Pacific is likely to have difficulty in completing a sale," it said.

Specialty finance companies United Companies Financial Corp., Baton Rouge, La.; FirstPlus Financial Group, Dallas; and Aames Financial Corp., Los Angeles, also are up for sale.

Southern Pacific will generate about $30 million of working capital from the prearranged sale of third-quarter loans, providing adequate cash to function through the quarter, the lender said.

But if it is not able to secure a buyer for its loans during the fourth quarter, the company will run out of cash, analysts said. "This could be another Cityscape Financial," said one.

Cityscape was delisted from the New York Stock Exchange after its stock price plummeted. Although the company has not filed for bankruptcy, observers say it is on the brink.

Southern Pacific shares have been trading at about $3 since a Sept. 11 announcement that it might have to revise earnings. This was down from a high of $18.74 in April.

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