The capital markets' growing disenchantment with subprime lenders claimed another victim Wednesday as a longtime player, United Companies Financial Corp., announced a dramatic retreat.
The Baton Rouge, La., company said it would close or sell three of its five business units, downsize another, and fire more than 1,000 employees in the process. The move followed months of unsuccessful efforts to find a buyer for the entire company.
At the same time, United Cos. announced that its lending and pricing practices are being investigated by the Department of Justice and the Department of Housing and Urban Development.
United Cos. is the latest in a string of subprime lenders to pull back or shut down this year. The subprime sector, energized by massive infusions of capital from an almost giddy investor base, suffered a sudden drop in blood pressure when rates dropped, prepayments mounted, and investors turned jittery.
United Cos. said it was scaling back even as its loan production hit record levels because the capital it depended on to fund its operations- from equity investors and debt issuance-has all but dried up.
"It's a matter of recognition of what the capital markets are at this point," said Dale E. Redman, United Cos.' chief financial officer. "You have to play the hand that's dealt you."
A third source of funding could be United Cos.' lifeline. The firm is in talks to extend an $850 million revolving credit facility from 22 banks, led by First Union, that matures in April 2000.