New Century collapses further; Fieldstone rebounds; National City off; Clear Channel holds up

By Ronda Fears

Memphis, March 14 - New Century Financial Corp. saw more disintegration on its disclosure that Barclays plc is demanding an immediate buyback of about $900 million of mortgage loans in default, which onlookers reckon will push the Irvine, Calif.-based company ever closer to insolvency. However, the company had not filed bankruptcy as of Wednesday's close.

Traders said there was considerable speculation that Goldman Sachs Group Inc. may be the White Knight for at least one of the beleaguered subprime mortgage lenders, namely New Century, but it failed to generate buyers for that stock, and onlookers still expect the company will eventually file Chapter 11.

"Goldman Sachs is thinking of pushing deeper into the subprime lending business, we hear" one trader said, noting that Goldman reported on Tuesday that its fourth-quarter profits surged 29% and the investment bank is one of New Century's warehouse lenders.

"But it might be a situation of buying them out of bankruptcy; they'd get a better deal that way probably."

New Century shares (Pink Sheets: NEWC), meanwhile, extended deep losses, falling as low as 65 before closing at 67 cents, a loss of 18 cents on the session, or 20.71%.

GMAC add to pressures

Adding to the angst about subprime finance exposure, numbers at General Motors Corp. related to its 49% owned General Motors Acceptance Corp., specifically a nearly $1 billion injection into GMAC to address mounting losses in subprime financing operations, sent a fresh wave of declines in auto finance firms.

Trouble at GMAC's Residential Capital LLC real estate financing business added to pressure in the mortgage lender group as well. ResCap logged an operating loss of $651 million for fourth quarter, compared with a $118 million profit a year before.

AmeriCredit Corp. was the big loser in the auto finance group early in the session, which one trader attributed to the pressure from the GMAC numbers, but he was a buyer on the weakness as AmeriCredit's loan pool data do not show any deterioration in delinquencies. Indeed, after the close the trader said the stock (NYSE: ACF) dropped to $20.45 and found "aggressive buyers" that pushed it to a close of $22.04, better on the day by 19 cents, or 0.87%.

Another trader said he sees Credit Acceptance Corp. as a "screaming short" in the auto finance group, although the stock (Nasdaq: CACC) advanced by 45 cents on the day, or 1.71%, to $26.69.

Back to the mortgage group, as traders predicted, there was a surge of buying Wednesday in Accredited Home Lenders Holding Co. following a big dive the day before on its revelation of a cash crunch after facing margin calls and forced loan repurchases. The stock (Nasdaq: LEND) erased nearly all of the previous day's losses with a gain of $2.07, or 52.14%, to close Wednesday at $6.04. It traded as high as $6.63 with some 40.2 million shares changing hands versus the norm of just fewer than 3 million shares.

Homebuilders up on hope

Nervousness continued to swirl around homebuilders because of the subprime financing crisis, but Wednesday there was renewed speculation of further consolidation in the sector on the heels of billionaire investor Carl Icahn's plans to make a hostile bid for WCI Communities Inc.

Bonita Springs, Fla.-based WCI (NYSE: WCI) retreated on skepticism about the $22-per-share offer, however, losing 33 cents, or 1.51%, to $21.47.

"Icahn's bid for WCI is raising questions over whether other home builders in the beleaguered sector are on the buyout block," a trader remarked.

Prospect News has been hearing chatter for several weeks that Centex Corp. was preparing for a linkup with another big homebuilder, most likely Lennar Corp., another Texas-based homebuilder. The chatter heated up after Centex divested its non-residential construction unit in a sale to Balfour Beatty plc last month, but had cooled off with the hiccup in the equity markets.

On Wednesday, Centex (NYSE: CTX) added $1.34, or 3.13%, to $44.10 while Lennar (NYSE: LEN) rose $1.35, or 3.08%, to $45.18.

Horsham, Pa.-based Toll Brothers Inc. (NYSE: TOL) also was among the big gainers in the homebuilder group, with an advance of 99 cents, or 3.62%, to $28.22.

The subprime finance crisis also spread into consumer retailers Wednesday, apparel and electronics and other consumer product retailers alike, as many have their own credit cards. Mastercard Inc. and American Express Co., however, were finding buyers as traders said their credit risk portfolios are more diverse.

Clear Channel vote unclear

Outside of the subprime fiasco, there were no deals of remarkable substance on the tape Wednesday, but disputed deals continue to churn interest.

Clear Channel Communications Inc. delayed the vote and reset the date of record for shareholders who can vote on its controversial deal to go private in the management-led buyout offer from the Mays family, Bain Capital and Thomas H Lee Partners LP at $18.7 billion, or $37.60 per share, that was agreed to in November. The offer was a 28% premium to the average closing price in the 60 days up to Oct. 24, when Clear Channel disclosed it was considering options like a sale.

The stock (NYSE: CCU) on Wednesday gained 27 cents to $35.02.

The company on Wednesday rescheduled the special meeting for shareholders that will now be held on April 19 instead of March 21 and said shareholders of record as of March 23 are entitled to vote, a revision from the previous record date of Jan. 22.

Clear Channel said its disinterested directors - excluding members of management and certain others - changed the record date for participating shareholders because of substantial trading volume in the stock since the original record date means that the earlier date "no longer reflects Clear Channel's current shareholder base."

However, traders said Wednesday there was a rumor that Fidelity Management & Research Co., which has been a vocal opponent to the deal because of the price tag, was a big buyer. At year-end 2006, Fidelity held a 9.7% stake in Clear Channel.

"The rumor today was that Fidelity is buying it back," said a risk arbitrage trader.

"I am sticking with it but not adding. The vote outcome is a crap shoot; you could flip a coin."

But, he said he was bolstered enough by the chatter that Fidelity is a buyer to retain his position.

There also could be another dueling proxy recommendation in this situation, similar to the Caremark Rx Inc. takeover battle between CVS Corp. and Express Scripts Inc.

Independent proxy advisory firm Proxy Governance earlier this month recommended that shareholders accept the deal, and traders said Wednesday they were anticipating a decision on the matter from Institutional Shareholders Service.

Fieldstone buyers faithful

Back to the subprime names, Fieldstone Investments Corp. opened lower Wednesday as the escalating subprime mortgage debacle continued to bring sellers into the market early in the session, but one trader said buyers showed up in the afternoon on faith that its buyout will proceed - albeit perhaps at a lower price - outweighing concerns about it getting nixed altogether.

A month ago, in mid-February, Fieldstone agreed to a buyout at $5.53 per share from Credit-Based Asset Servicing and Securitization LLC, or C-Bass, an affiliate of MGIC Investment Corp. and Radian Group Inc.

Fieldstone shares (Nasdaq: FICC) went as low as $2.61 early Wednesday but ended near the day's high with a gain of 75 cents on the session, or 27.57%, at $3.47.

"The deal is a go," the trader said.

"C-Bass won't back out and risk losing Fieldstone to Goldman Sachs. Look, there were big block trades going on; lots of folks were buying up shares on the cheap."

He recalled the rationale touted by C-Bass when the deal was inked less than a month ago: The transaction would support the C-Bass strategy of aligning its subsidiary, Litton Loan Servicing, with Fieldstone's portfolio of more than $5.7 billion of serviceable loans, plus synergies from Fieldstone's origination platform.

Moreover, the trader said very little has changed in the Fieldstone landscape since the deal so there doesn't seem to be any reason it would not proceed.

MGIC, Radian profits taken

Financial guarantors with exposure to mortgage-backed securities, such as MGIC and Radian, are likely to withstand problems in the deteriorating subprime mortgage market, Fitch Ratings said on Wednesday. But another trader said players were taking profits in those stocks on fear they would not remain as resilient as they have been thus far.

Earlier in February, MGIC inked a deal to acquire Radian in an all-stock transaction for $4.9 billion, or $60.78 per share, which was a few cents lower than where Radian shares were trading at the time. But, traders said the market is fairly confident in that deal getting closed, and in fact there have been more buyers for those stocks during the sector slide up until Wednesday.

On Wednesday, the trader noted heavy selling in MGIC and Radian, which he couched as "nervous profit taking" on anxiety that those stocks' resilience would not hold up. In the face of the selloff, however, he added, there were "lots of buyers."

At the end of the day, MGIC (NYSE: MTG) had racked up a loss of 86 cents, or 1.5%, to close at $56.65 after trading in a band of $54.59 to $58.42. Radian (NYSE: RDN) traded in a range of $51.68 to $54.52 in the session, then closed with a lost of 80 cents, or 1.65%, at $53.17.

National City shows slippage

National City Corp., a regional bank that sold its subprime mortgage origination and servicing unit First Franklin to Merrill Lynch & Co. Inc. last year, was weaker Wednesday after disclosing that $1.6 billion of First Franklin loans "are currently not saleable at what management considers an acceptable price due to adverse market conditions."

Last year's effort to shed the subprime mortgage unit in a sale to Merrill resulted in Merrill buying the origination and servicing business but leaving the roughly $7.3 billion subprime mortgage portfolio on National City's books.

National City shares (NYSE: NCC) dropped to $35.05 on the news but ended with a loss of just 6 cents on the day at $35.69. Some 9.4 million shares traded versus the norm of 3.5 million shares.

The Cleveland-based bank said it will transfer the First Franklin loans back into the portfolio this month; it has already recorded $11 million of write-downs on the portfolio and expects more when it makes the transfer.

Additionally, the company said one of its mortgage insurers has been "rejecting a meaningful number of claims" from its portfolio of second mortgages and it may have to boost its loan allowance by $50 million as it pursues the claims.

Early in February, National City assuaged much of the market's concern about its subprime mortgage exposure by saying it was "sanguine" about selling the portfolio. At that time, the stock was trading around $38.

But, in its fourth-quarter earnings the company said it still holds about $7.3 billion in mortgage loans made through First Franklin, which are maturing at a rate of $300 million to $400 million per month. Non-performing assets were up 23% over the year at Dec. 31 to $732 million from $596 million, mostly from defaults related to two residential real estate developers, the company said.

In September, National City sold its First Franklin mortgage origination franchise and related servicing platform to Merrill Lynch for $1.3 billion. When that transaction was announced, National City said it hoped in a separate transaction to sell to Merrill the portfolio of First Franklin's originated mortgage loans, which were then estimated at $5.6 billion. But Merrill declined.

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