First Magnus denied access to $15 million DIP facility due to high interest and fees

By Caroline Salls

Pittsburgh, Sept. 10 - First Magnus Financial Corp. was denied access to $15 million in debtor-in-possession financing Friday, with judge James M. Marlar of the U.S. Bankruptcy Court for the District of Arizona ruling that the interest and related fees attached to the financing are too high and could hurt the interests of the company's creditors.

However, the court did approve the company's request to use $1.3 million of its cash on hand to pay immediate payroll expenses.

According to the ruling, the 18.25% interest on the proposed DIP facility is too high, and the 7% in fees brings the immediate cost of the loan to more than 25%.

Marlar said the DIP facility would cost the company $3.92 million per year, leaving it with just $11.08 million in actual financing.

"The cost of acquiring the credit may suffice for the short term, but in the end, the court was not persuaded by the quantity of information provided that the unsecured creditors will benefit," Marlar said in the ruling.

First Magnus, a Tucson, Ariz., mortgage loan originator, filed for bankruptcy on Aug. 21. Its Chapter 11 case number is 07-10578.

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