Faced with the inability to pay its creditors, American Business Financial Services Inc. has notified the Securities and Exchange Commission that it may need to seek bankruptcy protection.
In a FORM 8-K filing with the SEC, the mortgage lender, whose shares are publicly traded on the NASDAQ under the symbol ABFS, said its limited ability to sell subordinated debt during its fiscal 2005 second quarter -- during which the level of subdebt redemptions seriously depleted its cash -- leaves it vulnerable to voluntary or involuntary bankruptcy.
Philadelphia-based American Business Financial reported in the filing that it "is currently not in compliance with several requirements in both of its credit facilities." As a result of the defaults, both creditors may call the entire lines due and payable -- though neither reportedly has. The credit line defaults have a domino effect on other debt instruments, according to the filing, and the company is in discussions with those creditors also.
"The Company has also received a notice from the landlord of its Philadelphia facility that the Company is in default under its lease," the filing said.
This is not the first time American Business has faced liquidity problems, noting in the filing it has "also been out of compliance with the net worth requirement in several of its pooling and servicing agreements and sale and servicing agreements...and has been required to obtain waivers from and amendments to these agreements" at various times since June 30, 2003 -- around the end of last year's massive refinance wave.
A potential investor was scared away by questions the U.S. Justice Department has previously raised about its lending practices concerning the collection of delinquent loans.
The U.S. Attorney's Office in Philadelphia subpoenaed records as part of the civil probe, the company said. Following that, the investor walked away from negotiations to sell securities backed by the American Business Financial Services loans.
The Federal Home Loan Bank of New York became intertwined in the saga when it revealed it lost $183 million on the sale of $1.033 billion in uninsured bonds "collateralized by manufactured housing receivables" that had been downgraded, according to a previous letter from the bank's president.
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