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First NLC Sold

FBR selling unit to Sun Capital Partners affiliate

July 26, 2007

By MortgageDaily.com staff

Friedman, Billings, Ramsey Group Inc. is getting out of mortgage originations.

The Arlington, Va.-based investment banking firm announced today it has agreed to sell First NLC Financial Services LLC to an affiliate of Sun Capital Partners. Final closing conditions are expected to be met within 120 days.

Friedman first announced it was exploring strategic alternatives for the unit in March -- during the height of the subprime meltdown.

The deal, for which terms weren't disclosed, will reportedly result in a $75 million infusion of capital into the nonprime unit, with a $60 million investment from Sun and a $15 million investment from Friedman. Friedman's subsequent exposure will be just a $3 million indemnification to Sun Capital for some potential liabilities as well as its remaining 20 percent ownership interest.

"Initially the contributions by Sun Capital and FBR Group will be treated as convertible debt," the statement said. "After satisfying various state mortgage licensing requirements, obtaining final court approval of a negotiated settlement of employment related class action litigation, and satisfying various other closing conditions, the convertible debt will convert to equity."

Friedman said it expects to take a $15 million third quarter charge for losses associated with further restructuring and operating costs of 20-year-old First NLC. In addition, it will retain about $250 million in recently-originated mortgages from the subsidiary which are anticipated to be sold or securitized.

First NLC, headquartered in Deerfield Beach, Fla., reports 2006 production of $7.4 billion. The company's president said in a separate statement that Sun's acquisition of it, as well as tighter underwriting and increased retail focus, will enable it to expand market share.

Sun Capital is a hedge fund that is "focused on leveraged buyouts, equity, debt, and other investments in market-leading companies that can benefit from its in-house operating professionals and experience," today's statement said.

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