Unable to fund new mortgages, American Business Financial Services Inc. filed for Chapter 11 bankruptcy protection.
The mortgage banker announced Friday that it, along with some of its subsidiaries, filed the voluntary petitions in a Delaware U.S. Bankruptcy Court in a move designed to address its liquidity issues and obtain the financing necessary to support its mortgage loan origination business.
"We sought any number of solutions that would have avoided a court-supervised debt restructuring, but in the end concluded that restructuring the company's debt under Chapter 11 was the best way to resolve the company's financial and liquidity issues," said American Business chief executive Anthony Santilli in the announcement.
The liquidity issues "left the Company unable to originate new loans," American Business said.
Last October, the mortgage banker announced record fundings of $629.7 million in the first fiscal quarter of 2005 jumped from $124.1 million a year earlier due to its expanded nationwide broker network.
The Philadelphia-based lender said that, subject to the court's approval, it received a commitment for $500 million in debtor-in-possession financing from Greenwich Capital Financial Products Inc., consisting of a $65 million working capital line of credit and $435 million in mortgage warehouse financing. The funds commitment will provide for normal business expenses and to finance new loans, which will be sold into the secondary market with servicing released.
"We sincerely regret any hardship this situation presents for our subordinated debt investors and other creditors," Santilli added.
It is expected daily operations will continue as usual during the restructuring. American Business will reportedly seek the court's authority to pay employees and honor benefits without interruption or delay as it expects the request to be granted in the court's "first day" orders.
The filing means more limbo for the company's 21,362 note holders, according to the Philadelphia Inquirer. About $490 million is reportedly owed to investors who bought unsecured notes from it through newspaper advertisements.