Seven months ago, Delta Financial Corp. was touting how its disciplined underwriting left it profitable with record originations. Today, the company said it will probably collapse and file bankruptcy.
A standstill agreement the company entered into during November with three warehouse lenders required it to execute a loan securitization -- which it was unable to do, the Woodbury, N.Y.-based subprime lender announced today. Consequently, the warehouse lenders issued a notice of default yesterday.
Because of the default, its obligations under the warehouse agreements can be accelerated -- leaving it obligated to make substantial capital outlays and triggering further defaults from other creditors, the statement said.
In November, Delta announced a deal for a $100 million capital infusion with an affiliate of Angelo Gordon, which had provided $60 million in August.
"In light of the foregoing, the company does not expect to be able to consummate the above-referenced transaction with Angelo Gordon," Delta said in today's announcement. "Furthermore, the company does not believe that it will be able to continue as a going concern."
As a result, Delta said it intends to halt all new business and file for bankruptcy protection -- operating as a "debtor in possession." It hopes to sell off assets and, possibly, operations in connection with its bankruptcy.
At its annual shareholder meeting in May, Delta touted its success despite problems in the subprime sector. First quarter originations of $1.2 billion were the highest ever.
It attributed the positive results to the origination of mostly fixed-rate mortgages, its avoidance of riskier mortgage products and a balance between direct and broker origination channels.
But net income, which was $4.9 million in the first quarter, almost evaporated by the second quarter, when Delta reported earnings of $0.8 million.
"The second half of 2007 is proving to be very challenging," Delta President and Chief Executive Officer Hugh Miller said in the company's second quarter earnings announcement. "Liquidity has become one of the most important issues facing lending institutions today as the credit disruption widens and rating agencies modify their reserve level requirements."