Luminent Mortgage Capital Inc. has struck a potential deal that could provide it with $60 million in cash. The move could significantly dilute shareholder equity but will help it manage outstanding repurchases and defaulted notes.
Arco Capital Corporation LTD has signed a letter of intent to arrange for the repurchase of around $65 million in Luminent’s mortgage securities portfolios, San Francisco-based Luminent announced today. The deal gives Arco the option to buy up to 49 percent of Luminent’s voting shares and up to 51 percent of Luminent’s economic interest.
In return, Puerto Rico-based Arco will “provide Luminent with access to up to approximately $60 million in additional capital through repurchase agreements or secured credit arrangements with the intention of addressing current or impending margin calls and financing maturities,” today’s statement said. The transaction will also “allow for Luminent to further stabilize Luminent’s repurchase agreement lines and maintain value in those positions through other transactions which potentially may include Arco acquiring selected assets from Luminent, on a case by case basis.”
Additionally, four current directors will be replaced, the statement said.
The letter of intent reportedly calls for a business strategy where Luminent acts as a multi-channel manager for asset- backed securities.
A number of conditions, which Luminent was unable to assure would occur, need to be met prior to the closing of the deal, according to the announcement.
Luminent, a real estate investment trust, reported $30.9 million in outstanding notices of default for margin calls and $6.1 million in cash held to “effectuate refinancing” as of Friday, leaving it short about $24.8 million. In addition, it is also in default on $90.0 million of convertible senior notes due 2027 — though the trustee has not yet called the notes due in full.
Luminent said the audit committee of its board of directors approved a decision to skip stockholder approval of the issuance of warrants because delays in today’s climate could “seriously further jeopardize the financial viability of Luminent.”
Earlier this month, Luminent warned about an increase in margin calls, noting the secondary market for mortgage loans and mortgage-backed securities had effectively seized-up.
In May, Greenwich Capital Financial Products Inc. provided a $1 billion whole loan warehouse financing facility to Luminent, including committed funds of $250 million. Luminent’s Chief Executive Officer Trezevant Moore Jr. noted at the time, “Obtaining additional committed financing in this market environment further solidifies our strong liquidity position, and allows us to grow our profitable whole loan business.”
In today’s announcement, Moore explained, “Even with the possibility of sizeable dilution to existing Luminent stockholders, the transactions proposed by the letter of intent with Arco create the best path both to attempt to protect current value and grow potential value going forward.”