- Merrill Lynch maintains Sell as they see little value in NEW shares. Further challenges appear to have engulfed NEW, as at least one lender seems to have terminated its credit facility, leaving the company with inadequate liquidity to operate normally. NEW has mortgaged its few remaining unencumbered assets, a move that essentially leaves equity holders holding the liabilities of closing the lending platform. Credit positioned marginally better but more losses seem likely in near-term.
NEW seems to have been provided a temporary life-line, however, the firm thinks a pending liquidity crisis is still likely to de-stabilize the company. Crisis of confidence now appears set to spread to primary business partners, as NEW's liquidity problems are limiting its ability to fund loans and it has stopped taking new applications. Revenue short-falls are certain and the value of broker network likely impaired on a major stoppage, suggesting the platform value of NEW is negative. They think the outcome is likely liquidation in bankruptcy.
- Keefe, Bruyette & Woods notes they believe that New Century will likely file for bankruptcy unless it finds a buyer. The company's operating expenses were running at almost $200 million a quarter and although this would go down moderately because of reduced loan acquisition expenses, the majority of those costs are fixed in the near term. Consequently, they would expect a bankruptcy filing in the relatively near future unless the company can find a buyer/partner.
It appears unlikely to the firm that New Century will be able to renew its credit lines because the extremely difficult market conditions will likely result in company generating material losses for the foreseeable future.
- JP Morgan notes that with the funding of new loans now halted due to lender restrictions, they believe NEW has relatively no unencumbered source of operating cash flow from which to satisfy any new margin calls or working capital requirements. Judging from NEW's statement on Feb. 7 that on Dec. 31, 2006 the company had $350M of cash and liquidity, it is easy to see how quickly the $195M remaining from the loan could be used up.
Firm believes NEW has most likely put up the vast majority of its remaining unencumbered assets to secure this $265M financing, and as a result, they believe there will be little if any assets left in the event of liquidation for common shareholders to lay claim to. They continue to view any purchase of NEW shares at this time as highly speculative, and would advise any investors that maintain a position in the common stock to sell those shares.
Notablecalls: I have no comments on this one. All too clear.