NovaStar's Dividend Woes

With NovaStar's (NFI) cancellation of its $101 million rights offering, the big question for the subprime lender is: How will it pay $157 million in 2006 dividends, which must be declared by September 17 and paid by year end? Seems its auditor, Deloitte & Touche, said it wouldn't be able to reissue new financials tied to the offering without noting its uncertainty "of NovaStar's ability to continue as a going concern."

Without paying the dividend, NovaStar will be on the hook to the IRS for unpaid taxable income for last year -- not good for a company like NovaStar, which is low on cash relative to its obligations. The company, which is pretty much exiting the lending business, tried to put a positive spin on the news by saying it will spend the bulk of its time managing its current $15 billion securitized loan portfolio while looking for "strategic alternatives" for its loan-servicing portfolio.

"Our goal is to preserve and maximize the value of the portfolio through this difficult period for the industry...," said President Lance Anderson. Of course, in early March, Anderson was quoted by the Kansas City Star as saying, "I'm bullish on NovaStar, I'm bullish on the industry."

The beat goes on....