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NRZ Manged By Fortress And Connection To NOVC Novation Companies Inc.

|Includes: DX, IMH, Novation Companies, Inc. (NOVC), NRZ
Summary NRZ has a Outperform by Stephen Law. NRZ sit on $140B of Call Rights yet NOVC Novation Companies Inc. Call Rights CR on 21 of 26 deals never beenvalued. NRZ has a Outperform by Stephen Law.

NRZ sits on $140B of Call Rights yet NOVC Novation Companies Inc. Call Rights CR on 21 of 26 deals are not recognized by Mr. Market and their value never discussed by NOVC SEC disclosures. Vintage portfolio generated when WAC coupons were 8-10% (FFR was 5.5%). Listen to NRZ CEO Mike Nierenberg, talk about the value in NRZ call rights. NOVC Call Rights have been unrecognized from investors and Mr. Market since NOVC old CEO signed a Servicing Rights Transfer Agreement 10/21/07 see document and NOVC Press Release which falls way short of being transparent.

Yesterday annual meeting 10.4.18 NOVC CEO keeps the ruse going. Boulay CPA firm for NOVC Rich Lehman, Partner, needs to value the call rights and provide at least footnote disclosure. Major CR investor stated recently, $1.5B of NOVC $3.2B portfolio can be called now (2005-2 deal alone could be worth 100M) many buyers including NRZ would love NOVC CR. NOVC is controlled by Mass Mutual Baring, and Sr Debt 2.3rd controlled by Fortress Wesley Edens COB and Peter Briger his Partner x Goldman Sachs.

Fortress just cash in $2.6B nonprime lenders by selling 40% interest they held in OMF to Apollo and 70% interest in Nationstar NSM to KKR controlled WMIH yet by controlling NOVC CH 11 Creditors Committee Fortress along with NOVC board has done the unthinkable: create the impression via SEC reports that NOVC who spent $12m to emerge from Ch 11 is going to waste Novastar Financial Inc. (like NSM they produced $40B of Nonprime mortgage loans), Call Rights to 80% of $3.2B portfolio 21 of 26 deals and NOL of 700M and Unrealized Capital Tax Losses 307M. NOVC shareholders own the rights to control calling in highly profitable and seasoned nonprime mortgage loans. IMH or NRZ (managed by Fortress) would love to get their hands on these collateral assets that can be combined with other collateral and sold or more likely resecuritized with NIM of 400 Bpts.

Largest shareholders in NOVC include; Tom Akin/HF Talkot Capital owns 4.5m shares per Ch 11 docs 2.58M in Talkot Capital alone (he is also largest shareholder in IMH, DX), Barry Igdaloff, Lead Director at NOVC holds 9.2M shares per 14A Proxy, also board member at DX and large shareholder in DX, Howard Amster Board Member at NOVC and largest shareholder in DX (per 2005 SEC doc Amster owned over 5% of DX common and preferred) HA owns 5m NOVC shares. Todd Emoff good college friend of Igdaloff owns at least 4m of 100m common NOVC Shares outstanding. These investors all connected personally to Barry Igdaloff happen to own 30% of NOVC common. Mass Mutual Barings owns 19.3M or 20%. IMO they all know each other. Fortress’ Wesley Edens COB helped Igdaloff, Emoff and Amster make a fortune at DX. IMO I believe they are all sitting on plan to monetize Call Rights, pay a special dividend, and gobble up as much of Ser F Preferred shares as they can, which are nothing but Phantom Shares of common to get around the poison pill. Read Proposal 3 in 14A page 13 of proxy voted on in yesterdays annual meeting. Rights agreement allows common who are maxed out by poison pill the right to buy one-ten thousandth of PS Ser F (which will in every way mirror one common share as to votes and dividends). S Ser F can be bought for 2.33 cts. Where did NOVC find that 2.33 number.

My calculation is 40 M for residuals (see Dr. Sabry NERA Ch 11 valuation shows 27M OC Bonds + 23m in I/O strips prepayment. Note this is the only portfolio value shared by NOVC Board for 10 years. It is small compared to value call rights) + 100m for Novastar Financial Inc. NFI + $200m for Call Rights + $5m cash = $385M less Sr Debt 86m (NOVC may have quid pro quo with Fortress and Sr Debt which is how they sailed through Ch 11 “A plan within the plan – only known to a few”) = 300M divided by 100m common shares outstanding 100m say 110M because CEO will surely gain a windfall in RSU shortly. The CEO is connected with Chuck Gillman and Jeff Eberwein who were recruited by Barry Igdaloff Nov 2014 resulting in Jeff Eberwein HF Lone Star Value Mgt buying 3.2m NOVC Shares, 25k shrs daily for 6 months see form 4s).

This maybe one of the best buying opportunities in the value sector.

Disclosure: I am/we are long NOVC.

Additional disclosure: Long this value play