Wall Street was predicting New Century Financial Corp. would file for bankruptcy nearly a month before the Irvine-based subprime lender made it official a week ago.
Now that New Century is in bankruptcy court, it might not take long for the bulk of the company’s operations to be sold off and the company is effectively disbanded, legal watchers said.
“I give it a couple of months,” said Marc Winthrop, founder of Newport Beach-based Winthrop Couchot Professional Corp., a law firm that specializes in bankruptcy proceedings.
New Century filed for bankruptcy reorganization, but “their goal is to liquidate (the company) in pieces,” Winthrop contends.
New Century likely spent much of the month before the filing looking to line up buyers for part or all of its business, he said.
Once the country’s second-largest subprime lender, the company filed for Chapter 11 bankruptcy on April 2 in Delaware, a common place for big corporate filings.
Along with the filing was the announcement that it was letting go of 3,200 employees, more than half of the company.
As the poster child of the ongoing subprime meltdown, New Century ranks among the biggest bankruptcy filings ever for Orange County.
It likely rivals only the county’s own 1994 bankruptcy filing in terms of national notoriety.
Despite the headlines New Century has generated, it may not be the largest company here to go broke.
That title likely falls to Newport Beach-based Smith Inter-national Inc., according to bankruptcy observers.
Smith, which at one time was the second-largest maker of drill bits for the oil industry, filed for bankruptcy back in 1986, along with its main unit, Irvine-based Smith Tool Co.
Smith had yearly sales of $1.2 billion and 14,400 workers back in the early 1980s. But a slowdown in the oil industry, a failed acquisition bid and a patent infringement suit by rival Hughes Tool Co. pushed Smith into bankruptcy.
Other Casualities
The boom and bust nature of the mortgage industry has seen a number of local lenders come and go.
New Century joins ResMae Mortgage Corp. of Brea and People’s Choice Financial Corp. of Irvine in the top ranks of recent bankruptcy filers.
In an earlier mortgage meltdown, Irvine’s Instafi.com closed its doors in 2003 and founder Sean Roberts filed for personal bankruptcy the following year.
Some companies have preserved through bankruptcy.
A streamlined Smith reemerged in relatively good condition and now operates out of Texas.
Anaheim circuit board maker DDi Corp. mounted an impressive comeback from bankruptcy in 2004, though its fortunes of late haven’t been as strong.
Foothill Ranch-based Kaiser Aluminum Corp., an aluminum products supplier to the aerospace industry, is holding its own after emerging from bankruptcy last year.
The company moved to Foothill Ranch from Houston in 2005 while it still was in bankruptcy.
No one is predicting a similar outcome for New Century, which has made it clear in court filings that it hopes to sell off most of its assets in the next 45 days or so.
The company already found a tentative buyer, Carrington Capital Management LLC, for its loan-servicing unit. The division, which collects and manages loan payments, is set to sell for about $139 million, unless a higher bidder comes along.
Observers aren’t discounting that prospect, especially with an abundance of hedge fund money looking for buys these days.
ResMae, which filed for bankruptcy in February, saw Citadel Investment Group LLC make an unexpected winning bid for its loans and operations last month, beating out an initial bid from Credit Suisse Group.
Citadel ended up paying about $178 million for ResMae’s loans and operations.
New Century’s remaining major asset is its loan lending business. That’s also being shopped around.
Buyer Attraction
The company has asked the bankruptcy court to approve payments for upward of 1,300 loan officers,who haven’t been making loans for the past month,to help it attract a buyer for the unit, which made and bought about $60 billion in loans last year.
Keeping the employees will increase the value of its lending business, New Century’s lawyers said.
The bankruptcy court recently approved about $150 million in debtor-in-possession financing for New Century, a relatively large amount for a bankruptcy of this size, Winthrop said.
“That’s stay-alive money,” he said. “They’re effectively saying that it is taking them $150 million to run (the business) for the next 30 days.”
