Luminent Mortgage Capital Inc. (NYSE:LUM) and Arco Capital Corporation Ltd. have entered into a Letter of Intent outlining current and proposed transactions intended to address Luminent’s current liquidity issues that arose due to unanticipated disruptions in mortgage credit markets. There are conditions of course, but ARCO will repurchase approximately $65 million in mortgage securities, has been issued warrants by Luminent to purchase up to a 49% voting equity stake and 51% economic interest in Luminent (at $0.18 per common share exercisable over a 5-year period). The Board of Directors of Luminent will resolve to elect four new members to the Board of Directors and four existing directors will submit their resignations from the Board, conditioned upon the newly elected members agreeing to serve on the Board.
Additional transactions in the letter of intent would 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.
While additional notices of default and margin calls remain a possibility in the current environment, as of August 17, 2007, Luminent has outstanding notices of default for unfunded outstanding margin calls totaling approximately $30.9 million, with approximately $6.1 million of cash being held to effectuate refinancing, for a net total current need of approximately $24.8 million. As Luminent previously announced, a default occurred under the indenture relating to $90 million of Luminent’s 8.125% Convertible Senior Notes due 2027. The trustee under the indenture has subsequently notified Luminent of an event of default, but has not yet declared those notes to be immediately due and payable.
According to the Letter of Intent, going forward, Luminent’s business strategy is expected to include acting as a multi-channel manager for asset- backed securities. So investors are starting to snap up more and more assets on the cheap it looks like. A letter of Intent is not binding per se because the conditions would allow it to back out, but maybe the buying on the cheap will come up more. Luminent shares closed at $0.75 on Friday, and its 52-week trading range is $0.36 to $10.84.
Elsewhere, Accredited Home Lenders Holding Co. (NYSE:LEND) shares are up another 3% pre-market at $6.97. If you will recall, just on Friday we showed how this Chimera IPO filing with Annaly Mortgage (NASDAQ:NLY) was actually a vulture fund set up to buy mortgage and loan assets on the cheap.
Jon C. Ogg
August 20, 2007