Luminent DIP lender refuses to fund new draw requests; employees let go

By Caroline Salls

Pittsburgh, May 12 - Luminent Mortgage Capital Inc. said post-bankruptcy financing lender Arco Capital Corp. Ltd.'s decision to not fund new draw requests has left the company with almost no cash to run its business through confirmation of its plan of reorganization and has forced it to fire virtually all of its employees, according to an 8-K filed with the Securities and Exchange Commission.

Luminent said it terminated the employment of chief financial officer Karen Chang because the lack of funding left it unable to pay her salary, but the company has entered into an agreement under which Chang will provide advisory services.

Because the company still believes its proposed reorganization plan will provide the best recovery for creditors, Luminent said members of its management have agreed to forego or significantly reduce their salaries during the plan-confirmation process.

According to the 8-K, Arco has not funded any new draw requests made under the post-bankruptcy loan and security agreement since mid-March except for one $300,000 draw used to purchase directors and officers insurance.

Luminent, a San Francisco-based real estate investment trust that invests in mortgage-backed securities and loans, filed for bankruptcy on Sept. 5, 2008 in the U.S. Bankruptcy Court for the District of Maryland. Its Chapter 11 case number is 08-21389.

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