Outlook 2008: Subprime meltdown brings 2007 mortgage lender bankruptcy boom

By Caroline Salls

Pittsburgh, Dec. 31 - The deterioration of the subprime mortgage industry dominated bankruptcy headlines in 2007, with Mortgage Lenders USA Network, Inc. leading the lenders into bankruptcy in February, followed by 14 more lenders seeking bankruptcy protection throughout the year.

Many of the mortgage companies cited a spike in margin calls and defaults on repurchase facilities as factors leading to bankruptcy.

A majority of the bankrupt subprime lenders ceased operations and looked to sell their assets while in bankruptcy.

The subprime lenders that filed for bankruptcy in 2007 included Mortgage Lenders Network USA; ResMAE Mortgage Corp., which also emerged from bankruptcy this year; People's Choice Home Loan, Inc.; New Century Mortgage Investment Corp.; SouthStar Funding, LLC; MILA, Inc.; Alliance Bancorp, which is in Chapter 7 bankruptcy; American Home Mortgage Investment Corp.; HomeBanc Mortgage Corp.; Aegis Mortgage Corp.; First Magnus Financial Corp.; Quality Home Loans; TransLand Financial Services, Inc., whose involuntary Chapter 7 case was dismissed in December; Neumann Homes, Inc.; and Fieldstone Mortgage Co.

The mortgage industry-related woes extended beyond just the lenders themselves, as furniture retailers Levitz Furniture and Bombay Co. Inc. and homebuilders Dunmore Homes, Inc. and Levitt and Sons LLC were also forced into bankruptcy.

In addition, lumber and wood products companies Pacific Lumber Co. and Pope & Talbot, Inc.; investment adviser Sentinel Management Group Inc.; and steel company Citation Corp. filed for Chapter 11 bankruptcy in 2007. Citation also exited bankruptcy in 2007.

Aside from mortgage lenders and housing-related companies, notable names that were forced to file for Chapter 11 bankruptcy in 2007 included video rental company Movie Gallery, Inc.; starters and alternators producer Remy Worldwide Holdings, Inc., which exited Chapter 11 in early December; fitness center operator Bally Total Fitness Corp., which also exited bankruptcy during the year; and air treatment products company Fedders Corp.

Fabrics manufacturers and retailers also took a hit this year, as textiles company Malden Mills Industries, Inc., now known as OM Industries, Inc.; retailer Hancock Fabrics Inc.; textile fabrics company Joan Fabrics Corp., which saw its Chapter 11 case converted to Chapter 7 bankruptcy for liquidation; and furniture upholstery manufacturer Quaker Fabric Corp., all sought bankruptcy protection in 2007.

The health care sector also continued to struggle in 2007. Hospitals and medical centers Bayonne Medical Center, Northwest Suburban Community Hospital, Inc. and Brotman Medical Center, Inc. filed for bankruptcy, as did diagnostic imaging company Insight Health Services Holdings Corp., which also exited bankruptcy this year, health care company MediCor Ltd. and medical supply distributor Pharmed Group Holdings, Inc.

Wireless phone company Amp'd Mobile Inc., telecommunications provider Pac-West Telecomm, Inc. and electronics retailer Tweeter Home Entertainment Group, Inc. showed weakness in the electronics sector. Pac-West also exited bankruptcy in 2007.

Other companies that filed for bankruptcy in 2007 included home decor accessories company Enesco Group Inc.; oil and gas drilling rig company Blast Energy Services, Inc.; paper maker Port Townsend Paper Corp., which is now out of bankruptcy; electricity component distributor All American Semiconductor Inc.; Canadian newspaper publisher Hollinger Inc., which filed for Chapter 15 bankruptcy; supermarket operator Nutritional Sourcing Corp.; electricity and energy subsidiary Reliant Energy Channelview LP; restaurant operator Avado Brands, Inc.; automobile transporter Performance Transportation Services, Inc., which is in bankruptcy for the second time in two years; and metals and plastics manufacturer Reunion Industries Inc.

2007 exits

While a number of mortgage lenders moved into bankruptcy, several airlines exited Chapter 11 in 2007, including Delta Air Lines, Inc., Northwest Airlines Corp., Mesaba Aviation, Inc. and FLYi, Inc.

In addition, auto parts suppliers Tower Automotive, Inc. and Collins & Aikman Corp. exited bankruptcy in 2007, as did former cable giant Adelphia Communications Corp.

Other companies that emerged from bankruptcy in 2007 included Home Products International, Inc.; Amtrol Corp.; Granite Broadcasting Corp.; U.S. Energy Biogas Corp.; Delta Woodside Industries, Inc.; Anvil Holdings, Inc.; Premier Entertainment Biloxi, LLC; Compania de Alimentos Fargo, SA; Portrait Corp. of America Inc.; Tower Records; Copeland Sports; Strauss Discount Auto; Werner Holding Co. (DE), Inc., which emerged under the name Old Ladder Co.; Communications Corp. of America; Aphton Corp.; USA Commercial Mortgage Corp.; SeraCare Life Sciences, Inc.; OCA, Inc.; Brooklyn Hospital Center; GB Holdings, Inc.; Entergy New Orleans, Inc.; Foamex International Inc.; Allied Holdings, Inc.; and Saint Vincent Catholic Medical Centers.

Earth Biofuels, Inc.'s involuntary Chapter 7 case was also dismissed in December after the petitioning creditors agreed to negotiate an out-of-court restructuring.

Looking ahead

Solutia Inc. expected to emerge from bankruptcy as early as Dec. 28 after four years of plan of reorganization negotiations that left the company's senior secured noteholders as the only dissenting creditor class.

In addition, Calpine Corp. filed an application to resume trading of its stock on the New York Stock Exchange in January amid plans to exit bankruptcy before Jan. 31.

In mid-December, the company reduced its exit facility to $7.6 billion from $8 billion, and a settlement was reached that set the value of the reorganized company at $18.95 billion.

Auto parts company Delphi Corp. is also inching toward emergence, despite a series of recent plan investor agreement setbacks.

The company amended its plan of reorganization and Appaloosa Management LP-led plan investor agreement in November, including changes needed to reflect new financing market conditions and changes needed to secure the plan investors' support of Delphi's plan of reorganization.

However, the company's official committee of unsecured creditors and official committee of equity security holders balked at these changes and withdrew their support of the plan.

As a result, Delphi announced further amendments in early December.

The disclosure statement was finally approved on Dec. 7, and the plan confirmation hearing is scheduled for Jan. 17 and Jan. 18.

Delphi is still holding fast to its hopes to exit bankruptcy in the first quarter of 2008.

Auto parts supplier Dana Corp.'s plan of reorganization was confirmed in December, keeping it on pace to emerge from bankruptcy by the end of January.

Meanwhile, Dura Automotive Systems, Inc.'s plan confirmation hearing has been pushed back indefinitely after the company postponed its exit facility because of unfavorable market conditions.

Dura said it will evaluate its financing strategy in early 2008 and then announce an emergence plan as soon as possible.

Wickes Inc., Enesco, Ownit Mortgage Solutions, Inc., M. Fabrikant & Sons, Inc. Global Power Equipment Group, Inc., the New York Racing Association, Inc. and Musicland Holding Corp. all also had plan confirmation hearings scheduled for December, setting them up to exit bankruptcy in early 2008.

Also, on Dec. 6, Delta Financial Corp. announced plans to file for bankruptcy in light of the company's failure to complete a securitization transaction and subsequent defaults on its warehouse facilities.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.