NovaStar Financial raises $52.5 million; ITC^DeltaCom plans $41.2 million offering

By Laura Lutz

Des Moines, July 16 - NovaStar Financial, Inc. dominated PIPEs news on Monday with a $52.5 million offering of convertible preferred stock.

The company sold 2.1 million series D-1 9% preferred shares to affiliates of MassMutual Capital Partners LLC and funds managed by Jefferies Capital Partners IV LLC for $25.00 per share.

The preferreds are convertible into 7.5 million common shares at $7.00 each.

The investors have also agreed to buy up to $101.2 million of any unsubscribed shares from an upcoming shareholder rights offering for a similar series of convertible preferred stock.

The company plans to conduct a four-for-one reverse stock split on July 27. All of the terms of the placement are in pre-split shares.

"These steps will strengthen our financial position and establish NovaStar as one of the leading independent lenders and portfolio managers in the nonconforming mortgage sector," NovaStar chairman and chief executive officer said in a news release.

President of MassMutual Larry N. Port said, "This equity commitment to NovaStar fits our focus on strategically investing in business opportunities, particularly in the financial services industry, where we have significant experience and expertise. We view NovaStar as a well-managed company with long-term potential," according to the release.

Jefferies Capital Partners president Brian P. Friedman also expressed confidence in NovaStar. "We believe current valuations and prospects for the future point to a timely investment," he said in the release.

NovaStar is a finance company based in Kansas City, Mo.

The company's stock dropped 12 cents, or 1.57%, to close at $7.51 on Monday before gaining 9 cents in after-hours trading (NYSE: NFI).

ITC^DeltaCom to bring in $41.2 million

In other U.S. news, ITC^DeltaCom, Inc. priced a $41.2 million private placement of convertible preferred stock.

That offering will replace a previously announced $29 million stock placement with affiliates of Credit Suisse.

In the new deal, ITC^DeltaCom will sell 412,000 convertible preferred shares at $100 each.

The investors will include H Partners LP; Joshua Tree Capital Partners, LP; and Trace Partners, LP.

Closing of the placement depends on the company's redemption of half of its outstanding series A preferred stock for about $11 million and conversion of the balance into about 1.7 million common shares. Settlement is expected in the third quarter of 2007.

The preferred stock placement will serve as bridge financing until the company completes a planned rights offering.

The placement is part of a larger refinancing that was announced on June 11.

As part of the recapitalization, the Credit Suisse affiliates that were to have participated in the $29 million placement also agreed to provide $240 million in first-lien credit facilities.

Also connected with the refinancing, funds associated with Tennenbaum Capital Partners, LLC agreed to provide a $75 million second-lien credit facility and to exchange $25 million in third-lien debt, as well as all preferred shares and warrants, for common stock.

Finally, funds associated with Welsh, Carson, Anderson & Stowe, the company's majority shareholder, agreed to buy $21 million in common shares and exchange $23.5 million in third-lien debt, as well as all preferreds and warrants, for common stock.

After the refinancing, the company will have $305 million in first- and second-lien debt, a $10 million revolver, about 81 million outstanding, fully diluted common shares and $50 million of cash on hand.

ITC^DeltaCom is a communications services provider based in Huntsville, Ala.

The stock gained 40 cents, or 5.71%, to end at $7.40 on Monday (OTCBB: ITCD).

Commerce ups placement

As usual, Canadian resource exploration companies were well represented in the day's PIPEs market.

Leading the pack, Vancouver, B.C.-based Commerce Resources Corp. upsized its previously announced private placement of units to C$31.5 million.

The company now plans to sell 26.25 million units of one share and one warrant at C$1.20 per unit. Each warrant will be exercisable at C$1.50 for two years.

The deal priced on June 14 as a C$15 million offering of 12.5 million units. That portion of the placement has already settled, according to a Monday news release.

Shoreline Pacific, LLC is the placement agent for C$9 million of the offering.

Proceeds will be used for exploration and development and for working capital.

Commerce is a mineral exploration company based in Vancouver, B.C.

Its shares dropped C$0.08, or 5.16%, to end at C$1.47 on Monday (TSX Venture: CCE). The stock closed at C$1.40 on June 14, the original pricing date.

Genco wraps C$25 million offering

Genco Resources Ltd., another Canadian mining company, settled a private placement of units for C$25 million.

The company sold 6,666,666 units of one share and one half-share warrant at C$3.75 per unit. Each whole warrant will be exercisable at C$5.25 for two years.

Haywood Securities Inc. and Salman Partners Inc. are the agents.

Proceeds will be used for exploration, development, capital investments and working capital.

Genco is a silver and gold exploration company based in Vancouver, B.C.

Its shares closed unchanged at C$4.36 on Monday (TSX Venture: GGC).

WEX plans C$20.09 million deal

In Canadian biotech news, WEX Pharmaceuticals Inc. arranged a C$20.09 million private placement of a convertible debenture and shares with CK Life Sciences International, Inc., according to WEX news release.

CK has agreed to purchase a C$15.6 million convertible debenture and 16,327,272 common shares at C$0.275 per share.

The debenture will mature in two years. WEX may extend the maturity date by two years if it cannot make the required payment on the original maturity date.

The debenture will bear interest at Libor plus 400 basis points. Interest will be payable in shares priced at a 30% discount to the six-month volume-weighted average price, subject to a floor of C$0.05 and a ceiling of C$1.75.

CK may convert the principal into common shares at any time beginning on the original maturity date. On the original maturity date, the conversion price will be equal to a 30% discount to the six-month VWAP of the company's shares. After that date, the conversion price will be equal to the VWAP over the five trading days before conversion.

The conversion price is also subject to a floor of C$0.05 and a ceiling of C$1.75.

Proceeds will be used for clinical trials of the company's Tectin product and for working capital.

The placement agreement imposes "significant restrictions on the activities of WEX" throughout the term of the debenture, according to the release.

WEX is a pharmaceutical company based in Vancouver, B.C.

The company's shares bumped up C$0.005, or 1.43%, to close at C$0.355 on Monday (Toronto: WXI).

Red Rock gets $25 million equity line

Moving back to the United States, Red Rock Pictures Holdings Inc. announced a $25 million equity distribution agreement with IFG Opportunity Fund, LLC.

In light of this placement, Red Rock will not file a registration statement in connection with a previously announced $20 million, two-year standby equity distribution agreement with Cornell Capital Partners, LP.

The price per share will be 97% of the market price of the company's stock over the five trading days before notice of a draw. Each draw may be up to $2 million.

When each tranche closes, Red Rock will pay IFG 3% of the gross proceeds of that draw.

The Cornell deal was announced on April 5 with pricing terms similar to the IFG deal.

Los Angeles-based Red Rock finances and co-produces feature films and entertainment.

The company's stock dropped 10 cents, or 8.33%, to finish Monday at $1.10 (OTCBB: RRPH).

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