New Century Plans to Go Public
Braving a sluggish market for new offerings, another company that sells mortgages to those with little or poor credit said Monday that it plans to go public.
New Century Financial Corp. in Newport Beach said it will offer an as-yet undetermined number of shares to raise as much as $41.86 million, according to a document filed with the Securities and Exchange Commission.
The increasingly hot market for so-called subprime mortgage lending has spurred mergers and acquisitions among financial institutions nationwide and has triggered initial public offerings.
Tax preparer H&R; Block Inc., for instance, said last week it will acquire Option One Mortgage Corp. in Santa Ana for $190 million. And this week, Long Beach Financial Corp. in Orange is scheduled to issue shares in its initial public offering.
The hot subprime market also has pushed such traditional mortgage lenders as Downey Savings & Loan in Newport Beach to target those with less-than-perfect financial histories. Downey said Monday it’s starting Another Chance, a program for borrowers with “credit challenges” and other temporary financial problems.
However, it’s unclear just how much New Century can get from Wall Street. After a long run, initial public offerings are becoming a tougher sell to a Wall Street battered by slumping indexes and to stingier mutual fund managers. Companies and their underwriters are cutting prices and reducing the number of shares offered--even postponing offerings to hoped-for better days.
“It’s all a function of interest rates,” said Campbell K. Chaney of Walnut Creek, a banking analyst for New York’s Sandler O’Neill & Partners research firm.
“Portfolio managers still rely on that old adage: When interest rates go up, bank stocks go down,” he said, “even though financial companies have shown that rising interest rates don’t hurt their earnings as much as they had in the past.”
Long Beach Financial, for instance, had hoped to raise as much as $261 million at an expected range of $10 to $12 a share. But it has trimmed its projections greatly, and now hopes to raise $196 million at most from an offering at $8 to $9 a share.
Even so, New Century, which started funding loans only 14 months ago, hopes Wall Street will be vibrant again by the time it’s ready to issue shares in June or July.
“We’re anticipating this market will stabilize again,” said Robert K. Cole, the company’s chairman. “There’s long-term strength to this sector.”
The company plans to use the proceeds for nationwide expansion.
New Century made or bought $250.6 million in loans in the first quarter and earned $2.35 million for the first three months.
New Century is operated by former executives at Plaza Home Mortgage Corp., a major mortgage banker that was sold two years ago to Fleet National Bank. Plaza created Option One to specialize in subprime loans.
Cole and New Century’s vice chairman, Brad A. Morrice, were named co-presidents of Plaza three years ago. Edward F. Gotschall, another vice chairman, was a Plaza executive who helped to form Option One.
