Irvine’s DiTech Funding Files for Public Offering
Unveiling the largest public stock offering this year by an Orange County company, DiTech Funding Corp. filed plans to raise $110.4 million by selling a minority stake in the company.
The Irvine-based mortgage lender, in documents filed with the Securities and Exchange Commission, did not disclose how many shares it plans to sell or provide an estimated price range for the stock.
It listed a top estimate of $110.4 million for the offering to determine its SEC filing fee, according to the documents.
An unspecified number of shares will be sold by founder and Chairman J. Paul Reddam, 42, a former philosophy professor at Cal State Los Angeles.
Launched three years ago, the company has grown rapidly, using aggressive advertising tactics touting what DiTech claims are the cheapest rates around.
Instead of relying on referrals from mortgage brokers to gain new customers--the most common strategy in the industry--DiTech uses cable television, the Internet and other highly visible advertising to snare business.
One billboard along Southern California’s freeways, for instance, shows a digital readout of current mortgage rates.
The effort has paid off for the 400-employee company. Loan values rocketed from $302 million in 1995, the year it was founded, to $1.2 billion last year.
Net income surged to $8 million last year from $714,000 in 1996, while revenue more than tripled to $32.8 million. The advertising costs millions of dollars, and further growth will require “substantial cash,” the SEC filing noted.
The company’s strategy also has generated controversy.
Last year, the Santa Clara County district attorney’s office filed a lawsuit challenging the company’s claims that it offered the cheapest rates. The suit, which is pending, seeks more than more than $100,000 in penalties against the company, according to the filing.
DiTech is benefiting from the booming housing market in California, where industry experts say the number of home sales and refinancings are on a record pace this year. Nearly two-thirds of the company’s business is in the state.
But the growth may not last if interest rates move upward or if home buyers sell their properties and use other mortgage companies.
“If interest rates stabilize or rise even moderately, the company’s refinance loan origination volume is likely to be adversely affected,” the filing said in describing risks to potential investors.
Reddam, the founder, will retain majority control of the company if it goes public. He will still own all Class B common shares, which are entitled to four votes each. The Class A shares that will be offered to the public get one vote each.
Reddam earned $753,000 last year. He previously was president of SC Funding Corp., a mortgage lender bought out by a rival in 1994.
The stock sale will be underwritten by PaineWebber Inc., Friedman, Billings, Ramsey & Co. and Piper Jaffray Inc.
DiTech plans to have the shares listed on the New York Stock Exchange under the symbol DIT, the filing said.
Bloomberg News contributed to this report.
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Top IPOs
The anticipated proceeds from DiTech Funding’s initial public offering would place it among the top 10 offerings in Orange County since 1974. Top offerings ranked by proceeds:
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Principal amount (in millions): $84.0
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Ranking: 9
Company: IMW Commercial Holdings
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Principal amount (in millions): $82.5
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Source: Securities Data Co.
