BNC Mortgage Managers Offer to Buy the Firm

Frustrated by the company’s sagging stock price, managers at BNC Mortgage in Irvine on Friday offered to buy the residential lender for $47 million and take it private again.

A management-led investor group, which includes BNC President Kelly W. Monahan, is offering stockholders $10 a share, or a 35% premium over the company’s stock price as of close on Thursday.

After the offer was announced Friday, the stock rose 22%, or $1.59 a share, ending the day at $8.97 in Nasdaq trading.

But after the market closed, the company broke some more troubling news: a 45% drop in earnings.

The company said fiscal second-quarter earnings fell to $1.2 million, or 23 cents a share, from $2.2 million, or 40 cents a share, a year ago. Revenue fell slightly to $14.6 million during the quarter ended Dec. 31 from $14.7 million a year ago.

The reduction in profits was caused largely by a 15% increase in expenses, including higher administrative and interest costs, the company said.

Company executives did not return telephone calls seeking comment Friday.

BNC Chairman Evan R. Buckley, who owns about 30% of the stock, is not among the investors, according to a filing with the Securities and Exchange Commission. Other investors in the newly formed BNCM Acquisition Co. are BNC executives Peter R. Evans, Al Lapena, Gary Vander-Haeghen, Marles Crow and Jamie Langford.

Analysts said BNC, which specializes in home loans to borrowers with poor credit, has been suffering along with similar sub-prime lenders because of lingering doubts on Wall Street about the specialty lending niche.

“They’ve been very frustrated over the share price,” said Michael McMahon, analyst at Sandler O’Neill & Partners in New York.

After debuting at $9.50 a share in a 1998 initial public offering, BNC shares briefly reached as high as $14. But investors began to steer clear in the fall of 1998 after the Russian bond default raised concerns about higher-risk credit sectors like sub-prime lending. Many sub-prime lenders went out of business or were acquired.

Funding for the proposed buyout will be provided by investment banker Lehman Bros. An affiliate of Lehman will retain the right to acquire as much as 50% of the stock in the newly formed company.

The deal is expected to close by July 31.

The company said it would consider higher buyout offers but has agreed to pay $2 million to BNCM Acquisition if it backs out of the deal.

BNC funded about $1.6 billion in loans last year.