New Century bonuses face a delay
New Century Financial Corp., the biggest sub-prime lender to enter bankruptcy protection, wants to pay its executives and key employees a $6.3-million bonus for selling its assets.
Not so fast, a federal bankruptcy trustee said Thursday, calling the mortgage lender’s rationale “unsubstantiated.”
New Century opened the debate Wednesday by asking a judge to approve the bonus plan at an April 24 hearing and to limit creditors’ ability to review the strategy. The Irvine-based company said it needed the fast track to “motivate leadership and to address the steeply declining morale of its employees.”
In a reply Thursday, a lawyer for U.S. Bankruptcy Trustee Kelly Beaudin Stapleton argued against hasty approval of the bonuses at New Century, which quit writing mortgages March 8 amid heavy losses and a federal criminal investigation.
“Simply put, [New Century’s] analysis can be reduced to the following statement: ‘We need to have the [bonus] motion hearing on April 24 because there is an unsubstantiated risk that our employees may become distracted,’ ” wrote Joseph J. McMahon of the trustee’s office.
The company hopes to pay Chief Executive Brad Morrice and seven other officials $3.5 million if they find buyers for its main assets. In addition, 123 other employees would get slightly less than $3 million regardless of whether the assets were sold.
At a Thursday court session in Wilmington, Del., where the bankruptcy was filed, U.S. Bankruptcy Judge Kevin Carey postponed the hearing on the bonuses to May 7.
New Century has three significant remaining assets it hopes to sell: its shuttered mortgage-origination arm; a customer service business, which handles collections and foreclosures; and a pool of about 2,000 mortgages that it was forced to repurchase because they fell quickly into default.
Carey approved the sale of the mortgages to a Royal Bank of Scotland subsidiary unless another buyer tops the bank’s $47.3-million bid by April 30. The mortgages have a face value of $170 million, so the bank would be getting them for 28 cents on the dollar.
A hedge fund with close ties to New Century, Carrington Capital Management, has offered $133 million for the customer service business unless there is a higher bid. But several parties have objected to the deal.
In a court filing, McMahon objected to a provision saying that an initial competing bid must be at least 10% higher than Carrington’s offer -- an increase of more than $13 million. He cited a similar case in which a bankruptcy court found that a 2.2% initial overbid was reasonable. Carey said he would consider the matter next week.
Despite ceasing lending, New Century kept 1,800 loan-origination employees on the payroll after filing for bankruptcy protection and firing 3,200 employees April 2, hoping the downsized origination platform could be sold. No buyers have emerged.
