Troubled subprime lender New Century Financial Corp. announced Monday that it has filed for Chapter 11 bankruptcy protection, laid off 3,200 workers, and agreed to sell its servicing assets and servicing platform.
The Irvine, Calif.-based company said the layoffs, representing 54 percent of the company’s work force, were effective immediately. The layoffs would “properly size” the company’s servicing and originations businesses “for possible sale,” New Century said in a press release.
Filing for bankruptcy protection “provides the best means for selling our servicing and loan origination operations to financially sound parties,” said New Century President and Chief Executive Officer Brad Morrice in a statement. “It is our hope that potential buyers will be in a stronger position than we are to employ many of our associates on an on-going basis.”
New Century said it has secured $150 million in “debtor-in-possession” financing from the CIT Group and Greenwich Capital Financial Products Inc. The financing, which is subject to court approval, would provide enough cash to proceed with the Chapter 11 bankruptcy process, the company said.
New Century announced an agreement to sell its servicing assets and servicing platform to Carrington Capital Management LLC for $139 million. The agreement “is a significant and positive development as it provides stability for holders of certain securities issued by New Century and Carrington’s securitization trusts,” Morrice said.
New Century said it has agreed to sell Greenwich certain loans originated by the company, as well as residual interests in certain securitization trusts, for $50 million.
The lender once had access to $17.4 billion in credit through 15 short-term agreements, which it used to fund mortgage loan originations and purchases that were pooled for sale on Wall Street.
On March 8, New Century said it was forced to stop funding loans after at least five creditors stopped financing the company’s operations, and another forced a repurchase of loans it originated.
In February, New Century announced it would restate results for the first three quarters of 2006 that failed to fully account for losses on loans the lender was forced to repurchase because of early payment defaults.
In an SEC filing, New Century said it was the subject of a criminal investigation by the U.S. Attorney’s Office for the Central District of California, and at least 10 civil lawsuits filed on behalf of shareholders.