Fieldstone Teetering?

Fieldstone Investment Corporation announced late last week that it has modified the financial covenants of four of its repurchase facilities. The company also confirmed its plans to consolidate operations centers. In a statement, Fieldstone said that it has modified four repurchase agreements in anticipation of its fourth quarter operating results. The agreements are with affiliates of JPMorgan Chase, Credit Suisse and Lehman Brothers. Changing loan covenants is often a last-ditch effort to avoid bankruptcy.   The amendments lower the tangible net worth covenant through January 31, 2007 from $400 million to $365 million and provide that the operating loss that Fieldstone forecasts it will incur for the final six months of 2006 will not result in a breach of these agreements. Fieldstone said it is continuing to discuss additional amendments with these lenders and expects to extend the current amendments beyond January 31, 2007. In addition, Fieldstone confirmed its plan to reduce the number of wholesale operation centers from sixteen to nine. The company said it expects to take a one time pre-tax charge of approximately $0.5 million in the fourth quarter of 2006 relative to this consolidation, consisting substantially of compensation and lease termination expenses. Fieldstone will continue to maintain a local sales force to serve brokers in the markets in which its operations centers are closing and will maintain its one retail operations center in a facility shared with one of the wholesale operations centers. “Although this is a challenging time for the non-conforming mortgage industry generally, we are implementing several key initiatives to improve our business in 2007. These initiatives are designed to lower our cost to originate, improve our level of originations and improve the performance of our loans held for investment,” stated Michael J. Sonnenfeld, Fieldstone’s president and CEO. “We have worked with our lenders to re-structure the terms of four of our lines of credit in anticipation of the effect the current market conditions will have on our operating results. This will allow us to remain in compliance with our covenants and maintain adequate liquidity in 2007. “Additionally, we have finalized our plans for consolidating our wholesale operations centers: we expect to improve our operating efficiencies and lower our cost to originate while maintaining our level of customer service by having our local sales force serve our customers through regional operations centers,” he continued. “At the same time, we are building our production levels by continuing to introduce new loan products and adding significantly to our national sales force. While the overall non-conforming mortgage market’s performance deteriorated in the fourth quarter of 2006, we are working closely with our sub-servicer to improve the relative performance of our loans held for investment.”