By: Scott B. Riddle, Esq.
The latest casualty in the subprime world is Delta Financial, which filed a Chapter 11 petition in Delaware yesterday.
Delta stopped originating loans and fired 1,300 of its 1,350 workers since August, according to papers filed with the U.S. Bankruptcy Court in Delaware.
Delta will consider reorganization but will likely end up liquidating its assets, the papers say. …
This year’s panic over mortgage-related assets caused Delta’s key source of financing — institutional investment in bumdled mortgages — to dry up. In September, chief executive Hugh Miller writes in his affidavit, Delta resold $900 million of mortgage loans but took a $56.2-million loss.
Still, Delta, continued originating loans — albeit fewer than before. It wasn’t until November that the company laid off half of its remaining workers and further scaled back lending.
That month, the company’s lenders began demanding repayment of some of its debts. Delta responded by negotiating "standstill agreements" while it attempted to secure additional financing.
On Nov. 21, Delta "tested the securitization market" by trying to resell the $534.3 million of loans still on its books. When that didn’t work, the lenders terminated standstill atgreements and declared Delta to be in default of its agreements.