Form 8-K for NovaStar Financial, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 19, 2007
Date of Report (Date of earliest event reported)
NOVASTAR FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Maryland 001-13533 74-2830661
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
8140 Ward Parkway, Suite 300, Kansas City, MO 64114
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(Address of principal executive offices)
(Zip Code)
(816) 237-7000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
Wachovia Master Repurchase Agreement (2007 Residual Securities)
On April 19, 2007, NovaStar Mortgage, Inc., NovaStar Certificates Financing LLC
and NovaStar Certificates Financing Corporation (collectively, the "NovaStar
Subsidiaries") executed a Master Repurchase Agreement (2007 Residual Securities)
(the "Facility') with Wachovia Investment Holdings, LLC and Wachovia Capital
Markets, LLC (collectively "Wachovia"), providing for the financing of certain
existing residual securities of the NovaStar Subsidiaries. The Facility is
guaranteed by NovaStar Financial, Inc., NFI Holding Corporation, NovaStar
Mortgage Inc. and Homeview Lending, Inc. (collectively, with the NovaStar
Subsidiaries, the "NovaStar Parties"), and is cross-collateralized with all
other repurchase and similar financing facilities between any of the NovaStar
Parties or their affiliates (collectively, "NovaStar") and Wachovia or any of
its affiliates. Wachovia and its affiliates have entered into certain financing
facilities with NovaStar and routinely engage in other ordinary course financial
transactions with NovaStar, including but not limited to acting as an
underwriter for certain securitizations sponsored by NovaStar.
The maximum amount that may be outstanding at any time under the Facility is $40
million, which amount will be reduced if and to the extent necessary so that the
aggregate amount outstanding from time to time under the Facility and the
mortgage servicing rights financing facility that is expected to be entered into
between NovaStar and Wachovia Bank, National Association or affiliates thereof
does not exceed $100 million. The Facility provides for an advance rate of up to
60% of the market value of the residual securities purchased by Wachovia under
the Facility, as such market value is determined from time to time by Wachovia.
Advances under the Facility bear interest at LIBOR plus 350 basis points. In
addition, the NovaStar Parties are required to pay Wachovia certain fees and
expenses in connection with the Facility, including but not limited to a
structuring fee, a usage fee, and additional fees in the event of voluntary
prepayment by NovaStar or the occurrence of an event of default.
Proceeds from the Facility will be used for general corporate purposes. The
Facility has a term of 364 days, subject to automatic renewal for another 364
days unless Wachovia gives at least 120 days notice of its intent to terminate
the Facility on the maturity date; provided, however, that in the event of a
change of control of NovaStar Financial, Inc., Wachovia has the right to
terminate the Facility and require the payment of a termination fee.
The NovaStar Subsidiaries are required to notify Wachovia of any margin calls
totaling more than $5 million in the aggregate under repurchase facilities
between NovaStar and any third parties, in which event Wachovia will have the
option to increase the aggregate amount available under other financing
facilities between NovaStar and Wachovia or its affiliates and to cause the
assets that are subject to the margin call to be moved to and
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financed under those other Wachovia facilities. In addition, if an event occurs
that would permit the removal of NovaStar as servicer under any servicing
agreement relating to mortgage loans underlying residual securities that are
then subject to the Facility, Wachovia has the right to require that NovaStar be
replaced as the servicer.
The Facility requires that the adjusted consolidated tangible net worth of
NovaStar Financial, Inc. exceed both a specified minimum and an amount equal to
a portion of the value of various classes of assets held by NovaStar Financial,
Inc. and its consolidated subsidiaries. In addition, NovaStar Financial, Inc. is
required to maintain, on a consolidated basis, a certain minimum level of
liquidity.
The Facility prohibits NovaStar Financial, Inc. from paying any dividends (other
than dividends payable in stock), except for the payment of dividends in the
amounts and at the times necessary for NovaStar Financial, Inc. to comply with
tax law requirements applicable to real estate investment trusts. Absent the
prior consent of Wachovia, permitted dividends can be paid only in the form of
notes, bonds, debentures, or common or preferred stock, and not in cash, except
to the extent that the liquidity of NovaStar Financial, Inc. following payment
in cash would exceed a certain minimum amount or to the extent that payment in
notes, bonds, debentures, or common or preferred stock would be financially
impractical.
The Facility contains other customary affirmative and negative covenants,
including but not limited to covenants prohibiting fundamental changes in the
nature of the business of the NovaStar Parties, prohibiting sales by any
NovaStar Party of a material portion of its business or assets outside of the
ordinary course of business, and prohibiting transactions between a NovaStar
Party and any of its other affiliates that are not on arms-length terms.
The Facility provides for customary events of default, including but not limited
to the failure by the NovaStar Subsidiaries to make any payment due or to
satisfy any margin call or to comply with any other material covenant (including
financial covenants) under the Facility, representations or warranties made by
the NovaStar Parties under the Facility proving to be materially incorrect,
certain cross defaults involving other contracts to which NovaStar is a party,
an act of insolvency occurring with respect to any NovaStar entity, the failure
by NovaStar to satisfy certain final non-appealable monetary judgments,
regulatory enforcement actions that materially curtail the conduct of business
by any NovaStar entity, failure by NovaStar to service the mortgage loans
underlying the residual securities that are subject to the Facility in
accordance with industry standards and the terms of the applicable servicing
agreements, and the occurrence of a material adverse change in the business,
performance, assets, operations or condition of NovaStar Financial, Inc. and its
consolidated subsidiaries taken as a whole.
If an event of default exists under the Facility, Wachovia has the right, in
addition to other rights and remedies, to accelerate the repurchase and other
obligations of NovaStar under the Facility and the related guaranty, to cause
all income generated by the purchased assets to be applied to the accelerated
obligations, to direct the servicer of the purchased mortgage securities to
remit payments directly to Wachovia, to sell or retain
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the purchased assets to satisfy obligations owed to it, and to recover any
deficiency from NovaStar and its affiliates. In addition, an event of default
under the Facility would cross-default all other financing facilities between
NovaStar and Wachovia or any of its affiliates, and generally would permit
Wachovia and its affiliates to set off any outstanding obligations of NovaStar
against any collateral pledged by NovaStar to Wachovia or any of its affiliates
under the Facility or under any other agreement. Further, the NovaStar Parties
would be liable to Wachovia for all reasonable legal fees or other expenses
incurred in connection with the event of default, the cost of entering into
replacement transactions and entering into or terminating hedge transactions in
connection or as a result of the event of default, and any other losses,
damages, costs or expenses arising or resulting from the occurrence of the event
of default.
The foregoing is a summary of the terms of the Facility, the related Guaranty
and the Collateral Security, Setoff and Netting Agreement and does not purport
to be complete. This summary is qualified in its entirety by reference to the
full text of the Facility, the related Guaranty and Collateral Security, Setoff
and Netting Agreement, which are attached hereto as Exhibit 10.1, 10.2 and 10.3,
respectively, and are incorporated herein by reference.
Wachovia Master Repurchase Agreements
On April 20, 2007, NovaStar Financial, Inc. and certain of its subsidiaries
entered into short-term extensions of three existing one-year warehouse
repurchase agreements with Wachovia (the "Wachovia One-Year Repurchase
Agreements"), further extending the termination date of the Wachovia One-Year
Repurchase Agreements to April 27, 2007. As previously disclosed, NovaStar and
Wachovia are negotiating a comprehensive financing facility to replace and
expand the facilities currently in place between NovaStar and Wachovia,
including the Wachovia One-Year Repurchase Agreements.
As previously disclosed, the Wachovia One-Year Repurchase Agreements consist of
a Master Repurchase Agreement that sets forth the terms of a repurchase facility
under which certain subsidiaries of NovaStar Financial, Inc. may sell and
Wachovia may purchase certain mortgage loans (the "Whole Loan Facility"), and a
Master Repurchase Agreement that sets forth the terms of a repurchase facility
under which certain subsidiaries of NovaStar Financial, Inc. may sell and
Wachovia may purchase certain mortgage securities (the "Securities Facility"),
in each case against an obligation of the relevant subsidiaries of NovaStar
Financial, Inc. to repurchase the mortgage loans or mortgage securities
purchased by Wachovia. NovaStar Financial, Inc. and certain of its other
subsidiaries have guaranteed the obligations of the Company's subsidiaries under
these facilities. The Whole Loan Facility and the Securities Facility each
provide for borrowing capacity of $800 million, but amounts outstanding under
both facilities combined cannot exceed $800 million in the aggregate. The
Wachovia One-Year Repurchase Agreements also include a Master Repurchase
Agreement between NovaStar Mortgage, Inc. and Wachovia, providing for borrowing
capacity of $1 million as required for certain regulatory purposes.
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Section 2 - Financial Information
Item 2.03 Creation of a Direct Financial Obligation or an obligation under an
Off-Balance Sheet Arrangement of a Registrant
See "Wachovia Master Repurchase Agreement (2007 Residual Securities)" under Item
1.01 of this Current Report which is incorporated herein by reference.
This Current Report on Form 8-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding management's beliefs, estimates, projections, and assumptions with
respect to, among other things, our future operations, business plans and
strategies, as well as industry and market conditions, all of which are subject
to change at any time without notice. Actual results and operations for any
future period may vary materially from those discussed herein. Some important
factors that could cause actual results to differ materially from those
anticipated include: our ability to generate and maintain sufficient liquidity
on favorable terms; the size, frequency and structure of our securitizations;
our ability to sell loans we originate in the marketplace; impairments on our
mortgage assets; increases in prepayment or default rates on our mortgage
assets; increases in loan repurchase requests; inability of potential borrowers
to meet our underwriting guidelines; changes in assumptions regarding estimated
loan losses and fair value amounts; finalization of the amount and terms of any
severance provided to terminated employees; finalization of the accounting
impact of our previously-announced reduction in workforce; events impacting the
subprime mortgage industry in general, including events impacting our
competitors and liquidity available to the industry; the initiation of margin
calls under our credit facilities; the ability of our servicing operations to
maintain high performance standards and maintain appropriate ratings from rating
agencies; our ability to generate acceptable origination volume while
maintaining an acceptable level of overhead; residential property values; our
continued status as a REIT; interest rate fluctuations on our assets that differ
from our liabilities; the outcome of litigation or regulatory actions pending
against us or other legal contingencies; our compliance with applicable local,
state and federal laws and regulations or opinions of counsel relating thereto
and the impact of new local, state or federal legislation or regulations or
opinions of counsel relating thereto or court decisions on our operations; our
ability to adapt to and implement technological changes; compliance with new
accounting pronouncements; our ability to successfully integrate acquired
businesses or assets with our existing business; the impact of general economic
conditions; and the risks that are from time to time included in our filings
with the SEC, including our Annual Report on Form 10-K for the year ended
December 31, 2006. Other factors not presently identified may also cause actual
results to differ. Words such as "believe," "expect," "anticipate," "promise,"
"plan," and other expressions or words of similar meanings, as well as future or
conditional verbs such as "will," "would," "should," "could," or "may" are
generally intended to identify forward-looking statements. This Current Report
speaks only as of its date and we expressly disclaim any duty to update the
information herein.
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Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(d) Exhibits. The following exhibits are filed herewith:
10.1 Master Repurchase Agreement (2007 Residual Securities), dated as
of April 18, 2007, among Wachovia Investment Holdings, LLC,
Wachovia Capital Markets, LLC, NovaStar Mortgage, Inc., NovaStar
Certificates Financing LLC and NovaStar Certificates Financial
Corporation.
10.2 Guaranty, dated as of April 18, 2007, made by NovaStar Financial,
Inc., NFI Holding Corporation, NovaStar Mortgage Inc. and
Homeview Lending, Inc. in favor of Wachovia Investment Holdings,
LLC.
10.3 Collateral Security, Setoff and Netting Agreement, dated as of
April 18, 2007, among Wachovia Bank, NA, Wachovia Investment
Holdings, LLC, Wachovia Capital Markets, LLC, NovaStar Financial,
Inc., NovaStar Mortgage, Inc. and certain of their respective
affiliates.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVASTAR FINANCIAL,
INC.
DATE: April 25, 2007 /s/ Gregory S. Metz
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Gregory S. Metz
Chief Financial Officer
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Exhibit Index
Exhibit
Number
10.1 Master Repurchase Agreement (2007 Residual Securities), dated as of April
18, 2007, among Wachovia Investment Holdings, LLC, Wachovia Capital
Markets, LLC, NovaStar Mortgage, Inc., NovaStar Certificates Financing LLC
and NovaStar Certificates Financial Corporation.
10.2 Guaranty, dated as of April 18, 2007, made by NovaStar Financial, Inc.,
NFI Holding Corporation, NovaStar Mortgage Inc. and Homeview Lending, Inc.
in favor of Wachovia Investment Holdings, LLC.
10.3 Collateral Security, Setoff and Netting Agreement, dated as of April 18,
2007, among Wachovia Bank, NA, Wachovia Investment Holdings, LLC, Wachovia
Capital Markets, LLC, NovaStar Financial, Inc., NovaStar Mortgage, Inc.
and certain of their respective affiliates.
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