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 25, 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 (I.R.S. Employer
incorporation or organization) File Number) 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 Servicing Rights)
On April 25, 2007, NovaStar Mortgage, Inc. ("NovaStar Mortgage") executed a
Master Repurchase Agreement (2007 Servicing Rights) (the "Facility") with
Wachovia Bank, N.A. and Wachovia Capital Markets, LLC (collectively "Wachovia"),
providing for the financing of certain mortgage servicing rights of NovaStar
Mortgage. The Facility is guaranteed by NovaStar Financial, Inc., NovaStar
Mortgage, NFI Holding Corporation, and HomeView Lending, Inc. (collectively, the
"NovaStar Parties"). In addition, the Facility is secured by all of the stock of
NovaStar Mortgage 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. In
addition to this Facility, Wachovia and its affiliates provide certain other
financing facilities to 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.
Mortgage servicing rights eligible for financing under the Facility include
rights of NovaStar Mortgage under existing servicing agreements relating to
certain of NovaStar's 2006 and 2007 securitizations and, subject to certain
approvals of the related securitization trustees, other existing mortgage
servicing rights of NovaStar Mortgage. Servicing rights arising in connection
with future securitizations may also be financed under the Facility if mutually
agreed by NovaStar and Wachovia. In each case, the related servicing agreement
must be acceptable to Wachovia.
The maximum amount that may be outstanding at any time under the Facility is $70
million, which amount could reduced so that the aggregate amount outstanding
from time to time under the Facility and the Wachovia Master Repurchase
Agreement (2007 Residual Securities) executed on April 18, 2007 among certain
NovaStar entities and Wachovia Investment Holdings, LLC and Wachovia Capital
Markets, LLC does not exceed $100 million. The Facility provides for an advance
rate of up to 60% of the market value of the servicing rights 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 375
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 termination 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.,
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Wachovia has the right to terminate the Facility and require the payment of a
termination fee.
NovaStar Mortgage and its affiliates 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 financed under
those other Wachovia facilities.
The Facility requires that NovaStar Mortgage service the related mortgage loans
in accordance with the standards set forth in the applicable servicing
agreement. If an event occurs that would permit the removal of NovaStar as
servicer under any servicing agreement, Wachovia has the right to require that
NovaStar be replaced as the servicer.
In addition, NovaStar Mortgage must exercise any option to purchase the mortgage
loans serviced under any eligible servicing agreement during the month in which
such option becomes exercisable, provided that financing is available to
NovaStar Mortgage for such purpose.
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 $125 million or to the extent that payment in notes, bonds,
debentures, or common or preferred stock would be financially impractical.
Further, NovaStar cannot declare or pay a cash dividend more than 15 days before
the date required by applicable tax law. As a real estate investment trust,
NovaStar Financial, Inc. is required to declare dividends based on its 2006
taxable income before filing its 2006 tax return, which is due on September 15,
2007 and such dividends are required to be paid by December 31, 2007. In
addition, NovaStar Mortgage is prohibited from paying dividends by the related
Guaranty and Pledge Agreement.
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
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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.
Events of default under the Facility include termination of NovaStar Mortgage,
for cause, as servicer of mortgage loans underlying ten percent or more of
NovaStar Mortgage's servicing rights portfolio, certain downgrades to NovaStar
Mortgage's servicing rating, and the failure of NovaStar Mortgage to service
loans in accordance with the standards set forth in the applicable servicing
agreement or to otherwise keep all servicing agreements relating to servicing
rights financed under the Facility in full force and effect.
The Facility provides for certain additional events of default, including but
not limited to the failure by NovaStar Mortgage to make any payment due or to
satisfy any margin call or to comply with any other material covenant (including
financial covenants) or agreement under the Facility, representations or
warranties made by the NovaStar Parties under the Facility and related
agreements 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, 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 and Pledge
Agreement, to cause all income generated by the purchased assets to be applied
to the accelerated obligations, to terminate NovaStar Mortgage as the servicer
with respect to the servicing rights pledged pursuant to the Facility and
transfer such servicing rights to a successor servicer, to sell or retain the
purchased assets to satisfy obligations owed to it, and to recover any
deficiency from NovaStar. 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 and the related Guaranty
and Pledge Agreement. This summary is qualified in its entirety by reference to
the full text of the Facility and the related Guaranty and Pledge Agreement,
which are attached hereto as Exhibit 10.1 and 10.2, respectively, and are
incorporated herein by reference.
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Wachovia Master Repurchase Agreements
On April 27, 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. The termination date of the Whole Loan Facility (as
defined below) and the Securities Facility (as defined below) is May 4, 2007,
and the termination date of the Regulatory Facility (as defined below) is May
27, 2007.
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 (the
"Regulatory Facility").
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 Servicing Rights)" 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
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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.
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 Servicing Rights), dated as of
April 25, 2007, among Wachovia Bank, N.A., Wachovia Capital
Markets, LLC, and NovaStar Mortgage, Inc.
10.2 Guaranty and Pledge Agreement, dated as of April 25, 2007, made
by NovaStar Financial, Inc., NFI Holding Corporation, NovaStar
Mortgage, Inc. and HomeView Lending, Inc. in favor of Wachovia
Bank, N.A.
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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: May 1, 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 Servicing Rights), dated as of April
25, 2007, among Wachovia Bank, N.A., Wachovia Capital Markets, LLC,
and NovaStar Mortgage, Inc.
10.2 Guaranty and Pledge Agreement, dated as of April 25, 2007, made by
NovaStar Financial, Inc., NFI Holding Corporation, NovaStar Mortgage
Inc. and HomeView Lending, Inc. in favor of Wachovia Bank, N.A.
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