But the very poor delinquency performance of their securitizations this quarter show two things. One, their equity is in danger of being wiped out, and that another cash infusion at very unfavorable terms will probably be necessary. Two, Delta's niche underwriting in the sub-prime market might not be as good as they made it out to seem.
Today, we got confirmation of 'One'.
Delta Financial Corporation (the “Company”) entered into a letter of intent, dated November 15, 2007, with an affiliate of Angelo, Gordon & Co., one of the Company’s principal stockholders...
If the proposed transaction is completed, an affiliate of Angelo, Gordon & Co., AG Special Situation Corp. (“AGSSC”) will purchase from the Company a new series of 10% Senior Secured Notes. The maturity of the notes will be three years after issuance. The initial aggregate principal amount of the notes will be equal $100.0 million, minus the principal amount outstanding under the August 2007 residual financing facility as of the issuance date of the notes. The Company currently estimates that if the transaction closes in December 2007, such principal amount will be approximately between $45 million and $49 million, such that the initial principal amount of the 10% Senior Secured Notes will be between $51 million and $55 million. Interest on the notes is expected to be payable on a payment-in-kind basis until the first anniversary of the closing date. In connection with the proposed note issuance, the Company will issue to AGSSC 40 million newly issued shares of common stock as additional consideration, which may be initially issued in the form of convertible preferred stock or convertible debt securities. The Company will also reduce the exercise price of Angelo Gordon’s warrants to purchase 10.0 million shares of common stock to $1.00 per share. The warrants remain due to expire in February 2009.
If the transaction closes as planned, Angelo Gordon will be the beneficial owner of approximately 61.4% of the Company’s outstanding common stock, and approximately 66.5% of the Company’s outstanding stock if it exercises all of its warrants. Upon the closing of the transaction, subject to certain limitations intended to comply with certain state lending regulations, AGSSC will obtain the right to elect a majority of the Company’s Board of Directors. AGSSC will also obtain registration rights with respect to the new shares of common stock, and preemptive rights with respect to the issuance of new shares of the Company’s capital stock.
The company had about 24 million diluted shares outstanding at the end of the 3rd Quarter. The company is giving Angelo Gordon 40 million new shares just for the ability to borrow money- $55 million at 10%.