Form 8-K
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
May 9, 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 (Commission File (I.R.S. Employer
of incorporation or Number) Identification No.)
organization
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 Whole Loan Master Repurchase Agreement
On May 9, 2007, Wachovia Bank, NA (together with its affiliates, "Wachovia"),
NFI Repurchase Corporation, NMI Repurchase Corporation, HomeView Lending, Inc.,
NMI Property Financing, Inc., NovaStar Financial, Inc. (together with its
affiliates, "NovaStar"), NFI Holding Corporation and NovaStar Mortgage, Inc.
executed a Master Repurchase Agreement (2007 Whole Loan) (the "Whole Loan
Facility" or "Agreement"), which provides financing to certain subsidiaries of
NovaStar Financial, Inc. for the origination, purchase, and holding of certain
eligible mortgage loans and residential real estate owned ("REO Properties").
The facility has a term of 364 days. Specific assets may be financed under this
Agreement for 180 days, subject to extension up to 270 days for certain amounts
and up to 364 days for certain reacquired or sub-performing loans and REO
Properties. All obligations under the Agreement are guaranteed by NovaStar
Financial, Inc., NFI Holding Corporation, NovaStar Mortgage, Inc. and HomeView
Lending, Inc., and are secured by the mortgage loans financed under the Whole
Loan Facility, servicing rights related to the mortgage loans financed under the
Whole Loan Facility and by a pledge of the stock of certain special purpose
subsidiaries of NovaStar holding REO Properties financed under the Agreement. In
addition to the financing facilities described in this Current Report, Wachovia
and certain of its affiliates 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 amount available under this Agreement is $1.9 billion, which amount will be
reduced by the maximum aggregate purchase price and amounts advanced under
certain other repurchase agreements expected to be executed between Wachovia and
NovaStar. The various categories of mortgage loans and REO Properties that may
be financed under the Whole Loan Facility are subject to additional sublimits
based upon certain characteristics of the assets. The amounts outstanding under
the Servicing Rights Facility and the Residual Securities Facility (each as
defined below) will not reduce the amount outstanding under the Whole Loan
Facility. The specific advance rate applicable to a particular asset depends on,
among other matters, the type, age and performance of such asset and, in some
cases, NovaStar Financial, Inc.'s level of liquidity. For recently originated
mortgage loans under which there has been no delinquency in any of the first
three monthly payments following origination, the advance rate under this
Agreement is generally between 95% and 98% of the market value of such loan and
such advances will bear interest at one-month LIBOR plus 0.65%. For other
mortgage loans and REO Properties, the advance rate is generally between from
65% to 95% of market value, but may be lower pending Wachovia's review of a
particular asset, and such advances bear interest at a rate ranging from
one-month LIBOR plus 0.65% to one-month LIBOR plus 2%. In addition, advance
rates for mortgage loans and REO Properties are subject to additional but
similar limitations based upon the outstanding principal balance of the
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mortgage loan or the appraised value of the REO Property and, in some cases,
additional but similar limitations based upon NovaStar's valuation of the asset,
cost, or committed sale price.
The market value of the assets will be determined by Wachovia in its sole
discretion. If, in Wachovia's opinion, the market value of assets that are then
financed under the Whole Loan Facility decreases for any reason, NovaStar will
be required to repay the margin or difference in market value, or provide
additional collateral.
NovaStar Mortgage will remain the servicer of the mortgage loans purchased by
Wachovia under this Whole Loan Facility, provided Wachovia will have the right
to replace NovaStar Mortgage as the servicer if the adjusted tangible net worth
of NovaStar falls below a certain amount.
The Whole Loan Facility is cross-collateralized with all other repurchase and
similar financing facilities between NovaStar and Wachovia, including the
Servicing Rights Facility and the Residual Securities Facility (each as defined
below). NovaStar will be required to pay Wachovia a structuring fee in
connection with the Whole Loan Facility and certain additional fees and
expenses, including but not limited to reimbursement of due diligence expenses
and payment of certain fees in the event of voluntary prepayment or termination
by NovaStar or the occurrence of an event of default. In addition, upon a change
of control of NovaStar Financial, Inc., Wachovia has the right to terminate the
Agreement and require the payment of a termination fee.
The Whole Loan Facility requires that the adjusted consolidated tangible net
worth of NovaStar Financial, Inc. exceed both $517 million (less the amount of
required REIT dividends) 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, at least $30 million of liquidity.
The Whole Loan Facility prohibits NovaStar Financial, Inc. from paying any
dividends (other than dividends payable in stock), except for the payment of (i)
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
and (ii) dividends on NovaStar Financial, Inc.'s 8.90% Series C Cumulative
Redeemable Preferred Stock and on the trust preferred securities issued by
NovaStar Capital Trust I and NovaStar Capital Trust II. Absent the prior consent
of Wachovia, permitted dividends may not be paid in cash. Dividends on the 8.90%
Series C Cumulative Redeemable Preferred Stock and on the trust preferred
securities can only be paid if after such payments NovaStar Financial, Inc. has
$30 million of liquidity. Further, dividends paid to enable NovaStar Financial,
Inc. to comply with applicable tax requirements 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
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dividend necessary pursuant to applicable tax laws 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.
The Whole Loan Facility contains other customary affirmative and negative
covenants, including but not limited to covenants prohibiting fundamental
changes in the nature of the business of NovaStar, prohibiting sales by NovaStar
of a material portion of its business or assets outside of the ordinary course
of business, and prohibiting transactions between a NovaStar and any of its
other affiliates that are not on arms-length terms.
The Whole Loan Facility provides for certain additional events of default,
including but not limited to the failure by NovaStar 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 Whole Loan Facility,
representations or warranties made by NovaStar under the Whole Loan 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 Whole Loan Facility, Wachovia has the
right, in addition to other rights and remedies, to accelerate the repurchase
and other obligations of NovaStar under the Whole Loan Facility and the related
Guaranty, to cause all income generated by the purchased assets to be applied to
the accelerated obligations, to terminate NovaStar Mortgage, Inc. as the
servicer with respect to the purchased assets 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 Whole Loan 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 Whole Loan Facility or
under any other agreement. Further, NovaStar 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 Whole Loan Facility and the
related Guaranty. This summary is qualified in its entirety by reference to the
full text of the
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Whole Loan Facility and the related Guaranty, which are attached hereto as
Exhibit 10.1and 10.2, respectively, and are incorporated herein by reference.
Amendment Number One to Wachovia Master Repurchase Agreement (2007 Servicing
Rights) and Amendment Number One to Wachovia Master Repurchase Agreement
(Residual Securities)
On May 10, 2007, Wachovia Bank, N.A., Wachovia Capital Markets, LLC, NovaStar
Mortgage, Inc., NovaStar Financial, Inc., NovaStar Holding Corporation and
HomeView Lending Inc. executed Amendment Number One to the Master Repurchase
Agreement (2007 Servicing Rights) (the "Servicing Rights Facility") dated as of
April 25, 2007 (the "Servicing Rights Amendment"), and Wachovia Investment
Holdings, LLC, Wachovia Capital Markets, LLC, NovaStar Mortgage, Inc., NovaStar
Certificates Financing LLC and NovaStar Certificates Financing Corporation
executed Amendment Number One to the Master Repurchase Agreement (Residual
Securities) (the "Residual Securities Facility"), dated as of April 18, 2007
(the "Residual Securities Amendment" and together with the Servicing Rights
Amendment, the "Amendments").
Under the Amendments, if NovaStar fails to satisfy any cash margin call under
these facilities, Wachovia may increase the amounts outstanding under certain
other facilities with Wachovia to satisfy such margin calls regardless of
whether NovaStar could otherwise borrow such amount under such other facilities.
The Amendments also increase the amount of adjusted consolidated tangible net
worth that NovaStar Financial, Inc. is required to maintain from $400 million to
$517 million, (in each case, less the amount of required REIT dividends).
Finally, in addition to permitting the payment of dividends necessary for
NovaStar Financial, Inc. to maintain its status as a REIT, subject to certain
limitations, the Amendments permit the payment of dividends on NovaStar
Financial, Inc.'s 8.90% Series C Cumulative Redeemable Preferred Stock and on
trust preferred securities issued by NovaStar Capital Trust I and NovaStar
Capital Trust II so long as after the payment of such dividends NovaStar
Financial, Inc. would have at least $30 million of liquidity and permit the
payment of such dividends in cash only with the permission of Wachovia.
The Servicing Rights Agreement Amendment clarifies that the Service Rights
Facility terminates on April 18, 2008, not April 24, 2008.
The foregoing is a summary of the terms of the Amendments. This summary is
qualified in its entirety by reference to the full text of the Amendments, which
are attached hereto as Exhibit 10.3 and 10.4, respectively, and are incorporated
herein by reference.
Extensions of Existing Wachovia Facilities
On May 11, 2007, NovaStar entered into a short-term extension of two existing
one-year Master Repurchase Agreements with Wachovia. One facility sets forth the
terms under
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which certain of NovaStar's subsidiaries may sell and Wachovia may purchase
certain mortgage securities and the other sets fort the terms under which
certain of NovaStar's subsidiaries may sell and Wachovia may purchase certain
mortgage loans, in each case against an obligation of the relevant subsidiaries
of NovaStar to repurchase the mortgage loans or mortgage securities purchased by
Wachovia. The termination date of these facilities was extended to May 18, 2007.
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 Whole Loan Master Repurchase Agreement" and "Amendment Number One
to Wachovia Master Repurchase Agreement (2007 Servicing Rights) and Amendment
Number One to Wachovia Master Repurchase Agreement (Residual Securities)" under
Item 1.01 of this Current Report which are incorporated herein by reference.
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 Whole Loan), dated as of May 9,
2007, among Wachovia Bank, N.A., NFI Repurchase Corporation, NMI
Repurchase Corporation, HomeView Lending, Inc., NMI Property
Financing, Inc., NovaStar Financial, Inc., NFI Holding Corporation and
NovaStar Mortgage, Inc.
10.2 Guaranty, dated as of May 9, 2007, among NovaStar Financial, Inc., NFI
Holding Corporation, NovaStar Mortgage, Inc., HomeView Lending, Inc.,
and Wachovia Bank, NA.
10.3 Amendment Number One to Master Repurchase Agreement (2007 Servicing
Rights), dated as of May 10, 2007 among Wachovia Bank, N.A., Wachovia
Capital Markets, LLC, and NovaStar Mortgage, Inc.
10.4 Amendment Number One to Master Repurchase Agreement (Residual
Securities), dated as of May 10, 2007 among Wachovia Investment
Holdings, LLC, Wachovia Capital markets, LLC, NovaStar Mortgage, Inc.
NovaStar Certificates Financing LLC and NovaStar Certificates
Financing Corporation.
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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 15, 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 Whole Loan), dated as of May 9,
2007, among Wachovia Bank, N.A., NFI Repurchase Corporation, NMI
Repurchase Corporation, HomeView Lending, Inc., NMI Property
Financing, Inc., NovaStar Financial, Inc., NFI Holding Corporation and
NovaStar Mortgage, Inc.
10.2 Guaranty, dated as of May 9, 2007, among NovaStar Financial, Inc., NFI
Holding Corporation, NovaStar Mortgage, Inc., HomeView Lending, Inc.,
and Wachovia Bank, NA.
10.3 Amendment Number One to Master Repurchase Agreement (2007 Servicing
Rights), dated as of May 10, 2007 among Wachovia Bank, N.A., Wachovia
Capital Markets, LLC, and NovaStar Mortgage, Inc.
10.4 Amendment Number One to Master Repurchase Agreement (Residual
Securities), dated as of May 10, 2007 among Wachovia Investment
Holdings, LLC, Wachovia Capital markets, LLC, NovaStar Mortgage, Inc.
NovaStar Certificates Financing LLC and NovaStar Certificates
Financing Corporation.
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