Ailing lender wins OK for sale

Fieldstone's shareholders approve deal with C-BASS

May 23, 2007|By Laura Smitherman | Laura Smitherman,Sun reporter

Shareholders in Fieldstone Investment Corp. of Columbia approved yesterday the sale of the struggling nationwide subprime lender to Credit-Based Asset Servicing and Securitization LLC in a deal valued at $188 million.

Fieldstone agreed in February to be acquired by the New York firm known as C-BASS, which collects mortgage payments and buys troubled loans.

Shareholders get $4 per share in cash under the agreement. Nearly all of the shares voted in person or by proxy were cast in favor of the deal at a special shareholders meeting that lasted less than 10 minutes at the Sheraton Columbia Hotel.

The companies expect the transaction, which also is subject to regulatory approvals, to close by the end of next month.

Like many subprime lenders who extend loans to high-risk borrowers with poor credit ratings or high debt, Fieldstone has been hit by a rising number of loan defaults and is facing a liquidity crunch.

C-BASS earlier agreed to buy some of the company's assets to keep it afloat until the deal is completed.

The merger is a "nice marriage" because it gives Fieldstone, which sells mortgages through branches and independent brokers, the ability to use the loan servicing capabilities of C-BASS, said Mitchel S. Penn, an analyst at Legg Mason Capital Management.

The stock-picking shop, run by Legg Mason's star money manager Bill Miller, has invested in Fieldstone. "They had loans that everyone was having trouble with, and the value of those loans went down pretty quickly," Penn said.

"My guess is they needed to find a partner like C-BASS that gave them more access to capital," Penn said.

Mortgage banker Michael J. Sonnenfeld founded Fieldstone 12 years ago, and early investors were members of the Bass family of Texas, whose wealth stems from deep ties to the oil industry.

Fieldstone shares have steadily declined over the past two years, losing three-fourths of their value. The stock fell 4 cents, or 1 percent, to $3.86 yesterday on the Nasdaq stock market.

A shareholder class action suit has been filed in Howard County Circuit Court, seeking to block the C-BASS deal. It alleges that Sonnenfeld and other directors didn't fulfill their fiduciary duty to shareholders to get the highest possible price for the stock.

Edward J. Fuhr, a lawyer for C-BASS, said he expects that the lawsuit will be dismissed.

"This was a transaction that was very much in the shareholders' best interest, and I think the shareholder vote reflects that," Fuhr said. "The primary purpose of the lawsuit was to try to enjoin the shareholders from voting on the proposed transaction, and it wholly failed in that effort."

Federal regulators are investigating allegations that Fieldstone improperly fired its former general counsel, Cynthia L. Harkness, who left the company in January. In a complaint filed with a division of the U.S. Labor Department under the Sarbanes-Oxley corporate accountability law, Harkness said she was terminated in retaliation for reporting alleged violations of securities and other laws by senior management.

Fieldstone said in a regulatory filing that the whistleblower complaint is without merit. Thomas S. Brennan, who replaced Harkness as Fieldstone's general counsel, has declined to comment further.

R. Michael Smith, the lawyer who represents Harkness, also declined to comment.

Fieldstone posted a $69 million loss in the first quarter and reported that it had $416 million in loans that were more than three months past due, or where collection was otherwise in doubt.

The company announced last month that it would lay off about 125 people, or nearly 15 percent of its work force, and close several branch offices.

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