New Century trades under $3; market watching AmeriCredit; Winston Hotels up on rival bid

By Ronda Fears

Memphis, March 9 - Distressed funds flocked into New Century Financial Corp. as the stock extended massive losses Friday, traders said, after the subprime mortgage lender said it will no longer accept loan applications because its warehouse bankers are refusing to provide funding.

Beyond the subprime mortgage crisis, traders said the market was watching for a possible spillover into credit cards and even auto loans.

Thus, one trader said there will be many eyes on the loan pool data anticipated Monday from auto finance giant AmeriCredit Corp. Others on the auto loan watch list, traders said, are Credit Acceptance Corp., Consumer Portfolio Services, Inc. and First Investors Financial Services Group, Inc. In credit cards, traders are watching for signs of delinquencies at American Express Co., Mastercard Inc. and others such as Washington Mutual Inc.

AmeriCredit shares (NYSE: ACF) slipped by 11 cents on Friday to close at $24.13 and were seen lower in after-hours activity.

Fort Worth, Texas-based AmeriCredit specializes in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles, as well as in making auto loans directly to consumers, many of which the company says have limited access to automobile financing.

The pool data will show loss reserves and delinquency data, among other factors of the auto loan business such as securitization and receivables figures.

"The ACF numbers are supposed to be out Monday. These are subprime auto loans. Most people are expecting them to come in fine, as the pools have been performing well," one trader said.

"But if the numbers are off, then this mess will spread to credit cards and auto loans."

Another trader thinks the AmeriCredit pool data will be negative.

"Soon the desperate use of the buyback will be over and this company will go down where it belongs, with the rest of the subprime crap," the trader said, referring to an aggressive stock buyback program by AmeriCredit over the past two to three years.

"It's foolish to think otherwise. If the company were smart they would have suspended the buyback long ago. It will only accelerate the company's downfall. It was last to go down in the last subprime blow up, in 1998, and history again is repeating itself. This one could have a New Century-like blow up any day now. I think there is a low-grade fear that they are hiding the default issues."

New Century dips below $3

The decline in New Century shares below $3 sparked a horde of distressed players into the name, according to one trader, noting whopping volume of 34 million shares versus the norm of 6.58 million shares.

New Century (NYSE: NEW) lost another 66 cents on Friday, or 17.05%, to close at $3.21 after trading in a band of $2.96 to $3.51. The stock is down from a 52-week high of $51.97.

"There have been some distressed guys dipping their toes into this one [New Century] for a couple of weeks now, but it got crazy today," the trader said, echoing remarks by other traders earlier in the week that the $3 mark would be a big trigger for distressed funds to start buying into New Century.

New Century has breached credit facility covenants regarding minimum financial targets that govern agreements with warehouse lenders and has failed to get waivers from five or six of its 11 lenders. It also has been obliged to repurchase some bad loans by one of its lenders but has received $265 million in financing from another; Citigroup is rumored to be the former and Morgan Stanley the latter.

The company is also the subject of a federal investigation into its accounting practices and stock trading. Also this week, David Einhorn, manager of Greenlight Capital hedge fund with a 6.3% stake in the company, resigned his position as a director.

Fieldstone deal threatened

Anxiety that the Fieldstone Investment Corp. takeover by Credit-Based Asset Servicing and Securitization LLC - an affiliate of MGIC Investments Corp. and Radian Group Inc. - would unravel also put more pressure on that stock. One distressed trader, however, said he thinks there are buyers speculating the deal will go through.

At best, onlookers anticipate C-Bass will want to renegotiate a lower price tag; at worse, C-Bass will call the deal off altogether. The Feb. 16 agreement set a $5.53 acquisition price, which could be reduced by 20 cents per share if Fieldstone cannot resolve certain lawsuits before the transaction is closed.

Fieldstone shares (Nasdaq: FICC) lost 35 cents, or 8.64%, to close at $3.70.

"This is a good opportunity for liquid buyers," the distressed trader said. "They have a deal signed. There is a break-up fee - not much, but it's something. I think it is worth a wait."

Fieldstone shares are down from a 52-week high of $12.64.

Fremont sale chance founders

The chances that Fremont General Corp. will find a buyer for its subprime mortgage unit, which accounts for about half of its business, are dwindling, traders said.

The stock (NYSE: FMT) dropped 31 cents, or 3.72%, to settle at $8.03. It is off a 52-week high of $22.95.

"With the cease-and-desist order looming over the subprime unit, it will be extremely hard to shop" it to potential buyers, one trader said.

Fremont on Thursday agreed to a cease-and-desist order, essentially shutting down the unit, filed earlier in the week by the Federal Deposit Insurance Corp., which cited lax qualification standards for subprime mortgages.

The company has hired Credit Suisse to help the company sell its subprime mortgage business, according to a Securities and Exchange Commission filing, but the mortgage lender also disclosed Friday that it was unable to estimate the cost of selling out and added that there is no guarantee of finding a buyer for the troubled unit.

Winston smoking on rival bid

Winston Hotels Inc. soared to a fresh high Friday after the real estate investment trust received an unsolicited rival takeover offer from Inland American Real Estate Trust Inc. at $15 per share, topping an offer of $14.10 per share accepted last month from Wilbur Acquisition Holding Co.

Winston Hotels shares (NYSE: WXH) closed at $15.29, better on the day by $1.32, or 9.45%. The stock peaked Friday at $15.50 on Inland's $457.5 million bid, beating a previous 52-week high of $14.49 hit Feb. 23 on the Wilbur deal.

Some are hoping for a full-fledged bidding war. One market source reckoned the bids could go as high as $16.50 to $17.

Another source, however, was a seller in the afternoon, saying "I don't see it going any higher, and I think Wilbur goes away happy."

Last month, Raleigh, N.C.-based Winston accepted a buyout offer from Wilbur, which is held by affiliates of Och-Ziff Real Estate and Norge Churchill Inc.

Robert W. Baird & Co. analyst David Loeb said Inland American's bid as more in line with the company's value than Wilbur's.

"It is likely that the value of Winston's lending program was recognized by Inland, allowing it to deliver a share price in excess of Och-Ziff, which we believe was not particularly interested in the lending platform," Loeb said in a research note. He added the Inland proposal better recognizes the internal growth from newly developed and acquired hotels.

In December, Moody's Investors Service said Winston achieved diversification through modest growth in its gross asset base to $692 million at Sept. 30 from $665 million at year-end 2005 and has plans to acquire more assets in 2007. The agency noted that occupancy improved to 73% at third quarter from 71% at year-end 2005. Offsetting that, significant brand concentration was noted, with Hilton and Marriott have roughly 80% of all rooms and 39 of Winston's 53 hotels managed by Alliance Hospitality.

Winston preferreds 'a steal'

There was "tremendous" buying in the Winston Hotels 8% series B preferreds, another trader said.

The issue (NYSE: WXH-PB) gained 46 cents on the day, or 2.04%, to settle at $23, after trading up to $23.15. Some 43,400 preferreds traded versus the norm of 7,965 preferreds.

"With the change in control it seems the preferred B shares are the buy. It appears that Winston Hotels has to pay a premium over the $25 face to redeem the preferred shares early as a result of the change in control. The premium is $1.25/share prorated from February 2004 and February 2009 or about $0.25 per share per year of early redemption, plus accrued dividends," the trader said.

"The preferreds are a steal under $25."

On March 2, Winston also declared a cash dividend of $0.50 per series B cumulative preferred share for first quarter, payable on April 16 to holders of record on March 30. Pursuant to the Wilber merger agreement, the company was prohibited from paying common dividends.

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