NovaStar Financial Inc., Kansas City, Mo., is looking to turn two classes of its preferred stock into common stock; there is also an option to give a cash payment plus stock.
The offer has driven down the company's common stock price (trading on the pink sheets) by 43% through midday Monday, from $0.67 per share to $0.38 per share; at one point during the morning, the stock hit a 52-week low of $0.25 per share.
The three-month average volume is approximately 6,700 shares traded per day; so far today, 258,000 shares have changed hands.
For its publicly-held 8.90% Series C Cumulative Redeemable Preferred Stock, NovaStar is offering for either three shares of newly issued common stock as well as $2 cash or 19 shares of newly-issued common stock, for each of the nearly 3 million outstanding shares.
The company has allocated nearly 44 million shares and $1.6 million in cash for this offering and the actual amount of cash and stock issued depends on how many people choose the cash and stock option vs. the stock-only option.
NovaStar has entered into an agreement with two holders of the Series C stock, Howard Amster and Barry Igdaloff, who control 18% of its outstanding shares, to support the deal. Both men represent the holders of this class on NovaStar's board.
For the privately-held 9.00% Series D1 Mandatory Convertible Preferred Stock, its holders have agreed to exchange each of their 2.1 million shares for a total of 37 million shares of common stock plus nearly $1.4 million in cash.
The offering will allow NovaStar to eliminate $127 million in the liquidation value of the preferred stock classes, eliminate $47 million of unpaid dividends due and preserve significant tax benefits regarding its net operating loss carryforwards.
NovaStar manages a portfolio of nonconforming residential mortgage-backed securities and is the majority owner of StreetLinks National Appraisal Services, an appraisal management company.
