SPFC Writedown Triggers Downgrade

Southern Pacific Funding Corp., Lake Oswego, Ore., has announced that it will take a one-time charge of $60-70 million in the third quarter as a result of changes in the valuation of its residual assets, increased credit loss expectations, and current conditions in the asset-backed, debt, and equity markets.Standard and Poor's responded to the announcement by lowering the company's long-term counterparty credit rating and senior unsecured debt rating from B-minus to CCC-plus and its short-term counterparty credit rating from B to C. Southern Pacific is the latest subprime mortgage lender to take a writedown in response to a prepayment-related decline in the value of its servicing portfolio, but the company said it was increasing credit loss assumptions as well. The company said it believes its adjustments for future period credit losses and prepayments will improve the company's performance if higher prepayment levels persist. In addition, the company said it will sell whole loans rather than securitize its product "for the foreseeable future" due to limited access to capital in today's market. "Although the company continues to pursue strategic alternatives with capital partners, the initiatives announced today will position Southern Pacific to be cash neutral and eliminate its reliance on the volatile capital markets," said Robert W. Howard, Southern Pacific's CEO and vice chairman.