Stearns files for bankruptcy with a promise to leave jobs intact
Stearns Holdings and certain subsidiaries have filed for Chapter 11 bankruptcy as part of a restructuring agreement that could reduce debt, solidify Blackstone's ownership stake in the company and preserve jobs.
Blackstone is slated to contribute "substantial new capital" to Stearns under the agreement. It would also expand its current majority ownership stake through its funds to the point where it owns "substantially all" of the mortgage company.
Investment by Blackstone will include $60 million in new money and up to $35 million in "debtor in possession" financing.
"Upon approval by the bankruptcy court, this financing, combined with cash generated by the company's ongoing operations, will be available as needed to support the business during the court-supervised restructuring process," Stearns said in a press release.
Blackstone will provide warehouse lenders with a limited first-loss guarantee and has secured commitments of $1.5 billion, according to Stearns.
While the agreement leaves Blackstone in control of the mortgage company for the time being, Stearns will "have the opportunity to consider proposals from any third party that chooses to offer even more value to the company."
While bankruptcy court approvals are pending, the company plans to continue "operating as normal." Its joint venture and preferred partner entities are not subject to the bankruptcy filings.
In addition to operating through joint venture partners, Stearns offers wholesale and retail residential lending services and has an estimated 2,700 employees.
Blackstone first invested in Stearns back in August 2015. Stearns had amassed the debt being restructured prior to Blackstone's investment.
"The action we are taking today is the next step in our efforts to reposition Stearns for future growth opportunities and enhanced profitability," David Schneider, CEO of Stearns Lending, said in the press release. "We have taken deliberate and proactive actions to reduce costs and refocus on our core businesses. We are now undertaking a comprehensive financial restructuring with the goal of moving forward in a stronger financial position.
"As a long-term investor in the company, Blackstone knows our business well. They share our confidence in Stearns' future prospects and are dedicated to supporting us through this transition. Their desire to continue their relationship and ongoing commitment to our business, employees and partners demonstrates their belief that we will come out of this process stronger than before."