Printer Friendly

ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES PENDING DEFAULT ON ESSEX 11'S AND STATUS OF PENDING MERGER OF SAVINGS BANKS

 VIRGINIA BEACH, Va., Jan. 4 /PRNewswire/ -- Pursuant to a Nov. 23, 1990, note offering, Essex Mortgage Corporation (EMC), an indirect wholly-owned non-bank mortgage subsidiary of Essex Financial Partners, L.P. (AMEX: ESX) (the Partnership), issued $23.4 million in debt securities (Essex 11's) in January and February 1991, which are secured by purchased mortgage servicing rights (PMSR's) and cash or cash equivalents held in trust. Under the terms of the Indenture of Trust (the Indenture) relating to the Essex 11's, EMC was required to make note interest and redemption payments totaling approximately $2.5 million on Dec. 31, 1992, and must make an additional sinking fund payment of approximately $2.7 million in February 1993. In its Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 1992, and as discussed below, the Partnership disclosed uncertainties surrounding the ability of EMC to make these scheduled payments and otherwise to comply with conditions related to the Essex 11's. At that time, the Partnership reported that EMC hoped to resolve its liquidity problems and to satisfy the debt service obligations, subject to the funding of a third-party credit facility. The funding of that credit facility was subject to a number of conditions that have not yet been satisfied, and management is unable to predict when, if at all, those conditions can be met. As described below, EMC failed to make the payments of interest and principal due and payable on Dec. 31, 1992. An "event of default" under the Indenture will occur if these defaults continue for a period of 30 days. Such an "event of default" would likely result in an acceleration of the Essex 11's and lead to a demand against the guaranty of the Essex 11's executed by the Partnership.
 EMC's deteriorating liquidity, in conjunction with its obligation to fund the scheduled December 1992 and February 1993 payments, made it necessary to obtain a third-party commitment for a credit facility which management believed would provide sufficient liquidity for EMC to fund its debt service payments. The credit facility was subject to a number of conditions, including consummation of the pending merger of the Partnership's three indirect savings bank subsidiaries (the Savings Banks), which is dependent upon regulatory approval. A merger application has been filed with the Office of Thrift Supervision (the OTS) and was pending regulatory approval at Dec. 31, 1992. In the meantime, the North Carolina thrift (ESB-NC), in order to facilitate the proposed merger, has received approval from OTS to convert from a state-chartered to a federally-chartered institution. Management believes that the principal factor in the failure of the OTS to approve the pending merger application is the OTS's desire to resolve certain regulatory issues arising out of the removal of the Partnership's former general partner in May 1992. On May 1, 1992, the Investment Committee of the Partnership voted to approve Thrift Management Services I, Inc. (TMSI), as an interim general partner of the Partnership and concurrently to remove Essex Financial Group, Inc., as a general partner of the Partnership. Two applications were filed with the OTS in connection with the removal and replacement of the former general partner, an H(e)-4 "information filing" to install TMSI as the interim general partner and a separate H(e)-2 filing to propose Thrift Management Services, Inc. (TMS) as the permanent general partner. At the time of this action, it was the intent of the Investment Committee to leave TMSI in place until the OTS approved TMS as the permanent general partner. The OTS has objected to certain matters relating to the installation of TMSI as the interim general partner and the approval of TMS as the permanent general partner. There are ongoing discussions with the OTS regarding a possible resolution of these issues; however, the OTS has recently indicated that a resolution of the change in control issue is a condition to approving the merger of the Savings Banks.
 Approval of the merger of the Savings Banks is also critical to the regulatory capital status of the Savings Banks. If the merger is not approved on a timely basis, and if ESB-NC suffers negative operating results in the fourth quarter of 1992, as projected in an amended capital plan filed with the OTS on Nov. 23, 1992, ESB-NC could become subject to certain provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Under FDICIA, an institution with a tangible capital ratio of less than 2.0 percent is considered "critically undercapitalized." At Sept. 30, 1992, ESB-NC's tangible capital ratio was 2.02 percent, and by Jan. 30, 1993, ESB-NC will be required to report to the OTS its capital position as of Dec. 31, 1992. FDICIA requires the OTS to appoint a receiver or conservator for a savings bank or association within 90 days after it becomes critically undercapitalized unless the OTS determines, with the concurrence of the FDIC, that other action would better achieve FDICIA's purposes. Approval and implementation of the merger would avoid the impact of FDICIA because the merged savings bank will have tangible capital in excess of 2.0 percent; however, without benefit of the merger, ESB-NC may be deemed critically undercapitalized as of Dec. 31, 1992, and thus subject to supervisory action by the regulatory agencies.
 The funding of the credit facility described above was also conditioned upon reaching a more permanent solution to EMC's capital problem. The operations of EMC are significantly impacted by changes in mortgage interest rates. The purchase price of PMSR's owned by EMC was based in part on assumptions as to the prepayment rate of the underlying loans being serviced, and the continuing decline in home mortgage interest rates has resulted in a prepayment rate greater than that projected. This unanticipated level of prepayments has resulted in $7.7 million of additional amortization expense at EMC over amounts originally estimated for the first nine months of 1992. Furthermore, loan servicing fee income was approximately $1 million less than estimated due to the impairment of PMSR's. This impairment in the value of the PMSR's has contributed to a significant decline in EMC's capital position from $2.6 million at Dec. 31, 1991, to a capital deficit of $7.4 million at Sept. 30, 1992. As has been previously reported, EMC is required to satisfy net worth requirements imposed by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). If either FNMA or FHLMC revokes EMC's right to service mortgage loans, such an occurrence would also be an "event of default" under the Indenture, and would likely result in an acceleration of the Essex 11's and lead to a demand against the guaranty of the Essex 11's executed by the Partnership. Management is aggressively pursuing restructuring options designed to address EMC's capital problem and continues to have serious ongoing discussions with a third party, as previously stated. However, a solution had not been agreed upon at Dec. 31, 1992.
 -0- 1/4/93
 /CONTACT: Lisa Nasis, investor relations, Essex Financial Partners, 800-274-9900, ext. 605/
 (ESX)


CO: Essex Mortgage Corporation; Essex Financial Partners, L.P. ST: Virginia IN: FIN SU:

DC -- DC021 -- 1453 01/04/93 17:15 EST
COPYRIGHT 1993 PR Newswire Association LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:PR Newswire
Date:Jan 4, 1993
Words:1199
Previous Article:MASTERCRAFT PROMOTIONS: SCHOEN NAMED PRESIDENT; COFFIN, MILLWATER ELEVATED
Next Article:GSA AND SUPPLY AND SERVICES CANADA SIGN FIVE-YEAR PACT
Topics:


Related Articles
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES QUARTERLY CASH DISTRIBUTION
ESSEX FINANCIAL PARTNERS, L.P. ANNOUNCES SECOND QUARTER DISTRIBUTION
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES STATUS OF REORGANIZATION TRANSACTIONS
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES FOURTH QUARTER RESULTS
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES FIRST QUARTER RESULTS
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES SECOND QUARTER RESULTS
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES THIRD QUARTER RESULTS
ESSEX FINANCIAL PARTNERS, L.P., ANNOUNCES THIRD QUARTER RESULTS
ESSEX FINANCIAL PARTNERS, L.P. ANNOUNCES APPROVAL OF CLASS ACTION LITIGATION SETTLEMENT
ESSEX FINANCIAL PARTNERS, L.P. ANNOUNCES THIRD QUARTER RESULTS AND ONGOING DEVELOPMENTS

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters