Calls of Note Part 5

- FBR says that given the liquidity crunch facing many nonprime originators, the option to receive a secured loan could provide temporary relief for originators that are in need of increased liquidity. While the firm believes investors would view such actions as a positive for the subprime sector, as they signal that capital is available, they do not believe attractive financing terms would be available for NEW or NFI. While other originators are facing a liquidity crunch, they believe the companies most likely to receive secured loans are still originating loans, have access to warehouse lines, generally possess better collateral performance, and are running at generally low levels of leverage. As such, they would not expect NEW or NFI to garner attractive financing terms to enable such a transaction.

With regard to NFI, while operationally it is in better condition than NEW, the firm believes the shear leverage (31x) leaves NFI very little in the way of assets to pledge for a secured commitment. Furthermore, the potential liquidity liability associated with the FY07 income carryforward (approximately $150 million cash liability as a dividend, or an estimated $68 million cash liability as a tax and penalty payment in de-REIT scenario) would use much of any injection of liquidity without improving the operating condition of the company.

Notablecalls: Thought it was important to highlight the call as the subprimes are the trader's favourites these days.