The debacle associated with collapsed high-loan-to-value lender FirstPlus Financial Inc. could move one step closer to resolution, pending the sale of its servicing businesses, set to close within 90 days, said market sources.
In the heyday of high-LTV, FirstPlus was the industry's biggest name, originating nearly $1 billion each quarter, according to published reports. However, during the liquidity plunge late in 1998, the bottom dropped out, and FirstPlus filed for Chapter 11 last March.
The company had a very leveraged balance sheet, one source said.
"I believe that the judge has approved the disclosure statement surrounding the plan of reorganization of First Plus," said the source. "And one of the things that's contemplated in that is the sale of the servicing business, which is probably the most viable, high-quality asset that FirstPlus has."
This could be good news for investors, as the certainty will likely add liquidity to the outstanding paper.
However, a major concern is whether or not the market will approve of the acquiring company.
"If the market likes the acquirer, that ought to help the paper," the source said.
"And if it's good news, I suspect you'll see some tightening from the wide spreads," the source added.
In December FirstPlus paper was trading as high as 700 basis points to 800 basis points over the comparable benchmark. Those numbers have dropped into the 600 range lately.
"I'm not sure if the market is discounting less of a problem, or if it's just the [collateralized bond obligation] bid," the source added. "First Plus's triple-B's at that type of a level is likely to attract the CBO players."
FirstPlus came to market five times in 1998, with proceeds exceeding $2.7 billion.
Before filing for bankruptcy, the company's stock fell to 62 cents a share, from $55 a share in early 1998, according to published reports.