NovaStar Financial is planning to issue its first CDO next year, according to company executives. The move appears to shift the Kansas City-based subprime lender into a growing trend of subprime lenders and Wall Street investment banks seeking growth and cost efficiency through vertical integration.

"It's a way to put capital to work at good returns," said Scott Hartman, NovaStar's chairman and chief executive, said last week during an investor conference. Hartman said the issuance, which - according to one market observer - is expected within the next six months, will be used as a source of matched-term financing. The company is considering selling only highly rated bonds and keeping the subordinated pieces on its balance sheet.

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