Luminent Mortgage Capital Inc, which has struggled with liquidity problems because of investments in mortgages, on Monday announced a bailout in which it would sell a majority stake in itself at a deep discount.
Arco Capital Corp., a San Juan-based holding company, would be issued five-year warrants to buy up to a 51 percent economic interest in Luminent at 18 cents per share, about 74 percent below where the shares traded on Friday. The investment would give Arco a 49 percent voting stake.
In addition, Luminent said Arco would inject up to $60 million of new capital, buy $65 million of mortgage securities, and may buy other company assets. Four new directors will join Luminent's board.
Luminent, a San Francisco-based real estate investment trust, this month suspended its quarterly dividend and said it received default notices for about $2.3 billion of debt as the secondary market for mortgage securities seized up.
The REIT said it decided not to get shareholder approval for the warrants, saying any delay may seriously further jeopardize its financial viability.
Even with the possibility of sizable dilution to existing Luminent stockholders, the transactions ... create the best path both to attempt to protect current value and grow potential value, Luminent Chief Executive Trez Moore said in a statement.
Luminent said it plans in the future to be a manager for asset-backed securities. It said the transactions require completion of final agreements and other conditions, and may not address its liquidity shortfalls.
The REIT said it ended June with $9.5 billion of assets and $9.06 billion of liabilities.
Luminent shares traded Friday at about 70 cents in electronic trading. They traded as high as $10.84 last October 9.