Magazine article American Banker

A REIT in Calif. Postpones Report, Mulls Conversion

Magazine article American Banker

A REIT in Calif. Postpones Report, Mulls Conversion

Article excerpt

The Irvine, Calif., real estate investment trust ECC Capital Corp. notified the Securities and Exchange Commission that it would delay the filing of its 2005 annual report by 15 days.

ECC, which officially notified the SEC about the delay Monday, gave April 17 as its new deadline for filing the report.

On March 31, ECC said in a press release that it needed the extra time because it is "assessing the impact of potentially converting from a REIT to a C-corp in order to improve liquidity through the permanent elimination of required dividend distributions." Converting to a conventional C corporation would also let it "utilize the operating loss carry forwards of its mortgage banking segment."

ECC, which owns the subprime wholesaler Encore Credit Corp. and a retail unit, Bravo Credit Corp., also said it was "exploring several potential strategic actions," including a possible sale.

Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. Inc., in Arlington, Va., said that Encore, like other lenders specializing in risky loans, recently experienced a "pretty large decline in whole loan bids" for loans at the lower end of the subprime credit spectrum, and in no- or limited-documentation loans.

Because ECC is a REIT, its loan portfolio income is not taxed, but it has to pay out almost all its profits as dividends to investors. As a C corporation, ECC would lose its tax-exempt status but would be able to retain the portfolio income. It would also be able to use net operating loss carryforwards created at the subsidiary level to reduce future taxable income.

On Jan. 6, ECC announced that it was consolidating its seven wholesale loan processing centers into three and streamlining Bravo Credit. At that time ECC said the reorganization, which it expected to complete by March, would reduce the work force by more than 440, or 27%. …

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