Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 31, 2007
Date of Report (Date of earliest event reported)
NOVASTAR FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Maryland 001-13533 74-2830661
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number
8140 Ward Parkway, Suite 300, Kansas City, MO 64114
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(Address of principal executive offices)
(Zip Code)
(816) 237-7000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Section 1--Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
Master Repurchase Agreement (2007 Non-Investment Grade Securities)
On May 31, 2007, Wachovia Investment Holdings, LLC and Wachovia Capital Markets,
LLC (together with their affiliates, "Wachovia"), NovaStar Mortgage, Inc.,
NovaStar Certificates Financing, LLC, NovaStar Certificates Financing
Corporation, NFI Holding Corporation and NovaStar Financial, Inc. (together with
their affiliates, "NovaStar"), executed a Master Repurchase Agreement (2007
Non-Investment Grade Securities) (the "Non-Investment Grade Securities
Facility"). The Non-Investment Grade Securities Facility provides financing for
certain eligible non-investment grade mortgage securities and has a term of 363
days. All obligations under the Non-Investment Grade Securities Facility are
guaranteed by NovaStar Financial, Inc. and NFI Holding Corporation and are
secured by the mortgage securities financed under the Non-Investment Grade
Securities Facility. In addition to the financing facilities described in this
Current Report, Wachovia and certain of its affiliates provide additional
financing facilities to NovaStar and routinely engage in other ordinary course
financial transactions with NovaStar, including but not limited to acting as an
underwriter for certain securitizations sponsored by NovaStar.
The maximum amount available under the Non-Investment Grade Securities Facility
is $400 million, which amount will be reduced to the extent that amounts
outstanding at such time under certain other repurchase facilities between
Wachovia and NovaStar exceed $1.5 billion. The advance rate under the
Non-Investment Grade Securities Facility is up to 65% of the market value of the
mortgage securities securing the advance. The interest rate applicable to such
advances will range from one-month LIBOR plus 1% to one-month LIBOR plus 2.5%,
depending on the type of mortgage securities securing the advance.
The market value of the mortgage securities will be determined by Wachovia in
its sole discretion. If, in Wachovia's opinion, the market value of mortgage
securities that are then financed under the Non-Investment Grade Securities
Facility decreases for any reason, NovaStar will be required to repay the margin
or difference in market value, or provide additional collateral.
The Non-Investment Grade Securities Facility is cross-collateralized with all
other repurchase and similar financing facilities between NovaStar and Wachovia.
NovaStar will be required to pay Wachovia a structuring fee in connection with
the Non-Investment Grade Securities Facility and certain additional fees and
expenses, including but not limited to reimbursement of due diligence expenses
and payment of certain fees in the event of voluntary prepayment or termination
by NovaStar or the occurrence of an event of default. In addition, upon a change
of control of NovaStar Financial, Inc., Wachovia has the right to terminate the
Non-Investment Grade Securities Facility and require the payment of a
termination fee.
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The Non-Investment Grade Securities Facility requires that the adjusted
consolidated tangible net worth of NovaStar Financial, Inc. exceed both $517
million (less the amount of required REIT dividends) and an amount equal to a
portion of the value of various classes of assets held by NovaStar Financial,
Inc. and its consolidated subsidiaries. In addition, NovaStar Financial, Inc. is
required to maintain, on a consolidated basis, at least $30 million of
liquidity.
The Non-Investment Grade Securities Facility prohibits NovaStar Financial, Inc.
from paying any dividends (other than dividends payable in stock), except for
the payment of (i) dividends in the amounts and at the times necessary for
NovaStar Financial, Inc. to comply with tax law requirements applicable to real
estate investment trusts and (ii) dividends on NovaStar Financial, Inc.'s 8.90%
Series C Cumulative Redeemable Preferred Stock and on the trust preferred
securities issued by NovaStar Capital Trust I and NovaStar Capital Trust II.
Absent the prior consent of Wachovia, permitted dividends may not be paid in
cash. Dividends on the 8.90% Series C Cumulative Redeemable Preferred Stock and
on the trust preferred securities can only be paid if after such payments
NovaStar Financial, Inc. has $30 million of liquidity. Further, dividends paid
to enable NovaStar Financial, Inc. to comply with applicable tax requirements
can be paid only in the form of notes, bonds, debentures, or common or preferred
stock, and not in cash, except to the extent that the liquidity of NovaStar
Financial, Inc. following payment in cash would exceed $125 million or to the
extent that payment in notes, bonds, debentures, or common or preferred stock
would be financially impractical. Further, NovaStar cannot declare or pay a cash
dividend necessary pursuant to applicable tax laws more than 15 days before the
date required by applicable tax law. As a real estate investment trust, NovaStar
Financial, Inc. is required to declare dividends based on its 2006 taxable
income before filing its 2006 tax return, which is due on September 15, 2007 and
such dividends are required to be paid by December 31, 2007.
The Non-Investment Grade Securities Facility contains other customary
affirmative and negative covenants, including but not limited to covenants
prohibiting fundamental changes in the nature of the business of NovaStar,
prohibiting sales by NovaStar of a material portion of its business or assets
outside of the ordinary course of business, and prohibiting transactions between
a NovaStar party and any of its other affiliates that are not on arms-length
terms.
The Non-Investment Grade Securities Facility provides for certain events of
default, including but not limited to the failure by NovaStar to make any
payment due or to satisfy any margin call or to comply with any other material
covenant (including financial covenants) or agreement under the Non-Investment
Grade Securities Facility, representations or warranties made by NovaStar under
the Non-Investment Grade Securities Facility and related agreements proving to
be materially incorrect, certain cross defaults involving other contracts to
which NovaStar is a party, an act of insolvency occurring with respect to
NovaStar, the failure by NovaStar to satisfy certain final non-appealable
monetary judgments, regulatory enforcement actions that materially curtail the
conduct of business by NovaStar, and the occurrence of a material adverse change
in the
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business, performance, assets, operations or condition of NovaStar Financial,
Inc. and its consolidated subsidiaries taken as a whole.
If an event of default exists under the Non-Investment Grade Securities
Facility, Wachovia has the right, in addition to other rights and remedies, to
accelerate the repurchase and other obligations of NovaStar under the
Non-Investment Grade Securities Facility and the related Guaranty, to cause all
income generated by the purchased assets to be applied to the accelerated
obligations, to terminate NovaStar Mortgage, Inc. as the servicer with respect
to the purchased assets and transfer such servicing rights to a successor
servicer, to sell or retain the purchased assets to satisfy obligations owed to
it, and to recover any deficiency from NovaStar. In addition, an event of
default under the Non-Investment Grade Securities Facility would cross-default
all other financing facilities between NovaStar and Wachovia or any of its
affiliates, and generally would permit Wachovia and its affiliates to set off
any outstanding obligations of NovaStar against any collateral pledged by
NovaStar to Wachovia or any of its affiliates under the Non-Investment Grade
Securities Facility or under any other agreement. Further, NovaStar would be
liable to Wachovia for all reasonable legal fees or other expenses incurred in
connection with the event of default, the cost of entering into replacement
transactions and entering into or terminating hedge transactions in connection
or as a result of the event of default, and any other losses, damages, costs or
expenses arising or resulting from the occurrence of the event of default.
The foregoing is a summary of the terms of the Non-Investment Grade Securities
Facility and the related Guaranty. This summary is qualified in its entirety by
reference to the full text of the Non-Investment Grade Securities Facility and
the related Guaranty, which are attached hereto as Exhibit 10.1 and 10.2,
respectively, and are incorporated herein by reference.
Master Repurchase Agreement (2007 Investment Grade Securities)
On May 31, 2007, Wachovia Bank, N.A., Wachovia Capital Markets, LLC, NovaStar
Mortgage, Inc., NovaStar Certificates Financing, LLC, NovaStar Certificates
Financing Corporation, NFI Holding Corporation and NovaStar Financial, Inc.
executed a Master Repurchase Agreement (2007 Investment Grade Securities) (the
"Investment Grade Securities Facility"). The Investment Grade Securities
Facility provides financing for certain eligible investment grade mortgage and
other asset backed securities and has a term of 363 days. All obligations under
the Investment Grade Securities Facility are guaranteed by NovaStar Financial,
Inc. and NFI Holding Corporation and are secured by the securities financed
under the Investment Grade Securities Facility.
The maximum amount available under the Investment Grade Securities Facility is
$400 million, which amount will be reduced to the extent that amounts
outstanding at such time under certain other repurchase facilities between
Wachovia and NovaStar exceed $1.5 billion. The advance rate under the Investment
Grade Securities Facility ranges from 70% to 97% of the market value of the
securities securing the advance. The interest
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rate applicable to such advances will range from one-month LIBOR to one-month
LIBOR plus 0.65%, depending on the type of securities securing the advance.
The market value of the securities will be determined by Wachovia in its sole
discretion. If, in Wachovia's opinion, the market value of securities that are
then financed under the Investment Grade Securities Facility decreases for any
reason, NovaStar will be required to repay the margin or difference in market
value, or provide additional collateral.
The Investment Grade Securities Facility is cross-collateralized with all other
repurchase and similar financing facilities between NovaStar and Wachovia.
NovaStar will be required to pay Wachovia a structuring fee in connection with
the Investment Grade Securities Facility and certain additional fees and
expenses, including but not limited to reimbursement of due diligence expenses
and payment of certain fees in the event of voluntary prepayment or termination
by NovaStar or the occurrence of an event of default. In addition, upon a change
of control of NovaStar Financial, Inc., Wachovia has the right to terminate the
Investment Grade Securities Facility and require the payment of a termination
fee.
The Investment Grade Securities Facility contains substantially similar
covenants, events of default and remedies as are described above under the
heading "Master Repurchase Agreement (2007 Non-Investment Grade Securities) in
connection with the Non-Investment Grade Securities Facility.
The foregoing is a summary of the terms of the Investment Grade Securities
Facility and the related Guaranty. This summary is qualified in its entirety by
reference to the full text of the Investment Grade Securities Facility and the
related Guaranty, which are attached hereto as Exhibit 10.3 and 10.4,
respectively, and are incorporated herein by reference.
Section 2--Financial Information
Item 2.03 Creation of a Direct Financial Obligation or an obligation under an
Off-Balance Sheet Arrangement of a Registrant
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See "Master Repurchase Agreement (2007 Non-Investment Grade Securities)" and
"Master Repurchase Agreement (2007 Investment Grade Securities)" under Item 1.01
of this Current Report which is incorporated herein by reference.
Section 9---Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
Exhibits. The following exhibits are filed herewith:
10.1 Master Repurchase Agreement (2007 Non-Investment Grade Securities), dated
as of May 31, 2007, among Wachovia Investment Holdings, LLC, as Buyer, Wachovia
Capital Markets, LLC, as Agent, NovaStar Mortgage, Inc., NovaStar Certificates
Financing, LLC, and NovaStar Certificates Financing Corporation, as Sellers, and
NFI Holding Corporation and NovaStar Financial, Inc., as Guarantors.
10.2 Guaranty, dated as of May 31, 2007, among NovaStar Financial, Inc., NFI
Holding Corporation, and Wachovia Investment Holdings, LLC.
10.3 Master Repurchase Agreement (2007 Investment Grade Securities), dated as of
May 31, 2007, among Wachovia Bank, N.A., as Buyer, Wachovia Capital Markets,
LLC, as Agent, NovaStar Mortgage, Inc., NovaStar Certificates Financing, LLC,
and NovaStar Certificates Financing Corporation, as Sellers, and NFI Holding
Corporation and NovaStar Financial, Inc., as Guarantors.
10.4 Guaranty, dated as of May 31, 2007, among NovaStar Financial, Inc., NFI
Holding Corporation, and Wachovia Bank, N.A..
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVASTAR FINANCIAL, INC.
DATE: June 6, 2007 /s/ Gregory S. Metz
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Gregory S. Metz
Chief Financial Officer
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Exhibit Index
Exhibit
Number
10.1 Master Repurchase Agreement (2007 Non-Investment Grade Securities),
dated as of May 31, 2007, among Wachovia Investment Holdings, LLC, as
Buyer, Wachovia Capital Markets, LLC, as Agent, NovaStar Mortgage,
Inc., NovaStar Certificates Financing, LLC, and NovaStar Certificates
Financing Corporation, as Sellers, and NFI Holding Corporation and
NovaStar Financial, Inc., as Guarantors.
10.2 Guaranty, dated as of May 31, 2007, among NovaStar Financial, Inc., NFI
Holding Corporation, and Wachovia Investment Holdings, LLC.
10.3 Master Repurchase Agreement (2007 Investment Grade Securities), dated
as of May 31, 2007, among Wachovia Bank, N.A., as Buyer, Wachovia
Capital Markets, LLC, as Agent, NovaStar Mortgage, Inc., NovaStar
Certificates Financing, LLC, and NovaStar Certificates Financing
Corporation, as Sellers, and NFI Holding Corporation and NovaStar
Financial, Inc., as Guarantors.
10.4 Guaranty, dated as of May 31, 2007, among NovaStar Financial, Inc.,
NFI Holding Corporation, and Wachovia Bank, N.A..
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