Wounded Survivors Wearily Report In

The most seriously injured mREITs belated reported in today, capped off by Thornburg Mortgage's (TMA) announcement that it had finally closed its Hail Mary debt deal.

Impac Mortgage (IMH) still can't file its 10-K (not that Impac was a timely filer in the good days, but I digress...), but it has settled most of its repurchase obligations and made significant strides in bolstering liquidity.

Luminent Mortgage (LUM), which was all but left for dead last summer, is reinventing itself as a publicly-traded partnership that performs advisory services for distressed assets. I expect Deerfield Capital Corporation (DFR) to consider such a transaction in the near future. The move is similar to what KKR Financial (KFN) did back in May and may be part of a larger trend to move away from the fairly restrictive REIT requirements that limit hedging strategies and starve companies of liquidity.

Another quarter has come and gone and these companies are still alive, even if some are still on life support. Finally, the tide may be turning in their favor.

Alt-A Investors Mount a Comeback

Maybe it was just the rate cuts, maybe it was talk of a bailout for insurers, but money has been flowing into the Alt-A investors over the past two weeks.

Redwood Trust (RWT), which closed at $33.41 on January 22, has risen 34.5% since to close at $44.94 today. Likewise, Impac Mortgage (IMH), which I had admittedly left for dead, has climbed from $0.75/share to $1.71/share in the same time frame - a stunning 128% gain. Even Luminent Mortgage (LUM) has rallied 57%, moving up from $0.56/share to $0.88/share. Both stocks have a chance of regaining compliance with the NYSE listing requirements if the trend continues.

Of the three, I am of course the most interested in RWT. Although it's still well off its mid-60s highs, RWT has weathered this storm much better than most companies. Even so, it's not yet clear sailing for Redwood. Earlier this week, S&P put several classes of its Acacia CDOs on creditwatch negative.

Luminent to Lose Listing?

It's just a matter of time before the Big Board boots Luminent Mortgage Capital (LUM). The struggling mortgage REIT disclosed earlier today that the NYSE had notified it of its noncompliance with the share price deficiency rule, as LUM hasn't traded near a buck in over a month.

Although Luminent claims it will be able to cure the deficiency within the allowed six-month window, LUM's market cap of $28 million is just above the $25 million threshold for REITs. Furthermore, as I noted in this post, Luminent won't be able to hang on to its REIT status beyond September 2008.

Much like NovaStar and Impac, Luminent's life as a viable entity continues to hang in the balance.

Luminent Racks Up Losses

Luminent Mortgage Capital (LUM) filed its long-delayed 10-Q this afternoon, disclosing a massive $521 million ($12.17/share) loss, primarily driven by impairment charges and losses on sales of loans and MBS to meet margin calls and extinguish warehouse / repo lines. The poor results were fully expected by the market; the Company's continued viability was the primary question.

Luminent believes it will be able to continue as a going concern, but it will not be as a mortgage REIT. The company has earned $0.92/share in taxable income during 2007, but does not have the liquidity to pay it out any time soon. Luminent implicitly states that it will be unable to satisfy the REIT distribution requirements by assigning a dividend yield of 0% and a weighted average life of 2.9 years to the Arco warrants. Thus, LUM has no expectation of paying out its 2007 taxable income and will have to de-REIT in September.

The Company is still highly reliant on repurchase financing to fund its portfolio, and as recently as this month, it is still fighting collateral seizures by its repo lenders. However, to fully stabilize the portfolio, LUM will have to issue more equity and quickly find long-term financing alternatives, or it will face more forced asset sales. With the likelihood of delisting growing, and no let up in the credit crunch on the horizon, it may soon be lights out at Luminent.

Luminent's Lenders Playing Hardball

Luminent Mortgage Capital (LUM) disclosed late this afternoon that the trustee for its 8.125% convertible senior notes notified LUM that "a reporting default has occurred under the indenture" because Luminent didn't file its third quarter 10-Q on time.

Luminent said that "[t]he trustee informed us that the reporting default will ripen into an event of default under the indenture unless we cure the reporting default by filing with the SEC our Form 10-Q report for the period ended September 30, 2007 within 60 days after the date of the trustee's notice, or by January 20, 2008."

Such an action is very unusual, as failures to file timely SEC reports are very technical covenant violations and is customarily waived by lenders. Seems like Luminent's bondholders are searching for loopholes.

Luminent Lays It on the Line

Luminent Mortgage Capital (LUM), which got crunched in August after a series of margin calls and asset seizures, put out a pretty straightforward presentation about the timeline of events affecting it from August through today. Not much commentary to add except that the chain of events is a pretty grim read for any mREIT investor. Luminent's presentation shows just how important liquidity is during this extremely distressed environment.

Luminent Lays Into I-Banks

Luminent Mortgage Capital (LUM), a residential mortgage investor, filed its second lawsuit against an investment bank for misrepresenting the true value of Luminent's asset-backed bonds. Reuters is reporting that Luminent is suing a unit of Barclays plc, alleging the bank used the crisis in the credit markets to unreasonably mark down the value of bonds it held as collateral.

Barclays served as a counterparty to Luminent for a repurchase agreement, a short-term method of financing loans and mortgage-backed securities. Repurchase agreements typically allow the counterparty to seize the related collateral if the borrower is unable or unwilling to maintain sufficient margin against the related borrowings. In August, Barclays demanded about $35 million in payments from the plaintiffs to cover a purported shortfall in the value of some bonds. Luminent said it refused to submit to the payment demands as the bonds were "much more valuable than Barclays was representing them to be." The mortgage REIT asserted that "Barclays was simply exploiting an aberrational market as a pretext to unreasonably mark down the purported value of the bonds, demand an unreasonable amount of additional collateral from plaintiffs, and then confiscate a portion of the value contained in certain of the bonds," according to the complaint.

Last month, Luminent separately sued HSBC Holdings Plc's broker-dealer unit, alleging it had wrongfully confiscated bonds Luminent subsidiaries had put up as collateral for loans.

Luminent confirmed today that it had hired Grant Thornton as its new auditor. Grant Thornton, you may remember, dumped both Accredited and Fremont last spring after those companies fell victim to subprime crunch #1. Luminent cited the change in auditor as its reason for delaying the filing of its Q3 10-Q. Curiously, Luminent indicated that it did not "anticipate any significant change in results of operations from the corresponding period for the last fiscal year." They may want to check their Form 12b-25 one more time before turning it in next time.