In a seemingly inevitable step after laying off the majority of its workforce last week, First Guaranty Mortgage Corp. (FGMC) filed for Chapter 11 bankruptcy protection.
The Texas-based company, along with affiliate Maverick II Holdings, made the filing in the U.S. Bankruptcy Court for the District of Delaware. According to a statement, the filing was “necessitated by significant operating losses and cash flow challenges experienced by the company due to unforeseen historical adverse market conditions for the mortgage lending industry, including unanticipated market volatility.” FGMC cited the “dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market” as examples of those adverse conditions.
Taking the action gives FGMC, which is backed by California-based investment management firm PIMCO, some latitude in submitting a restructuring plan to pay its debts over time and keep the company afloat. The company’s financial obligations at the time of filing are far-ranging, with its largest debt at $25 million, according to the filing.
Pending approval, FGMC’s statement said that it is finalizing debtor-in-possession financing in which a company in distress, under strict conditions, still holds assets to which its debtors have a legal right and will continue to do regular business with those assets.
Doing so will enable FGMC to accommodate more borrowers who have started loans with the company but have not yet closed them. Additionally, FGMC said, it has identified “one or more potential partners to provide optionality to support the pipeline of in-process loans.”
The bankruptcy will not affect FGMC’s already-closed mortgages, which are serviced by third parties, FGMC said.
“While we have made considerable efforts to address our ongoing financial challenges related to the state of the mortgage market, we ultimately must do what is best for our borrowers and consumers,” said Aaron Samples, the company’s CEO. “After careful review and consideration, the company determined that pursuing the protections of chapter 11 is the right and responsible path at this time.
“As part of this process, the company retained a portion of its workforce to manage the day-to-day business. We are requesting that the court approve a variety of motions that will promote a smooth transition for all pertinent parties while also preserving value for the benefit of the company’s stakeholders.”
It has been a swift downfall for FGMC, which last week laid off more than 75% of its employees in a brief online meeting led by Samples. Since then, several of the lender’s partners have voiced concerns about whether in-pipeline loans would be honored by the company, as well as a lack of response from people reaching out to voice those concerns.