Downey inches up after report of possible investor interest
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Downey Financial Corp.’s battered shares got a lift today, possibly on talk that a private equity shop is considering whether to take a stake in the Newport Beach thrift.
The stock gained 14 cents, or 7.8%, to $1.94, after falling as low as $1.50 early in the session.
The private equity firm identified by the Wall Street Journal is MatlinPatterson Global Advisers, a New York-based company that is well known as an investor in distressed businesses.
The firm already has done one big deal in Orange County: In May it agreed to provide a $530-million capital infusion for home builder Standard Pacific Corp., saving the Irvine company from potential bankruptcy.
A rescue usually means existing investors take a big haircut on their stake in the business, of course. In Standard Pacific’s case, its outstanding shares will balloon to 325 million when MatlinPatterson finishes the financing (and becomes the principal shareholder), from 65 million before the infusion, says James Wilson of JMP Securities in San Francisco.
Still, the builder’s shares have surged from $1.99 the day before the MatlinPatterson deal was announced to $3.47 at today’s close, as investors at least now feel there’s no danger of being wiped out completely.
An investment in loss-ridden Downey, however, would be more complicated because of federal rules governing the extent to which non-bank firms can call the shots at banks. But with the number of troubled lenders certain to balloon, the feds may soon be more welcoming of private investors, as this Bloomberg report notes.
MatlinPatterson typically never discusses its investments and has not confirmed it is looking at Downey.
The thrift on Thursday reported a second-quarter loss of nearly $219 million from mortgages gone bad. The company also ousted its two top officers and said it would explore ‘a broad range of strategic alternatives,’ which usually is code for hanging out a for-sale sign.
As noted here, short-sellers have been betting the company would go bust. The number of shorted shares rose further in the first two weeks of July, to 16.3 million, from 15.9 million at the end of June, according to New York Stock Exchange data reported late Thursday.
Downey’s debt rating was cut to junk status today by Standard & Poor’s -- although as is often the case with the rating firms, shareholders may wonder what took them so long.