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  • rockyp_cigars rockyp_cigars Aug 8, 2007 2:18 PM Flag

    Parsing the language from LUM PR

    I am concerned about the change in language from:-

    �Luminent is committed to undertaking all appropriate initiatives with respect to its business. With the expertise of our strong management team, which has consistently proven its ability to successfully execute on our business model, we are moving forward with our efforts to address the company's liquidity needs caused by the current mortgage market dislocations�


    �The company emphasized that in exploring its alternatives, it is fully focused on protecting its values for all constituencies.�

    My parsing of this is that when they say �all� they now are thinking creditors too, which implies bankruptcy proceedings�.otherwise they would have said protecting value for shareholders specifically.

    The focus has gone from immediate liquidity issues to protecting value�that subtle change is interesting��

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    • Interesting post; we're all looking for little clues now, huh? IMHO, LUM is wise to be thinking about ALL their constituents now (given the imminent lawsuits), and IMHO, none of the constituents are best served by a BK, if it can be avoided. In a BK:
      (1) Repo lenders would get back less than what they are owed since the assets (mortgages) would have to be sold at a big discount and the lawyers would eat up another big chunk.
      (2) Shareholders would obviously get screwed.
      (3) Management would lose their careers and have a big credibility issue as they look to get re-employed, plus they are investors too.
      (4) Financial markets would be further "jittered".

      So IMHO, everyone in the game should be looking for a way to avoid BK. Some possible solutions:
      (1) The repo lenders agree to convert their short term loans into longer term ones in exchange for a consideration (a higher interest rate, options on LUM stock, etc.)
      (2) LUM finds new lenders who agree to replace the ones who have panicked, though it will almost certainly cost the company something to lock them in.
      (3) LUM liquidates a portion of its portfolio at a discount, adds in the cash it has on hand, repays the repo lenders, then continues on as a (much?) smaller company.

      I'm sure LUM's managers, the current repo lenders, and potential new lenders, are all looking at these options, plus perhaps other solutions. I continue to believe that the quality of the assets (prime, not sub-prime, mortgages -- with little/no reason to fear a wave of defaults) will ultimately enable LUM to find a way out of this pickle.
      If you can't stant the heat, get out of the kitchen.

    • i noticed that also.