Today's spike in the share price appears to be purely
'technical' in nature and does not indicate that anything
has really changed. In other words, if you use daily
charts, simply mark it on the chart...and forget it.
It didn't take them 7 weeks to see the light. It probably took them about 3 to 4 weeks.
Novastar was a very different company in mid-July, when the deal was put together, than it was in mid-August. For that matter, the whole subprime industry was very different in mid-July than it was in mid-August. By mid-August, American Home Mortgage had collapsed. (Tip of the hat to you once again, Kirby. That was a very sweet ride. Thanks again for that tip.)
In mid-July, the widespread belief was that subprimers could survive by just adopting more stringent underwriting standards. By mid-August, everyone understood that subprime was going to face a nuclear winter and that the only way to survive was to immediately hit every possible source of funding possible (like Countrywide did) and live in the cellar for a couple of years.
MassMutual & JCP made a calculated though risky bet with $50 million in mid-July, though they probably hedged at least a portion of that risk. Nonetheless, they put some money out on the line. I can't fault them too much for that bet because in mid-July it looked like Novastar could tighten their belt and possibly survive. It wasn't until mid-August that we figured out the belt was being tightened around their neck.
You never know about MassMutual, they're a funny lot, but I think you can rest assured that JCP boxed their position.
However, they were both looking for a way to walk away from their standby commitment when the stock rolled over and died after the reverse split. If it wasn't for the auditor's insistence upon a "going concern" clause, it would've been the Fitch downgrade.
They simply wanted nothing to do with more Novastar paper.