A federal bankruptcy court on Friday granted permission to First Guaranty Mortgage Corp. to access a financing package that will allow it to continue funding loans in its pipeline.
During a virtual hearing on Friday, Judge Craig T. Goldblatt of the U.S. Bankruptcy Court for the District of Delaware granted interim approval of the financing, called “debtor-in-possession” financing "on an interim basis to borrow up to the aggregate principal amount of $11 million out of the Operating Amount, plus access to the Mortgage Loan Funding Amounts and the Pipeline Sale Transaction Funding Amounts, all of which shall be used by (FGMC) as permitted by the Cash Flow DIP Documents, including, without limitation, subject to the Approved Budget."
The judge’s order also requires the company to complete its plan for reorganizing its finances under Chapter 11 of the U.S. bankruptcy code within 120 days.
Plano, Texas-based FGMC and its affiliate, Maverick II Holdings LLC, filed for Chapter 11 bankruptcy protection on Thursday, less than a week after laying off 471 people, or about 80% of its staff.
According to court documents, FGMC said it owes more than $418 million to “warehouse lenders” — banks that lend money to FGMC to finance mortgage loans. Its warehouse lenders include Customers Bank, Flagstar Bank, J.V.B. Financial Group, and Texas Capital Bank.
According to Law360.com, which attended the virtual hearing, Customers Bank, Flagstar Bank and several unsecured creditors “objected to the financing at the beginning of the hearing Friday, but after the court recessed several times, the parties came to an agreement on language modifications in the financing documents that resolved their concerns for now.”
In a court document, Tanya Meerovich, a financial adviser for FGMC, states that the DIP financing will enable FGMC to access as much as $175 million to fund loans already in its pipeline, including loans for borrowers who intend to either refinance or close on the purchase of a home within 60 to 90 days.
Law360.com also reported that Lauren Macksoud of Dentons law firm, an attorney for FGMC, told the court during Friday’s virtual hearing that the bankruptcy financing from Barclays Bank PLC would completely pay off the $18 million bridge loan from B2 FIE XI LLC.
In addition to the DIP financing, Goldblatt also granted a motion allowing FGMC to continue paying its employees and funding employee benefit programs. The company, which still has more than 100 employees, listed more than $1.9 million in payroll-related expenses, including $1.6 million in “outstanding amounts” owed to employees and upcoming payroll; $85,000 in payroll costs; $213,100 owed to contractors and for reimbursements and paid time off; and $6,600 in health plan costs.
A second hearing is scheduled for July 28.
