As subprime packages tank, purveyor holds on
With its core market “virtually shut down,” in the words of its CEO, Clayton Holdings Inc. is putting up storm shutters for a tempestuous 2008, but says it can ride out the storm.
The Shelton company grew rapidly the past few years assessing the credit worthiness of subprime mortgages packaged together as securities and traded between financial companies.
Now it is Clayton Holdings that sits on a shaky foundation. The company reported a fourth-quarter loss of $92 million on $25 million in revenue, with sales down 59 percent from a year earlier.
Meanwhile, it is cooperating with a probe of the subprime mortgage industry by New York”™s attorney general, accepting immunity from prosecution in exchange for testimony and documents that could shed light on activities of its corporate clients.
“The company did not seek to enter this agreement, nor was it required to enter into this agreement,” CEO Frank Filipps told analysts in late February. “We thought it was in the best interests of the company and our shareholders to provide certainty that we would not be named in any litigation in connection with this matter. We have been in continual contact with our clients and we believe they all understood ”¦ why Clayton entered into the cooperation agreement.”
In February, the company hired Conrad Vasquez as executive vice president of operations. Vasquez previously oversaw day-to-day operations at Seattle-based Washington Mutual Inc.”™s 2,200 retail branches nationwide.
Filipps said Vasquez”™s mandate is to “optimize” the company”™s cost structure. Clayton Holdings reported having 590 employees a year ago, as well as 1,935 workers the company categorizes as independent contractors, and in November cut 60 jobs.
In addition to its Shelton headquarters, Clayton Holdings has a facility in Tampa, Fla.
“Some may ask if we can cut our expenses further,” Filipps said. “The answer is ”˜yes,”™ we could; if we ”¦ believe that (loan) volumes would never rebound. We believe they will and we want to maintain our operating structure and franchise to take maximum advantage of when they do.”
In the fourth quarter, Clayton Holdings revenue plummeted nearly 60 percent to $25 million, and the company recorded a $93 million loss, almost entirely from writing off previous expectations for its loan vetting business.
The company”™s shares traded below $5 in late February, down from above $22 following its initial public offering a year ago.
Clayton Holdings bought itself a year”™s worth of wiggle room by obtaining a waiver until March 2009 of net income requirements for a large loan it holds, and reducing the terms of a revolving line of credit from $50 million to $10 million. Clayton Holdings new financial covenants require it to maintain a minimum of $6 million in cash or liquid assets; the company closed 2007 with $40 million in cash.
With the company”™s core market in foreclosure for now, Clayton Holdings will be going door to door to drum up any business it can. The only business line segment to experience growth in the fourth quarter was a relatively new “Euro Risk” operation that notched $2.1 million in sales for the quarter and $5.5 million for the year.
In early February Clayton Holdings announced it is partnering with Experian to assess loan securities; later that month, Clayton Holdings received a contract to scope a 5,000-loan portfolio.