First Magnus Files Bankruptcy Plan

I find it interesting that the failed lender actually tried to borrow $15M to fund it's wind-down plan! Fortunately, the court denied the request.

Associated Press, 10/16/07

Tucson's First Magnus files bankruptcy plan

Failed mortgage lender First Magnus Financial Corp. expects to repay unsecured creditors, owed a total of $93 million, between $16 million and $32 million under a newly filed Chapter 11 liquidation plan.

First Magnus, which submitted its plan to the U.S. Bankruptcy Court in Tucson, Ariz., on Monday, said it could have up to $32 million left after repaying secured creditors to provide unsecured creditors with a recovery of about 17 percent to 34 percent.

The mortgage lender said its pool of unsecured claims includes about $13.5 million in accrued payroll and related costs, $24.4 million of accounts and notes payable, $35 million owed to First Magnus Capital and $20 million of subordinated unsecured debt owed to insiders.

First Magnus, which sought Chapter 11 protection in August amid a meltdown in the subprime-mortgage industry, said it plans to continue selling off its remaining assets. The company recently won bankruptcy court approval to sell a pool of construction loans to Summit Investment Management LLC for $5.7 million and said it has reached a deal to sell another pool of loans to Steel Mountain Capital Management LLC for $61 million. The company has also found a buyer - Rynoke LLC - willing to pay $1.6 million for a commercial lot in Tucson.

First Magnus shut down operations and laid off nearly 6,000 workers before filing for bankruptcy protection on Aug. 21. The privately held Tucson-based company, which listed liabilities of $812.5 million and assets of $942.1 million in its bankruptcy petition, was forced to quickly sell off its assets after the bankruptcy court denied its request to borrow $15 million to fund its bankruptcy wind-down.

The slump in the U.S. housing market and a growing credit crunch have forced a rising number of mortgage lenders into bankruptcy proceedings this year. First Magnus has blamed "the collapse of the secondary mortgage market" for its decision to shut down and said it "simply could not withstand the liquidity crisis."