Judge OKs New Century’s bankruptcy loan

The judge overseeing the bankruptcy of New Century Financial Corp. said Tuesday that he would grant interim approval on a finance package designed to preserve the value of the company’s business destined for the bankruptcy auction block.

In Wilmington, Del., U.S. Bankruptcy Judge Kevin Carey said he would sign off on interim borrowing power for the Irvine-based company, which filed for Chapter 11 protection Monday.

An interim order for a debtor-in-possession loan from CIT Group Inc. and Greenwich Capital Financial Products Inc. will be worked out and presented for the judge’s signature today.

Lawyers for the company said the bankruptcy borrowing power was vital to New Century’s hopes of selling its businesses as going concerns and avoiding a liquidation.

“It would be a fire sale,” said New Century attorney Ben Logan, speaking at the first hearing in the sub-prime lender’s case.

Earlier, Carey granted the New Century interim authority to pay its utility bills, its remaining employees and other necessary expenses until the company’s assets can be sold next month.

The company must return to court April 24 to seek final approval on the Chapter 11 financing, which may reach $150 million.

Without debtor-in-possession financing, New Century could be out of money by the end of this month, Logan said Tuesday.

He echoed his partner Suzzanne Uhland, who told Carey that New Century was in dire need of quick court action on its finance package, its sale plan and other early motions in what is expected to be a short bankruptcy stay.

“The fragility of these debtors and their business cannot be overstated,” Uhland said in opening remarks at Tuesday’s court hearing.

New Century took cover in bankruptcy after major backers shut off the flow of cash and declared the lender in default. The company said it would immediately lay off 3,200 employees, more than half of its workforce.

In mid-March, warehouse lenders began seizing the proceeds from loans made with their money, escalating New Century’s cash crisis and endangering the company’s ability to cover its payroll, said Uhland, an attorney in the San Francisco office of O’Melveny & Myers.

Conditions on the bankruptcy borrowing call for an auction within 45 days for the loan servicing operation and the portfolio of mortgage loans.