Morgan Stanley loan to New Century sound--analysts

NEW YORK, March 9 (Reuters) - New Century Financial Corp. NEW.N may be fighting for its life, but Morgan Stanley (MS.N) may nevertheless have been wise to provide it with emergency financing, bankruptcy experts said on Friday.

Irvine, California-based New Century said on Thursday it received $265 million of financing secured by a mortgage portfolio and refinanced another $710 million of mortgages that analysts believe were intended to be packaged into bonds.

The company also said it was not accepting new loan applications, as it wrestles with $70 million of outstanding margin calls and frozen short-term financing facilities known as warehouse lines of credit.

At least three sell-side analysts said on Friday that New Century may be on the brink of bankruptcy.

But Morgan Stanley may not get burned because of the collateral it obtained to secure its loan, experts said. The investment bank, which as of Sept. 30 had about $1.5 billion of loans to New Century outstanding, declined to comment.

Generally, lenders provide emergency financing either to protect the investment they have already made and allow a company more time to get back on its feet, or because the collateral is solid, said Joel Levitin, chair of the bankruptcy practice at Dechert LLP.

"These deals are usually about lenders bettering their position and managing their risk," he said.

In Morgan Stanley's case, the collateral for the $265 million loan could be worth more than $600 million, according to an analyst at a hedge fund who asked not to be named.

The warehouse line of credit likely has both mortgages and cash collateralizing it and therefore is likely completely secured, the analyst said.

Warehouse lenders are generally not at a big risk, even if a mortgage lender goes into bankruptcy, said Ronald Greenspan, president of FTI Consulting. The real risk is often borne by investors in asset-backed securities and collateralized debt obligations, he said.