UPDATE 2-Subprime mortgage pioneer C-Bass files bankruptcy

Fri Nov 12, 2010 6:28pm EST

* Chapter 11 filing in Manhattan bankruptcy court

* C-Bass says is liquidating portfolio

* C-Bass sold Litton unit to Goldman Sachs in 2007 (Adds details from filing, byline)

By Jonathan Stempel

NEW YORK, Nov 12 (Reuters) - C-Bass, a pioneer in the packaging of subprime mortgages into securities that investors could buy, filed for Chapter 11 protection, three years after a restructuring was designed to keep it out of bankruptcy.

The company, whose full name is Credit-Based Asset Servicing and Securitization LLC, and seven affiliates filed for protection from creditors on Friday with the U.S. bankruptcy court in Manhattan.

C-Bass said it has between $10 million and $50 million of assets, and more than $1 billion of liabilities.

Founded in 1996, New York-based C-Bass was an early leader in the securitization of mortgages issued to borrowers with below-prime credit histories. It also serviced many loans.

C-Bass is a shell of its former self, having in 2007 largely exited securitization and servicing in a restructuring that included a sale of its Litton Loan Servicing LP unit to Goldman Sachs Group Inc (GS.N) for $428 million.

In a court filing, C-Bass Treasurer Andrew Rickert said the company believed at the time it would have "substantial equity" in its collateral to ensure survival.

But he said "it became clear" that no such equity existed" once the U.S. mortgage crisis "deepened by an order of magnitude that no one could have predicted."

C-Bass has been liquidating its holdings and giving proceeds to lenders and investors. Rickert said the company still owes $170 million under a senior credit facility, "well in excess" of the value of the remaining collateral.

According to the petition, affiliates of mortgage insurers MGIC Investment Corp (MTG.N) and Radian Group Inc (RDN.N) each own a 45.5 percent equity stake in C-Bass, while a C-Bass holding company owns the remainder.

MGIC and Radian wrote off much of their $1.03 billion investment in C-Bass in 2007.

The case is In re: Credit-Based Asset Servicing and Securitization LLC, U.S. Bankruptcy Court, Southern District of New York, No. 10-16040. (Reporting by Matthew Goldstein and Jonathan Stempel in New York; Editing by Richard Chang, Bernard Orr)

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