WILMINGTON, Delaware (Reuters) - American Home Mortgage Corp AHMIQ.PK got bankruptcy court approval on Tuesday for debtor-in-possession financing to pay salaries and other costs as it shuts most businesses, as well as funding to keep its loan servicing unit temporarily in operation.
American Home, which filed for bankruptcy on Monday, got interim approval to tap DIP financing provided by WL Ross & Co., a firm run by distressed-asset specialist Wilbur Ross. WL Ross on Monday had committed to provide up to $50 million in financing to cover general business expenses during the bankruptcy proceedings.
The mortgage lender also got interim court approval for the use of cash collateral that will help maintain its loan-servicing business while it is put up for sale. The company has said it wants to sell its loan-servicing business and loan portfolio through an auction. Bids are due August 29, according to court papers.
“We have an enemy in this case and that’s time,” said James Patton, an attorney with the law firm of Young, Conaway, Stargatt & Taylor, LLP, which is representing American Home.
“Fundamentally, it is a wasting asset. It’s diminishing over time. This asset is shrinking as each day goes by. We’re asking to be able to sell this business in short order,” Patton said.
American Home closed most of its operations on August 3 and fired more than 6,000 workers. The company has said it expects its employee base to be reduced to about 750 workers, down from the 7,409 it reported at the end of last year, as it shuts down or sells its remaining businesses over the next few months.
The company became the latest casualty of the problems in the U.S. mortgage market, which has been hit by rising customer defaults and tightening credit markets.
Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware approved the interim financing orders during the more than five-hour hearing.
The judge also approved a modified employee-retention plan to help American Home keep some crucial workers over the next few weeks and months.
The judge, however, rejected the retention payments for workers in the position of assistant vice president or higher since certain corporate officers are considered “insiders” and are barred from such payments under bankruptcy laws.
Reporting by Jessica Hall