Stearns Holdings will come out of bankruptcy with a new owner, the company has announced. The beleaguered parent of Stearns Lending has reached an agreement with its noteholders for Blackstone to take ownership of the company.
Stearns Holdings, the nation’s 20th-largest mortgage lender, filed for Chapter 11 bankruptcy in July. The company had accumulated an unsustainable amount of debt and hit rough financial waters when borrowing costs began rising, according to a USA Today report. The rise in interest rates in 2017 and 2018 “reduced the overall size of the mortgage market, increasing competition and significantly reducing market revenues,” Stephen Smith, president and chief financial officer at Stearns, said in a court filing. While Stearns cut its expenses by 40% through various measures including layoffs, it wasn’t enough to right the ship.
Under the new agreement with Stearns noteholders, Blackstone will contribute $65 million in capital and additional cash to pay certain claims under Stearns’ plan of reorganization. In return, Blackstone will get 100% ownership of the reorganized company.
“We are pleased to have obtained the support of our largest noteholders as we take the next step forward in our efforts to reposition Stearns for future growth opportunities and enhanced profitability,” said David Schneider, CEO of Stearns Lending. “We have taken deliberate and proactive actions to reduce costs and refocus on our core business, and this is an ideal outcome for our company. As a long-term investor in Stearns, Blackstone knows our business well, and their desire to deepen their relationship and ongoing commitment to our business, employees and partners demonstrates their confidence in Stearns’ future prospects. We are grateful for Blackstone’s support, and with their partnership we are well-positioned to emerge from this process stronger than before.”
The company’s plan is subject to confirmation by the US Bankruptcy Court for the Southern District of New York. Schneider said that Stearns has continued to operate as normal through the bankruptcy process.