NovaStar Financial stock may be delisted as continuing damage in the subprime mortgage market makes company ineligible for listing on the NYSE

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NovaStar Financial has been notified by the NYSE that their stock offering is no longer fit to be traded on the NYSE floor and may be delisted. NovaStar is appealing the decision, but there is no guarantee that the beleaguered subprime lender will be able to continue trading common stock at the NYSE.

The trigger to this was NovaStar’s decision to forego a shareholder dividend during the credit crunch which caused their standing as a Real Estate Investment Trust to be invalidated, changing their corporate structure to a C-corporation. This structural change also changes the requirements of net worth, market capitalization and other conditions that the company needs to satisfy to stay listed with the NYSE.

From the release:

NovaStar Financial, Inc. a residential mortgage portfolio manager, today announced that it has been advised by the staff of NYSE Regulation, Inc. that the company’s Common Stock (ticker symbol: NFI) and its 8.90% Class C
Cumulative Redeemable Preferred Stock (ticker symbol: NFI PR C) no longer meet applicable standards for continued listing on the New York Stock Exchange…

There can be no assurances that the company will receive a favorable review of the staff’s determination or, if its securities are delisted from the NYSE, that they will trade in another securities marketplace.

On September 17, 2007, NovaStar announced a decision not to declare a dividend related to its 2006 taxable income, causing the company’s status as a Real Estate Investment Trust (REIT) to terminate, retroactive to
January 1, 2006. NovaStar now operates as a C corporation, and this change in corporate structure requires the Company to satisfy the criteria for original listing as a corporation. Given the current market capitalization of NovaStar and other factors, the NYSE has advised the company that it does not meet the original listing requirements for a corporation.

When does NovaStar officially die? It sells its servicing portfolio, faces a delisting of its common stock and has limited product offerings – doesn’t sound like a viable model any longer.