NovaStar Close To Formal BK

NovaStar Financial Inc., which defaulted in March and April on a credit agreement with JPMorgan Chase bank, received notification that the creditor will seek legal remedies available to it, which NovaStar said could cause it to file bankruptcy.

NovaStar Mortgage Inc., a subsidiary of Kansas City-based NovaStar Financial, failed to make about $1.7 million in quarterly interest payments due in March and April. JPMorgan gave NovaStar Financial time to remedy the situation by agreeing not to exercise its rights related to the payment failures until May 30.

In a filing Thursday with the Securities and Exchange Commission, NovaStar Financial said it was unable to pay the delinquent interest amounts before the May 30 deadline. NovaStar Financial said it received written notice Wednesday that JPMorgan would accelerate the debt, worth about $51 million as of May 31, making it immediately due and payable. JPMorgan said in the notice that it will enforce its rights through an agreement with NovaStar Financial that guaranteed the debt.

NovaStar Financial said in the filing that it will attempt to restructure the debt, but the company warned that it can't guarantee it will be allowed to do that. NovaStar said enforcement of remedies would "likely cause the company to seek the protection of applicable bankruptcy laws."