- After-tax valuation adjustment of $17 to $20 million required to
reflect the estimated impact of reduced future cash flows caused by
increased spreads for extendible ABCP
TORONTO, Nov. 9 /CNW/ - Xceed Mortgage Corporation (TSX: XMC), a leading
non-traditional mortgage lender, today announced that it expects to take an
after-tax valuation charge of $17 to $20 million when valuing its deferred net
mortgage interest receivable at the end of its fiscal fourth quarter ended
October 31, 2007.
Liquidity problems in Canada's ABCP market, which first surfaced in
August of this year, have resulted in increased spreads being paid to holders
of extendible ABCP. Today, approximately 37% percent of Xceed's mortgage
portfolio of $2.7 billion is funded by extendible ABCP. Under Canadian
generally accepted accounting principles the company is required to reflect
the impact of these increased spreads when valuing its deferred net mortgage
interest receivable, which represents the net present value of the interest
spreads it expects to earn on its securitized mortgage portfolio during the
term of all of its mortgages.
The valuation write-down contemplated assumes that these increased
spreads will prevail until the very end of the term of the most recently
funded mortgages in the part of Xceed's portfolio which is funded by
extendible ABCP; in other words, up to 5 years from the date that spreads
first started to widen.
"This charge to net income represents a revaluation of the present value
of our interest in securitized mortgage cash flows," said Ivan Wahl, Chairman
and Chief Executive Officer of Xceed Mortgage Corporation. "This write-down
will be recognized at the end of our fourth quarter and will represent a
reduction of approximately 14% to 17% of the $117 million of shareholders'
equity the company reported recently for its third quarter ended July 31,
"We believe that, by assuming these increased spreads will endure over
the full term of the mortgages affected, we have captured the maximum possible
impact of this event on Xceed's balance sheet," Mr. Wahl said. "The length of
the period of market turbulence as well as pricing that will eventually
prevail is difficult to forecast and this valuation write-down does not assume
any recovery in prices prior to the maturity of the mortgages that are
currently in the affected part of our securitized mortgage portfolio.
"It is important, however, to note that the Canadian housing market
remains healthy and Xceed's mortgage portfolio, in particular, is performing
well within our expectations. In addition, recent price increases announced by
Xceed as a response to the new higher cost of funds environment have resulted
in a return to profitability for new mortgages, as they are originated and
securitized, albeit at reduced overall volumes."
Xceed Mortgage expects to report its fiscal 2007 year-end financial
results on January 10, 2008.
Xceed is one of a new breed of alternative residential mortgage lenders
in Canada. Xceed helps Canadians fulfill their aspirations of home ownership.
Its borrowers range from those who have solid credit and income histories, but
have not managed to save a down payment, to those who have gone through
periods with limited and specific credit difficulties but have since recovered
and repaired their credit. A growing proportion of Xceed's applicants are
renters, self-employed entrepreneurs, and recent immigrants to Canada, who may
otherwise not conform to major banks' electronic credit-scoring criteria.
By meeting the needs of Canadians for alternative financing, Xceed
Mortgage Corporation has grown to become one of the largest non-traditional
residential mortgage financing companies in Canada, with mortgage and other
assets under administration of approximately $2.7 billion. Xceed operates in a
market that is estimated to have a potential size of approximately $70
billion. Xceed's shares are traded on the Toronto Stock Exchange (TSX: XMC).
To find out more about Xceed Mortgage Corporation, visit our website at
Forward-looking statements in this document are based on current
expectations that are subject to significant risks and uncertainties. Actual
results might differ materially due to various factors such as the competitive
nature of the mortgage industry, the ability of Xceed to continue to execute
its growth and development strategy, and the reliance of Xceed on key
personnel. Xceed assumes no obligation to update these forward-looking
statements, or to update the reasons why actual results could differ from
those reflected in these. Additional information identifying risks and
uncertainties is contained in Xceed's regulatory filings available on its
website and at www.sedar.com.
For further information:
For further information: please contact Investor and Media Relations:
Richard Wertheim, Wertheim + Company Inc., (416) 594-1600 or (416) 518-8479