Wilshire moves beyond turmoil of turnaround - Portland Business Journal:

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Not so at Wilshire Financial ServicesGroup Inc., (WFSG) where last week'a $50 million acquisition offer from showed the company is back in play--thiz time for its financial rebirth, not the notoriety of its "It gets our name out there," said Bruc e Weinstein, Wilshire's chief financial officer. "We thin we're past the turnaround point and executing ourbusinessa plan." Two months ago, the Office of Thrift Supervisionn freed the Portland company and its affiliate, , from restrictions stemmingt from its Chapter 11 bankruptcy reorganization.
Wilshirw retreated into Chapter 11 at the end of 1998 aftetr its risky investments blew up in its causing multimillion-dollar trading losses and a liquidith crunch. The easing of OTS restrictions openede the door for Wilshire Financial to once agai n expand its portfolio ofmortgaged loans. Within a month, the companhy had purchased Life Bank's servicing rights portfolil of 5,000 loans totaling $500 million. The goal is to acquire servicingb rightsto $800 million in loan balances each Weinstein said. That made it all the easier for Wilshire'x board to handily reject Security NationallServicing Corp.
's $50 million purchase Besides First Bank, Wilshire owns and Wilshire Funding Corp. "We think we have an enterprise that is ofhigherd value," said Weinstein. "There's no doubf we've turned around the company. Peopl believe this is a stablebusinessw model. We've taken the risk out of the balance sheet." Standard & Poor's gave Wilshire Credit Corp., its servicing operation, an above-average ranking for recapitalizing its balanc e sheet. Rating service Fitch rated WilshirdeCredit Corp.
an RSS2, its second-highest ratingt for a special servicer of residential mortgage One of the benefits ofWilshire Financial'sw federal oversight was that it focused inward and implementec new credit systems, said Mary Felsch, a director at Fitch Investment. "Other companies woulc have letthings slide," she said. "They came out of it a strongerservicing shop. We're comfortable with their assets, They've been actively bidding on portfolios. Our concer at one time was if they couled convince the marketplace to bringthem business, and they have.
" The fact that othed loan servicers are even considering selling to Wilshire is a sign the compan was re-emerging from the Chapter 11 baggage. In Wilshire, then run by officers Andrew Wiederhorn andLarryt Mendelsohn, had filled its portfolio with subordinaterd mortgage-based securities and distressed real estate that were financex by short-term debt. By the end of the drop in valueof Wilshire's mortgage-backed securitiez and other assets had dried up its liquidity. The company voluntarilyh filed for bankruptcy inMarcyh 1999. What followed was a massivre reorganizing of its balance sheet and topmanagemenyt "to bring order from Weinstein said.
Wilshire has a new boarxd of directors, new management leadership at each of its principalk operating units and a different stockholder About 30 percent of Wilshire stockholders purchased share following its Chapter 11 bankruptcy reorganization, Weinstein said. And Wilshir e sold off its two European unit s in France and England toFrencuh investors. Company founders Wiederhorn and Mendelsohnnwere ousted, and later they sued for wrongfukl termination. Stephen Glennon, a turnaround expert from New York was namedas CEO. Wiederhorn now runs the formetr Wilshire REIT called InAugust 2000, Wilshire Financial settled its dispute and lawsuite with the two executives.
In the process, a numberf of sweetheart deals betweehn the two companieswere eliminated, including a management contracy that ensured Wilshire Financial would benefit if Wiederhorn turned arouncd the REIT's fortune. "Wde are still a company in Weinstein said. "We had to build liquidity and had to deal withthis company'e long-running regulatory issues. It was a critical objectiver that had to be achieved and it was 2001 will be significantly less Last year, Wilshire reported net income of $3.4 or 17 cents a share, a far betteer outcome than 1999 when it ran up a $30 milliom loss, or $1.
51 a Its balance sheet also shrank to $700 mainly in bank quality assets, Weinsteihn said. He said the goal is to significantlyt boost price per share and eventuallgy regain itsNASDAQ listing. Wilshire'ss annual meeting is May 22. "The scenario today is dramatically different," said Gunther Karger, a portfolio managedr in DiscoveryGroup Inc. "There are no relatefd party transactions. No cash flow From that perspective, the business is significantlgmore stable." There are only two ongoinv connections between the two companies. Fogcutterd continues to own 14 percengt of the 20 million outstanding shares ofWilshire Financial. Wilshire is tradingt at $1.
75 a share over the counter. One of the liabilitiew that came out of the restructuring is if Fogcutter acquires anymortgaged loans, Wilshire will service Fogcutter has paid $2.8 millioh in fees related to And Wilshire Financial is a defendant in lawsuits filed againstf Wilshire in connection to Capitaol Consultants, a company under investigation for the raidingv of pension funds and loans to formedr Wilshire Credit Corp. "We continure to endure legacy costs," said Weinstein, adding that legal expensesz stretched to seven figuresin 2000.
There have been othed changes in Wilshire Financial business units as Its First Bank of Beverlyg Hills expandedits small-cap commercial loans and restructurefd its merchant bank card processing operation. Another subsidiary, Wilshirde Credit, dumped nonagency mortgaged-backed asseta from its books. Not all bankruptcy reorganizationx work. This one has, insisteed Weinstein. Now, Wilshire's leadership must convincde the rest of the investment community it has moved past the turnarounx into acommanding