NovaStar Sells Servicing Unit

In conjunction with the transaction, NovaStar had planned to complete a $101 million offering of 9% Series D-2 mandatory convertible preferred stock, which was to be converted into common stock at a price of $28 a share. But the company canceled the offering as the mortgage market deteriorated further this summer.

NovaStar said it plans to reduce its debt with the proceeds. The deal is expected to close on Nov. 1.

"This action is expected to reduce debt and risks related to operating capital needs for servicing loans," said NovaStar President and COO Lance Anderson. "As we continue to endure a difficult period for the mortgage industry and the secondary market for mortgage loans, our focus is on managing our portfolio of mortgage securities, along with brokering loans with a retail team that continues to serve homeowners."

NovaStar shares were up 21 cents, or 2.7%, to $7.91 in recent after-hours action.