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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 11, 1999
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Delaware 0-19604 95-340340
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
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350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(323) 210-5000
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(Registrant's Telephone Number, Including Area Code)
NA
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
Reference is made to the press release of Registrant issued on February
11, 1999 which contains information meeting the requirements of this Item 5 and
is incorporated herein by this reference. A copy of the press release is
attached to this Form 8-K as Exhibit 99.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
99 Press release issued February 11, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned hereunto duly authorized.
AAMES FINANCIAL CORPORATION
Dated: February 12, 1999 By: /s/ Barbara S. Polsky
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Barbara S. Polsky
Executive Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
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Exhibit No. Description of Exhibit
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99 Press release issued February 11, 1999
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EXHIBIT 99
FOR IMMEDIATE RELEASE
CONTACTS FOR AAMES FINANCIAL CORP.: CONTACT FOR CAPITAL Z:
David Sklar Tracey T. Stearns
Aames Financial Corporation Kekst and Company
(323) 210-5311 (212) 521-4800
Jeffrey Lloyd/Steve Hawkins
Sitrick And Company
(310) 788-2850
Capital Z Financial Services Fund II, L.P. Completes
FIRST STAGE OF EQUITY INVESTMENT IN AAMES
Purchasers Invest $76.5 Million through Acquisition of Newly Created
SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK
REVISION OF VALUATION ASSUMPTIONS AND A CHANGE IN
ACCOUNTING METHODOLOGY FOR INTEREST-ONLY STRIPS TO RESULT IN
SIGNIFICANT WRITE-DOWN FOR QUARTER
LOS ANGELES, CALIFORNIA, FEBRUARY 11, 1999 -- AAMES FINANCIAL
CORPORATION (NYSE: AAM) and CAPITAL Z FINANCIAL SERVICES FUND II, L.P. today
jointly announced that Capital Z (and certain purchasers designated by it) have
purchased 26,704 shares of newly created Series B Convertible Preferred Stock
for $1,000 per share and 49,796 shares of newly created Series C Convertible
Preferred Stock also for $1,000 per share, for an aggregate purchase price of
$76.5 million, which includes $75 million from Capital Z.
The purchase represented the first of a three-stage investment. The
second stage will consist of a distribution in the form of a dividend to Aames'
common stockholders of nontransferable subscription rights to purchase up to $25
million of Series C Preferred Stock for $1.00 per share. The rights offering
will occur as soon as practicable after receipt of stockholder approval of an
increase in the company's authorized common and preferred stock, together with a
1,000 to 1 stock split of the Series B and C Preferred Stock. In the third
stage, Capital Z will purchase any shares of Series C Preferred Stock which are
not purchased by common stockholders in the rights offering. In addition,
certain members of the Aames' management team have agreed to purchase 920 shares
of the Series C Preferred Stock for $1,000 per share.
Steven M. Gluckstern, a Partner of Capital Z, said, "Over the years,
Aames has established itself as one of the leaders in the subprime home equity
market and distinguished itself by its nationwide production franchise and large
servicing portfolio. Our investment in the company represents a strong
endorsement of the company's current strategy and our belief in its management
team, the long term potential of this company and the attractive prospects of
the subprime home equity industry."
Cary Thompson, Aames's chief executive officer, stated, "The investment
by Capital Z provides the foundation for addressing the company's long-term and
short-term liquidity issues. Last quarter's restricted access
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to the credit markets, coupled with a weak asset-backed market, and lower prices
in the whole loan market had a profoundly negative effect on the subprime home
equity sector generally and the company's results of operations specifically.
The timing of the Capital Z investment coincides with the beginning of an
improvement in the asset-backed and whole loan markets and a generally strong
U.S. economy creating exciting opportunities for the company and easier access
to the credit markets."
Neil Kornswiet, the company's president, added, "The Capital Z
investment allows the company to absorb the effects of negative market
conditions that existed during the last quarter. These conditions will cause the
company to adjust its prepayment, loss and discount rate assumptions that
underlie the valuation of its interest-only strips. These adjustments will
result in a very significant write-down of the interest-only strips.
The exact amount of the write-down is currently under review."
Change of Accounting Methodology
In addition, the company will be recording a further significant
adjustment to its interest-only strips pursuant to the FASB's Special Report, "A
Guide to Implementation of Statement 125 on Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, Second
Edition," dated December 1998, and public comments from the Securities and
Exchange Commission released on December 8, 1998. As called for by the FASB and
the SEC, the company will retroactively change its practice of measuring and
accounting for all excess cash flows to the cash-out accounting method. As a
result, the company's financial results for all periods after June 30, 1994 will
be restated. The exact amount of the adjustment is currently under review.
Each of the company's securitizations are credit enhanced through
either the overcollateralization of the trust or the establishment of a reserve
account that is initially funded by cash deposited by the company. The
overcollateralization or deposit amount is supplemented by subsequent cash flows
from the securitization trust until certain target levels are achieved, after
which cash is distributed to the company. Under the cash-in method previously
used by the company, these credit enhancements were accrued by the company and
were recorded at their face value as of the time they were received by the
trust. Under the cash-out method now called for by the FASB and the SEC, these
credit enhancements are treated as part of the interest-only strips and are
recorded at a discounted value for the period between the time they are
collected by the trust and released to the company.
Mr. Thompson stated, "The company will use the March quarter to absorb
the Capital Z investment and change in ownership and to implement an internal
restructuring which should result in significant cost savings. The company
currently anticipates that it will not complete a securitization during the
March quarter, but intends to complete a securitization in the June quarter. In
the meantime, the company will continue to rely on the whole loan market."
Based in New York, Capital Z Financial Services Fund II, L.P., is a
$1.85 billion global private equity fund that focuses exclusively on investments
in insurance, financial services and healthcare services. The Fund, which was
formed in August 1998, is managed by Capital Z Partners, a global alternative
asset investment management firm headquartered in New York City with offices or
affiliates in London and Hong Kong. Capital Z Partners also
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manages Capital Z Investments, L.P., a $1.5 billion fund which focuses on
investments in private equity funds, hedge funds and other alternative
investment vehicles. Since 1990, Capital Z Partners and its predecessor funds
have invested in excess of $1.25 billion in over 40 transactions with an
aggregate market value in excess of $11.0 billion.
Aames Financial Corporation is a leading home equity lender, and
currently operates 89 Aames Home Loan offices serving 33 states, including the
District of Columbia. Its wholly-owned subsidiary, One Stop Mortgage, Inc.
currently operates 40 broker offices serving 46 states, including the District
of Columbia, and 21 Retail Direct offices serving 12 states.
From time to time Aames Financial Corporation may publish
forward-looking statements relating to such matters as anticipated financial
performance, business prospects and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance and results of the
Company's business include the following: negative cash flows and capital needs;
delinquencies and losses in securitization trusts; negative impact on cash flow,
right to terminate mortgage servicing; changes in interest rate environment;
year 2000 compliance and technological enhancement; prepayment risk; basis risk;
credit risk; risk of adverse changes in the secondary market for mortgage loans;
dependence on funding sources; dependence on broker network; risks involved in
commercial mortgage lending; strategic alternatives; competition; concentration
of operations in California; timing of loan sales; economic conditions;
contingent risks; and government regulation. For a more complete discussion of
these risks and uncertainties, see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Risk Factors" in the
Company's form 10-K for the fiscal year ended June 30, 1998 and "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors" in form 10-Q for the quarter ended September 30,
1998.
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