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UPDATE 1-Luminent Mortgage announces bailout
Mon Aug 20, 2007 8:19AM EDT

NEW YORK, Aug 20 (Reuters) - Luminent Mortgage Capital Inc (LUM.N: Quote, Profile, Research), which has struggled with liquidity problems because of investments in mortgages, on Monday announced a bailout designed to help insure its survival.

Under a letter of intent, Arco Capital Corp., a San Juan-based holding company engaged in lending and acquisition activities, would be issued five-year warrants to buy up to a 49 percent equity stake and 51 percent economic interest in Luminent at 18 cents per share, Luminent said.

In addition, Luminent said it would get up to $60 million of new capital, and that Arco may buy some of the company's assets. Four new directors will join Luminent's board.

Luminent, a San Francisco-based real estate investment trust, this month suspended its quarterly dividend as it struggled with liquidity problems, which resulted in some default notices. The REIT has said the secondary market for mortgage loans and mortgage-backed securities "seized up."

Luminent said it decided not to get stockholder approval for the warrants, saying any delay may "seriously further jeopardize" its financial viability.

"Even with the possibility of sizable dilution to existing Luminent stockholders, the transactions ... create the best path both to attempt to protect current value and grow potential value," Luminent Chief Executive Trez Moore said in a statement. He said the transactions provide "short-term liquidity relief."

Luminent said it plans in the future to be a manager for asset-backed securities. It said the transactions require completion of definitive agreements and other conditions, and that there is no assurance they will address Luminent's liquidity shortfall.

Luminent shares traded Friday at about 70 cents in electronic trading. They traded as high as $10.84 last Oct. 9.