Delta Financial Downsizes to Avoid Bankruptcy
An article published by News Day reports the speculated causes and effects of the layoff of half of Delta Financial’s workforce. Delta is desperate to get out of debt. According to the article:
In a bad day for subprime lender Delta Financial Corp., the Woodbury-based firm laid off almost half its 1,000 workers Thursday morning as its chief said there were “no viable alternatives” and then late in the day reported a $39.6 million net loss for the third quarter.
To avoid the same funding problem that drove the bigger, Melville-based American Home Mortgage into bankruptcy, Delta is negotiating for more “working capital” to weather the mortgage industry crisis, just like it did in August with a $60 million loan from a hedge fund manager.Less freed-up capital means their loan-making business was starting to grind to a halt, which affects revenues, and left Delta holding loans that were possibly risky.
The layoffs raise questions of how well Delta can operate with one third of what had been almost 1,400 workers a year ago.
Maybe this mass layoff really was necessary for Delta to avoid bankruptcy. After all, it’s better that 500 workers lose a job than all 1,000 if the company were to collapse. But the decrease of 500 jobs only makes the economy that much weaker. The U.S. seems to have found itself in a catch-22 and companies are being forced to choose the least detrimental of less-than-ideal options.
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