Finance companies that go out of business usually do so because of a lack of liquidity.
Investors and warehouse lenders could lose confidence in New Century. New Century's business model is highly reliant on liquidity, so if investor confidence deteriorates and credit facilities are constrained, a liquidity event could ensue.
New Century's accounting issues and deteriorating fundamentals at its lending operation could put it at a steep downward slope, in our view, and we are more concerned that liquidity issues and adverse market reactions could undermine its business model and financial stability even further.
~ Kenneth Bruce, Merrill Lynch analyst, from a note to clients on Feb. 8, "Big banks control fate of subprime lenders," MarketWatch, February 16, 2007
(Merrill Lynch downgraded the stock to a sell.)