January 5, 2005
Mail Stop 0409
Shabi S. Asghar
President and Co-Chief Executive Officer
ECC Capital Corporation
1833 Alton Parkway
Irvine, CA 92606
Re: ECC Capital Corporation
Amendment No. 2 to Registration Statement on Form S-11
Filed December 17, 2004
Registration No. 333-118253
Dear Mr. Asghar:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Page references below refer to the marked bound copy of the
S-11
you provided to us via mail.
General
1. We note your response to our prior comment number 2. We do not
agree with your assertion that the company has allocated the net
proceeds to be received in this offering to specific uses.
Therefore, we continue to believe that the offering is a "blind
pool"
offering. Please revise the cover page, summary and risk factors
section to state that the offering is a blind pool offering and
that
investors will not have specific information regarding the
specific
assets you will acquire with proceeds from the offering.
Directed Share Program Materials
2. We note that in your initial response to our comment regarding
your directed share program you described the directed share
program
materials as including an introductory letter from FBR, a letter
from
ECC, an IOI form, a booklet entitled "How to Respond to the
Reserved
Share Program" and a NASD questionnaire. It appears that we have
only received the letter from ECC and IOI form. Please confirm
that
you do not intend to send the other materials described in your
earlier letter, or provide copies for our review and comment prior
to
mailing them to prospective purchasers.
3. Please revise your directed share program cover letter to make
clear, after the first sentence of the fourth paragraph, that a
potential purchaser may decline to accept any shares when they are
contacted by FBR after the registration statement has become
effective.
4. It appears from your proposed Draft Invitation E-Mail that
FBRdirect intends to make a version of the preliminary prospectus
available to potential investors electronically. Please confirm
that
FBRdirect will also supply each recipient of the proposed email
and
each visitor to the URL where the electronic version of the
prospectus will be made available with a free version of the
software
necessary to download and open the document, as well as free
technical support.
Summary, pages 1- 13
5. We note your response to our prior comment number 8; however,
we
are unable to determine whether in the short term the proceeds
from
this offering will be primarily invested in a pool of mortgage-
backed
securities. If you do still intend to invest a large portion of
the
proceeds in MBSs, even in the short term, the information
requested
from our prior comment number 8 should be included in the summary
section.
Risk Factors
Our success will depend on our ability to originate subprime
residential mortgage loans for our portfolio, page 14
6. As part of this risk factor please also discuss the fact that
over
90 percent of your loan originations during the nine months ended
September 30, 2004 were cash-out refinancings.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, pages 54 - 82
Internal Controls, page 55
7. We have considered your responses to our prior comments 26 and
27.
We are still uncertain how the control weaknesses you have
identified
do not have an impact on periods prior to the second quarter of
2004.
It appears that you entered into securitization transactions prior
to
the second quarter of 2004. Additionally, please confirm to us,
if
true, that the Company did not have any derivative instruments
prior
to the second quarter of 2004.
8. We have reviewed your response to comment 30. With respect to
the
gain recognized on your securitization transaction, explain to us
the
differences in the assumptions used in the two methodologies that
resulted in an increase in the gain recognized on the sale.
Warehouse and Repurchase Facilities, page 71
9. We note that the Countrywide Warehouse Facility is set to
expire
in February 2005, shortly after the completion of the proposed
offering. Please disclose how you intend to pay the amounts
outstanding under this facility and whether you anticipate that
proceeds from this offering will be used.
Management, pages 108 - 114
10. We have reviewed your response to our prior comment number 37
and
will reserve further comment until you have made the revisions to
your disclosure. Supplementally, please advise us as to whether
you
expect the board to make independence determinations and
appointments
of the directors to the various committees prior to the
effectiveness
of the registration statement.
Executive Compensation, page 115
11. Please update your summary compensation table to include 2004
data.
Underwriting, pages 154 - 160
12. We note your response to our prior comment number 42. Please
confirm that the prospectus is not currently available on FBR.com
and
that it will only be made available once you begin your selling
efforts pursuant to a prospectus that meets the requirements of
Section 10 of the Securities Act.
Financial Statements
Note N - Stock Options, page F-27
13. We have reviewed your response to our prior comment 49 and the
related changes to your disclosures. It appears that the value of
your stock has almost doubled from August 2004 to September 2004.
In
a supplemental response, explain the changes in circumstances that
have caused the increase in the value of your stock.
Legal Opinion
14. We have reviewed the opinion of Venable LLP you submitted with
Amendment No. 2. It does not appear that counsel has revised its
opinion in response to either of our prior comments numbered 54
and
55. Accordingly, we reissue our prior comments numbered 54 and
55.
Tax Opinion
15. We re-issue comment 57 that asked that counsel remove the
qualification that the opinion is solely for the benefit of the
company and may not be relied upon by third persons. We note that
counsel has included the clause "except as provided by law;"
however,
it is unclear what this refers to and puts the onus on investors
to
independently determine whether they may rely on the opinions made
by
counsel. Please revise accordingly.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Robert Telewicz, Staff Accountant, at (202)
824-
5356 or Deborah Wilson, Branch Chief, at (202) 942-2956 if you
have
questions regarding comments on the financial statements and
related
matters. Please contact Amanda McManus, Attorney-Advisor, at
(202)
942-7184 or me at (202) 942-1972 with any other questions.
Sincerely,
Owen Pinkerton
Senior Counsel
cc: William J. Cernius, Esq. (via facsimile)
Jeevan B. Gore, Esq. (via facsimile)
Latham & Watkins LLP
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ECC Capital Corporation
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