NovaStar Financial Inc. (NYSE: NFI) CFO Greg Metz said for the foreseeable future, the embattled finance company’s cash flow will be used to pay down debt and try to grow the firm’s retail operations. Metz made the comments during a midday conference call.

The Kansas City-based company recorded a third-quarter loss of $598 million, or $64.05 per share, compared with a profit of $25.3 million, or $2.91 per share, a year earlier. In a regulatory filing, NovaStar said it might declare bankruptcy if it can’t repay debt to its primary lender Wachovia Corp. (NYSE: WB).

In early October, NovaStar revealed in its Securities and Exchange Commission filing that it has $33 million in unrestricted cash, after an $18.5 million payment to Wachovia. As of Nov. 13, NovaStar had $83.9 million of short-term borrowings outstanding with Wachovia and still owed about $11.8 million in commitment fees. NovaStar says it will raise the required funds by selling non-performing assets and mortgage servicing rights. In its regulatory filing, NovaStar warned that it might not be able to generate the cash flow needed to pay down its debt.

“The goal is to pay down Wachovia as quickly as possible and from there, we’ll see where it goes,” CEO Scott Hartman said. “That’s the operating plan along with running a small but hopefully growing and profitable retail mortgage broker operation.”

NovaStar said it is out of compliance in its agreement with Wachovia, but has obtained a waiver that expires on Nov. 30. If NovaStar cannot obtain additional waivers, Wachovia could require debt payment immediately which NovaStar says could force it to declare bankruptcy.

“It is highly unlikely we will be in compliance at end of the month,” Metz said.

The firm also said it will probably be kicked off the New York Stock Exchange, forcing it to trade on the over-the-counter market. Hartman said the company is appealing the decision and a review is scheduled for Dec. 5. However, he said there is a “high likelihood” the company will be de-listed.

In midday trading, NFI are nose-diving to their cheapest-ever prices at $1.93, down 57.95% or $2.66. Over the last 52 weeks, shares have ranged from $1.90 to $6.22.

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