by Tanta on 8/27/2007 09:17:00 AM

Being a mortgage and bond weenie, I have never claimed to fully understand equity analyst ratings. However, I must say I understand them less lately than I used to not understand them.

"Market underperform" means "maybe not quite worthless"?

NEW YORK (AP) -- A JMP Securities analyst upgraded Luminent Mortgage Capital Inc. late Friday, saying the deal the mortgage investment fund cut to rescue itself shrinks the chances the stock will end up worthless.

Analyst Steven C. DeLaney upgraded Luminent Mortgage Capital to "Market Underperform" from "Sell."

Whether the San Francisco-based real estate investment trust's shares have value is open to debate. A number of analysts -- including DeLaney himself -- have predicted the company will go bankrupt.

With $8.61 billion in assets at the beginning of the year, Luminent Mortgage Capital borrows money to invest in home loans and other types of mortgage debt. Luminent earns profit when the yields on the mortgage debt outpace how much the company pays to borrow money.

With the mortgage market in distress and investors fleeing from risky loans, Luminent has had to pay more to borrow and the mortgage debt the company invests in is worth less.

The company's stock has fallen from more than $10.80 late last year to as low as 36 cents this month.

Earlier this month, Luminent announced a deal with Arco Capital Corp. Luminent is granting Arco Capital the option to buy a 51 percent stake in the company at 18 cents per share, a discount even for a stock that had lost more than 90 percent of its value this year.

In exchange for this option, Arco Capital is lending Luminent $60 million and agreed to buy $65 million of the company's mortgage debt.

"This lifeline financing provided by Arco improves the possibility that some value may be preserved for Luminent's shareholders," DeLaney said.

DeLaney's price target on Luminent is $1. The stock closed Friday at $1.34.