ABS market participants will ultimately benefit from AmeriCredit Corp.'s efforts to cut costs and maintain adequate capital, although it may be painful in the process.

On Feb. 12, AmeriCredit announced, among other things, that it will reduce loan origination volume to $750 million per quarter by June. The company readjusted its earnings to reflect an additional $17 million in write-downs over previous estimates in the value of its residuals, due to the delay in cash received as a result of required spread account deposits in its Financial Security Insurance policy.

The company is taking steps to preserve capital and cut costs by addressing cost-structure issues to deal with the situations resulting from the need to trap cash in FSA-insured trusts. This, according to analysts at Credit Suisse First Boston, is something that will ultimately benefit note holders. AmeriCredit is still viewed by the ABS market as a viable entity that would have access to securitization if a surety stepped in with a wrap.

According to Standard & Poor's, credit enhancement levels will increase to the mid-teens from the current 12% level with an up-front deposit of 9% to 10%. Cash trapped from the receipt of FSA-insured deals will now be trapped through mid-2004, and the company anticipates breaching credit-loss performance triggers in 2003.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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