Last week AmeriCredit Corp. spurred up some immediate bank research commentary - especially on the corporate side - as the subprime lender announced it had renegotiated terms with its primary ABS bond insurer, Financial Security Assurance. For the next six months, the new terms allow for higher delinquency and loss rate triggers before excess spread is trapped for O/C build-up in the FSA wrapped deals.
From one perspective, the renegotiated terms lessens the likelihood of securitization cashflows being cut off from AmeriCredit, although corporate analysts and equity investors took the news primarily as a warning that the company will suffer from higher than expected losses in its subprime auto loan portfolios. Fitch Ratings, for example, placed AmeriCredit's BB' senior debt rating on watch for downgrade.
Meanwhile, ACF's stock price dropped from the mid $14 range to about $7 late last week.
ABS analysts, also quick to comment, see little-to-no impact on AMCAR ABS.
For example, almost immediately following ACF's announcement, Barclays Capital ABS researcher Jeff Salmon distributed in rough form to investors: "Bottom line, [this] should have no impact on collateral performance or ratings on current outstanding AMCAR ABS... Net credit loss forecast of 5.0% to 5.4% for 2002 remains as is. Longer term impact on [the company's] securitization program will be positive as cash flows [will be] more predictable."
"The equity market has reacted negatively to these announcements, continuing to shoot first and ask questions later," writes Alex Roever, head of ABS research at Banc One Capital Markets. "Although these changes have affected how AmeriCredit's equity is perceived, the long-run implication of the changes are mostly positive, creating greater financial flexibility and more transparent financial reporting. We view these announcements by themselves as non-events for ABS investors."
Banc One adds that, "In our opinion, AmeriCredit remains among the best-run independent auto lenders in the country, but because of its obligor base the company remains exposed to economic decline." Indeed, losses on its portfolio have risen into the mid-4% range, an increase of about 25% over 2001 numbers.
ACF also announced last week that it would abandon gain-on-sale accounting and treat its securitizations as secured financings, keeping its deals on balance-sheet. The company is planning a $500 million stock offering and will add three new independent directors to its board. However, as noted by a skeptical analyst, "The sharply negative reaction of shareholders suggests the proposed offering is pie-in-the-sky, raising the risks for a liquidity crunch at the aggressive auto finance lender."
As part of the renegotiated terms, FSA is collecting an additional 2.5 basis points in insurance fees from AmeriCredit, plus warrants to purchase 1.2 million shares of ACF common stock at a 20% premium, the company said.