In scaling back a $2 billion loan-origination program by more than half, diversifying its business with monolines and raising FICO targets, it appears a leaner AmeriCredit Corp. has emerged to close out 2003. Speaking to equity investors last week at Friedman, Billings, Ramsey Group's Annual Investor Conference, company President Daniel Berce credited the ABS market for providing the liquidity it needed throughout the year.

Armed with oodles of data, Berce pointed to the benefits of the new operating strategy AmeriCredit began implementing in February, which subsequently provoked heated debate around the capital markets. Because AmeriCredit is one of the leading independent non-prime auto finance companies, its health makes for big headlines.

"Operating expenses are at an all-time low because of the cost cutting we did earlier this year," said Berce. "That new strategy slashed AmeriCredit's origination program from $2 billion per quarter to a $750 million per-quarter target. Credit losses spiked and we changed strategies."

In addition to revamping targets, Berce revealed that AmeriCredit acted aggressively in other areas, such as moving to repossess vehicles from borrowers less than 90 days delinquent, versus the previous 100-plus threshold.

The larger economic picture has aided the lender in its makeover. Used car values have stabilized and the glut of new cars dumped on the market over the last year has petered out, Berce states. Furthermore, the securitization market remains a primary source of funding for the company.

AmeriCredit's warehouse funding is in "excellent shape," Berce said, with $2.5 billion in total, 13 credit providers and a master warehouse amended and extended one year in November.

"The securitization market remains our primary source of funding - over $31 billion has been raised [from asset-backed transactions]," he pointed out. And the company has expanded to doing business with three monolines: FSA, MBIA and XL Capital, presenting what Berce called a well-diversified program. "It's a significant improvement that none are cross-collateralized or linked," he said.

A $63.3 million cash distribution in October from AmeriCredit's AMCAR trust should help the company bolster 4Q03 cash flow, traditionally the weakest quarter for the auto-finance market. That cash distribution is from the previous FSA program, which had been trapping cash since March due to a breach of the cumulative net-loss triggers. Six of the 13 remaining pools have cured triggers and reached maximum enhancement of 24% to 25%, and a seventh pool hit a trigger in October. By 2004 all 13 trusts, said Berce, will have hit triggers. In the worst-case scenario for AmeriCredit, "we'll get several hundred million - we'll get cash back regardless," he said.

When that cash from the old FSA program arrives, the company has several new strategic options to make, which include: maintaining a high margin of liquidity; increasing the level of new loan volume; repurchasing 9 7/8% senior notes due 2006; and repurchasing stock. Berce noted that the repurchase of the single-B rated debt would result in interest savings of $20 million.

In adding higher-quality borrowers to its pool, AmeriCredit believes it has reduced risk significantly. When asked how that would affect his company's portfolio, Berce said, "it hasn't impacted that much because we risk-base price."

However, he did temper his statements by noting loans originated in 2003 are only 14% of AmeriCredit's total portfolio. By the end of 2004, the move away from the bottommost FICO borrowers will be more meaningful, he said.

Growth targets for next year will be discussed in a January 2004 conference call.

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