Former Detroit Lion's football star Mel Farr Sr. has sold $36.5 million in auto loan-backed bonds, marking the first time an African-American owned company has entered the asset-backed securities marketplace.

But perhaps what is more significant is that the proceeds of the deal, as part of a socially conscious effort, will be used to make auto loans available to a financially challenged segment of society, a segment Farr dubs the "urban dweller."

"We live in a society where an automobile is necessary, and everyone should have the right to drive one," said Farr. "If you deny them transportation, then they're not going to be able to participate in this robust economy."

The securitization was issued by Triple M Financing Co., a division of Mel Farr Automotive Group, with Bank of America and Union Bank of California as lead investors. Triple M retained roughly 12% of the bonds.

The deal has an average life of 1.5 years and was structured in two parts, with a senior class of $28.2 million, and a subordinate class of $7.3 million. There was no underwriter and the transaction was uninsured, however Duff & Phelps Credit Rating Co. gave the bonds a triple-B rating.

"Even though the company is socially conscious," said Lee Bailey, general manager of Triple M, "when the transaction was rated by Duff & Phelps, it stood on its own merit based on the quality of the paper."

Urban Dweller Versus Subprime Borrower

The urban dweller loan, Farr explained, differs from a subprime loan in that subprime describes a group of borrowers with "bad credit," who have made "bad choices." Urban dwellers, in contrast, are borrowers who have never had the opportunity to receive secured credit for economic reasons and as such have no secured credit history whatsoever.

"I started Triple M Financing Co. in order to provide [loans to urban dwellers]," Farr said. He argues that financial institutions will not formally lend to this segment of society. But by way of the recent securitization, Farr has used a system that, in essence, has these larger financial institutions lending indirectly to the urban dwellers.

"It is important that [these institutions] become good corporate citizens' and provide one of the essential things for a group in any society," Farr said. The necessity in this case is transportation.

Though the deal was investment grade based on the Duff & Phelps rating, Farr said he had some difficulty selling the A certificates. That is until the Rev. Jesse Jackson got involved.

"What Reverend Jackson has talked about in his Wall Street project is that we need to talk about inclusion instead of exclusion," Farr said. "And when you exclude this segment of the market place, what you're doing is denying them the American way of life.

One of the obvious reasons financial institutions often shy away from urban dweller loan profiles, according to Farr and Bailey, is that urban dwellers will not perform well with a traditional bank loan-style payment plan. So Farr and Triple M have developed a system that both caters to, and encourages borrowers to remain afloat.

The concept is designed to accommodate the urban dweller's week-to-week income structure. "So you have a process that has them have payments on a weekly basis - their contracts and leases are set up on a weekly basis - so that way the customer doesn't have the opportunity to end up 30 days delinquent," Bailey said.

He explained that even if a customer has the best intentions of paying, when he or she goes 30 days delinquent, the odds that this customer will be able to make a simultaneous overdue and current payment are slim.

In addition, Farr has implemented a collection system similar to those used by utility companies. Working with California-based Payment Protection Systems, Farr has equipped each vehicle inside the lending portfolio with a mechanism called "On Time," capable of shutting down the car's ignition system if payments are late. The system has worked extremely well, Farr said. Since its inception in April, there hasn't been a payment over seven days delinquent.

Whether or not the On Time payment plan will improve future bond ratings is unclear. However, Farr hopes his next securitization, which should involve larger figures, will be single-A rated.

The Whole Nine Yards

Not only does Farr see his securitization effort as socially conscious, but he also views it as profitable as well - a combination that exemplifies Farr's "good corporate citizen" concept.

"We see that not only can this thing provide a service, but also it can provide a good return on our money, which is what I'm out to prove," said Farr.

"If you're going to make an investment," said Bailey, "and you have program that can benefit, not just the market, and not just the investment, but the entire country, than that's the market we need to focus on and try to maximize on."

But combining good business with good deeds is not an easy thing. According to Farr, the 19-month process involved in this auto-loan securitization was one of the most enduring times of his life.

More difficult than getting clipped by a 400 pound tackle?

"It was more difficult than that," said Farr. "It was trying to convince the institutions to do something that they've been taught they shouldn't do."

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