After AmeriCredit Corp. came to market with two deals almost back to back, Fitch Ratings last week downgraded the long-term Issuer Default Rating (IDR) of AmeriCredit Corp. (ACF) to 'B' from 'B+'. All ratings remain on Rating Watch Negative. Approximately $750 million of debt is affected by this action.
According to Fitch, the downgrade reflects the impact of reduced origination volume and profitability prospects on the auto firm's franchise value, and the potential that AmeriCredit could trip the net charge-off covenant on its master warehouse facility as the combined impact of a shrinking portfolio and seasonal credit deterioration could inflate the six-month average net loss rate above the 8.5% trigger.
Should a covenant be tripped, the warehouse lenders could provide covenant waivers in exchange for some combination of reduced capacity, enhanced collateral, and/or re-pricing, or they could declare an event of default. The rating agency believes an event of default would result in an accelerated repayment of borrowings outstanding on the warehouse and also could result in a cross default of other material indebtedness, which currently includes about $750 million of unsecured corporate debt, but could decline by as much as $109 million following the completion of the debt exchange with Fairholme Funds.
Just before the Thanksgiving holiday, AmeriCredit completed a $500 million senior-subordinate securitization of subprime receivables, utlizing a senior subordinate structure.
For this transaction, short-term paper priced at 100 basis points over Libor. The triple-A rated A-2 and A-3 notes have a one-year average life and a two-and-a-half year average life, respectively, with pricing at 400 basis points over Libor for the A-2 class and 500 basis points over Libor on the A-3 class of notes, according to the ASR Scorecard database.
In October, AmeriCredit also priced another $500 million offering of automobile receivables-backed securities via AmeriCredit Automobile Receivables Trust.
The deal was lead by Deutsche Bank Securities, Wachovia Securities and Barclays Capital. This is the firm's first subprime senior/subordinate transaction since 2006. The deal used a senior/subordinate structure as opposed to a bond-insurance structure, as seen in the company's 2008-A-F deal. This is because of the recent apparent collapse of the bond insurance paradigm, Standard & Poor's said in a report about the deal.