Though auto-loan securitizer Onyx Acceptance Corp. was recently honored as one of the fastest growing public businesses in Orange County, Calif., and has been called one of the United States' 100 fastest growing companies, there is nothing "recent" about Onyx's growth.
"We were one of the few, if not the only company, who was able to go public with its securitization about nine months into our organization," said Don Duffy, chief financial officer and executive vice president.
Onyx was formed in 1994, and in a short time the company has established itself as a premier auto loan-backed issuer, with consistent quarterly deals now topping the $400 million range.
The company's next deal, which will come to market in the first quarter, could be Onyx's largest deal to date, said Mich Gellman, of Onyx's investor relations.
"What we've done is kind of built relationships overtime," Gellman explained. "The relationships are established, and we hope the roots are stronger this way."
Typically, Onyx works with MBIA Insurance Corp. for guaranties, and rotates between Salomon Smith Barney, Chase Securities, and Merrill Lynch & Co. for lead manager.
"We like to look at it as a very controlled growth," said Duffy. "A lot of people have grown very quickly, and we're growing pretty quickly, but we've got a system in place on how to do it, and we don't let the growth outrun the system."
A System That Works
Onyx's success is based on efficiency in origination and good management, said Duffy.
"I think we buy paper better than anyone else," he said. "We have a system down where we are re-underwriting about 90% to 95% of our paper after it's originated, and re-grading it."
The re-grading combined with incentive and quality-based origination is what allows Onyx to have a better product, Duffy said.
"Our credit people and the sales people work together as a team, and they're paid identically," Duffy said. "And they're paid on the basis of their volume, and their yield, and the credit quality that comes from the audit processes. And we think that makes our underwriting process the best in the industry."
Onyx has consistently sold loans that are in the prime or near-prime category, and the company intends to continue targeting top tier consumers, shying away from the hype surrounding subprime and higher yield product.
"We're looking for one-year to three-year-old used cars," Duffy said. "Our portfolio runs about 80% used and 20% new. Ninety percent of our dealer relationships are with franchise dealers. We do very little with independents."
Additionally, a large part of Onyx's success is derived from consistent demand for auto-backed product, Duffy said, describing the decent yield and short life combo characteristic to bonds backed by auto-loans.
"I think the automobile receivable is probably the best asset there is," he said. "Obviously we think it's a great asset, because that's the asset class we're in. There's no pre-payment issue like you've got on the mortgage side. It's just a really good asset."
Consistent Growth, Consistent Issuance
In terms of expansion, Onyx has already increased total deal volume nearly 60% since 1998, to $1.45 billion from just over $900 million. In year 2000, total deal volume should top $1.8 billion, Duffy said.
"We understand now how to open branches and how to control credit in a growing environment," he added. "And that's really our plan right now - to execute our growth strategies and keep our assets performing better than anyone else's."
Onyx currently issues 90% to 100% of its loan portfolio each quarter, and has been able to do so for the past four years. Additionally, Onyx operates commercial-paper conduits, for warehousing loans between securitizations, and hasn't yet been forced to access them as long-term financing vehicles.
"We have the ability, if things get difficult to do so," said Duffy. "But even through the rough times of last year, we have not been faced with that."
Onyx began issuing from a grantor trust in 1994, and moved over to an owner trust in 1998, which allows for larger deals.
As for new structures: "We have talked about doing senior-subordinate deals," Duffy said. "But we have not gone that way yet. It's really kind of up to the market."
Regardless, the strategy behind Onyx remains the same. "We're trying to be the best auto-finance company in America," Duffy said.
