Following a flux of online asset-backed activity (think peoplefirst.com), Paragon Acceptance Corp. might be the next to drop an Internet deal, according to sources at the company.
"We plan to continue to be in the market regularly," said Marilyn Gannon, head of the Internet businesses at Paragon. "And we'd like to do a stand-alone Internet deal as soon as we can find an appropriate deal structure for the Internet business."
Paragon has, in fact, already securitized a small portion of auto loans that were originated online.
"In our last deal that we just closed, we included about $6 million of direct Internet loans," said Gannon. "We just haven't done a deal with only direct origination."
Paragon last came to market on Nov. 8, with a $75 million deal backed by prime auto loans. Descap Securities managed the transaction. The deal was structured under Rule 144A. Average lives ranged from 0.3 years to 4.45 years, and ratings ranged from single-A on the A-1 class notes to single-A-minus on the A-3 class notes.
The Nov. 8 deal was Paragon's fifth to date, and second this year, following a $100 million public deal in March, managed by Credit Suisse First Boston.
"We continue to grow," said Paragon's President and Chief Executive Officer Dennis Lamont. "But we'd like to grow faster."
Paragon is ramping up its rigid prime lending program, with average portfolio Fair Isaac Co.'s score (or FICO score) well above the 700 range. The benchmark for prime is considered 680 or above.
Paragon has restructured their tier-three loans this year, "which is a very small part of our business anyway," said ABS analyst Mary Cronin. "But we've restructured it to have more rigorous credit criteria."
Also this year, Paragon' s Internet-lending business has become a primary focus for growth.
"It's becoming bigger and bigger by the minute," said Gannon. "We've got exponential growth on the one hand, but when you start with a small number, it is by no means eclipsing our in direct originations."
The Internet program at Paragon followed a "soft launch," or period of product testing last December. "In the first 120 days, we had originated over $5.5 million, from a dead, cold start," Gannon said. "Right now we're sitting on about a $5 million pipeline for the next month. So it's very exciting."
Rather than focusing on customer acquisition, Paragon often partners its Internet operations with companies that can provide the customer acquisition and marketing side of the origination process.
"But what we've all discovered is that unless you can fulfill it, great, you spent $2 million this month advertising, and you got 5000 auto loans, and they fall all over the floor because nobody can fulfill them," Gannon explained. "Close rate in this industry has been less than 1% - and what we bring to the table, our company's focus is, you catch em, we'll skin 'em.' That's what we do very well. We're closers."
