Since becoming the first Internet brand to bring a public term securitization, PeopleFirst.com has been an exotic name in auto ABS, wooing investors with odd collateral: 100% online-originated, "super-prime" credit, automated collection.

The dot-com has tapped the market three times since the fall of 1999, for approximately $900 million in deal proceeds. Further, PeopleFirst's track record is threatening to make its deals the best performing pools in auto ABS.

"They're all performing flawlessly," said Randy Ellspermann, chief financial officer at PeopleFirst.

"Their numbers are absurdly good for auto ABS," said one analyst.

According to Ellspermann's figures, the delinquency ratio in the first 12-month period following the company's 1999 securitization is two basis points on a static pool basis, compared to domestic captives, foreign captives and U.S. prime banks, whose ratios tend to exceed 1% after the first 12 months, Ellspermann said.

Similarly, PeopleFirst's static loss ratios, at less than 10 basis points, are well below industry averages.

"From a collateral performance standpoint, I don't think there's anything to compare to our pools," Ellsperman said. "So far it's been better than even we expected."

Although these numbers should change with seasoning, Ellspermann is confident that PeopleFirst collateral will continue to perform significantly better than typical prime auto paper.

The super-prime model

PeopleFirst, which is based in San Diego, Calif., was formed in 1995 by a group of automotive industry veterans who saw opportunity in targeting the super-prime borrower, or "individuals who were poorly serviced and often overcharged with traditional financing."

"[Super-prime] is kind of a label we put on them internally," Ellspermann said. "Call them what you want to call them, but [the paper is] a cut above what the ABS market considers prime auto paper, in terms of credit characteristics."

On average, credit decisions are made within 15 minutes, and borrowers can receive a Blank Check within 24 hours, good up to a certain credit-determined loan amount.

Perhaps more significant from the ABS perspective, more than 90% of PeopleFirst's borrower pool is signed on with PeopleFirst's automated payment system, which automatically deducts monthly dues from a borrower's designated account. In this way, the borrower needs not even remember to pay, but is only required to have the funds.

"It's definitely a contributing factor in our controlling our credit quality after the fact," Ellspermann said. "First of all, our customers pay their bills better than anyone else we're aware of, and, secondly, we facilitate that by having this auto debit capability, which is more conducive to a direct auto provider like ourselves than some of the major players in the industry that go through dealers, and are less able to present the simple offer to the consumer."

PF's financials

PeopleFirst just finished off its largest deal, a $525 million transaction brought by Merrill Lynch in December. Credit Suisse First Boston and Barclays Capital were co-managers on the deal.

PeopleFirst intends to stay with Merrill for its next securitization. Prudential Securities managed the company's first two transactions, and, notably, it was CSFB's current management team, which moved over from Prudential in early 2000, that brought the dot-com to the public ABS market, with Barclays as a co-manager.

However, as the company intends to diversify its funding sources this year, Ellspermann does not anticipate another securitization in the near term.

"We're just filling our pools right now," he said. "Frankly I think it will be a little while until we're back in the market because I think the bigger pools are more efficient."

As a funding alternative to public auto securitizations, PeopleFirst is considering private ABS transactions, as well as whole loan sales, and possibly commercial paper down the line. The company currently maintains credit facilities with Merrill and Deutsche Genossenschaftsbank (DG Bank).

Through all its channels, PeopleFirst is currently originating at approximately $1 billion per year, and expects to increase that rate significantly by year-end.

"In January, we put on the billionth dollar loan for the company." Ellspermann said. "And we continue to add business partners, and we have additional sources of volume coming on later this year."

For example, PeopleFirst acquired Giggo.com from DaimlerChrysler in September 2000, and consolidated the Giggo channel into its own, which gave the company access to partnerships, and increased its scale of economy, Ellsperman said. Further, through the acquisition, Daimler became the PeopleFirst's largest shareholder.

Going forward, PeopleFirst plans to add several marketing partnerships, which should help to increase origination channels.

Although the company has increased origination volumes twelve-fold over the last two years, PeopleFirst is hoping to modestly double its rate of growth for 2001, hitting approximately the $2 billion per year mark.

Into the slowdown...

As analysts have been saying for the past several months, the uptick in consumer delinquencies should only affect below prime borrowers, which would have minimal impact on the performance of PeopleFirst's pools.

However, new car sales are expected to decline in the coming months, which could push the captive finance subsidiaries into PeopleFirst's share of borrowers, via financing incentives.

"That could have a dampening effect [on our origination]," Ellspermann said. "But I think it's going to be far exceeded by our rate of expansion into other business generation [channels] and partnerships."

Currently, about 40% of PeopleFirst's business is new car loans, which is the only product line that could be impacted by manufacturer incentives, Ellsperman said.

Beyond traditional used car financings, PeopleFirst also provides motorcycle and private-party loans.

"You're looking at maybe 10% impact on the company's volume, and when we have a year-over-year growth rate of 50% to 100%, that's kind of going to get lost," Ellspermann said.

The private-party loans are facilitated through a partnership with Mailboxes Etc., which acts as a location for the buyer and the seller to meet. The credit profile and approval process is identical to the non-private party loan.

"To date we've seen absolutely no differentiation in credit quality [for private-party collateral]," Ellspermann said.

Apart from auto lending, PeopleFirst entertains the idea of expanding into new asset classes. There's been talk of augmenting the PeopleFirst web-lending model into the home-equity sector, although nothing is imminent.

"Right now, it's really a figment of our imagination," Ellspermann said.

"We absolutely believe that we have the potential to enter new asset class, but it's not going to be this quarter or next quarter... But down the line, it's certainly in our vision," he added.

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