10/22/2010

Subprime-Auto Lender Maps Issuance Plans

Buyers of subprime auto-loan bonds will soon see a new issuer in the market.

Since launching in 2006, Exeter Finance of Irving, Texas, has planned to fund its lending activity via securitization. Indeed, the firm's partners all previously worked at the former AmeriCredit, the most active issuer of subprime auto-loan paper. But the plan was interrupted by the credit crisis.

Now, a combination of a swelling loan portfolio and tightening spreads has Exeter gearing up to issue its first deal, most likely in the second quarter of 2011. The senior-subordinate offering is expected to weigh in around $100 million. Exeter plans to return to the market with a second offering before the end of 2011, then become a routine issuer at a rate of about one deal per quarter.

Exeter already has talked to several banks about underwriting the deals. Wells Fargo is supplying a credit line that Exeter has been using to fund its loans since May. And Exeter's principals - Sam Ellis, Mark Floyd, Richard Frunzi, Daniel Parry and Kenneth Wardle - have longstanding relationships with securitization bankers who worked at Wachovia, which now is part of Wells.

Exeter's loan portfolio currently encompasses about $130 million of credits. Once it establishes a securitization program, the company expects to increase its lending volume in part by expanding beyond the 11 states where it currently does business. It also plans to add staff.

Exeter's business stands to get a boost from General Motors' pending purchase of AmeriCredit - a deal that is expected to close Oct. 31. AmeriCredit, which already has changed its name to GM Financial, is expected to curtail its subprime-lending activity as it focuses on writing loans for GM customers.

AmeriCredit's most recent offering underscores how spreads on new asset-backed issues have been tightening, and thus lowering funding costs for issuers. In an $800 million deal that priced Sept. 15, the company placed a class of top-rated one-year bonds at 35 bp over eurodollar futures. That's 35 bp tighter than similar securities it sold Aug. 12.

Subprime auto lenders have completed 12 deals totaling $5.7 billion in the U.S. this year. AmeriCredit was behind five of them, adding up to $2.6 billion, according to Asset-Backed Alert's ABS Database.

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