12/09/2011

Pimco Fund Circles Subprime Auto Lenders

Pimco wants to buy a stake in a subprime auto lender.

The investment, totaling as much as $50 million, would come via the Newport Beach, Calif., bond specialist’s Pimco Bravo Fund. Sources said the shop is focusing its acquisition efforts on lenders that fund themselves through securitization or are planning to do so — with some pointing to Consumer Portfolio Services as a possible target.

While there’s no official word on whether the two companies are in talks, the chatter is that CPS would use the injection to aid in an ongoing expansion of its lending operations. “CPS would be a good candidate in that they could use the investment to purchase or originate loans to securitize,” one source said.

Market players also point to ties that CPS may have forged with Bravo Fund chief Bryan Sullivan during his days at Goldman Sachs, where he worked prior to arriving at Pimco in June. Indeed, Sullivan focused on investments in lending operations as head of a special-situations team at Goldman, which supplies a $100 million warehouse line to CPS.

As for the Pimco fund, the $2.4 billion vehicle aims mainly to buy distressed home-loan instruments, commercial mortgage debt and banking operations — in part to exploit increased capital-reserve requirements under the Dodd-Frank Act. But the vehicle, whose name stands for “bank recapitalization and value opportunities,” gained flexibility when Pimco parent Allianz approved a restructuring in August that broadened the bond giant’s investment scope.

Pimco’s interest in subprime auto lending comes as the sector is attracting interest from other investors, thanks to strong asset performance among credits written after the financial-market crash. For example, Blackstone agreed in September to pay as much as $1 billion for a majority interest in Exeter Finance, while Perella Weinberg launched CarFinance Capital in May after buying Flagship Credit in September 2010. “A lot of people in the financial community know the margins are pretty high in the subprime business and Pimco is looking around that sector for a potential investment,” one source said.

For its part, CPS was a routine issuer of bonds backed by subprime auto loans prior to the financial crisis, but was absent from the market from 2009 until this year — when it completed three offerings totaling $330 million. The most recent was a $120 million transaction that priced Dec. 7 with Citigroup running the books.

CPS plans to come to market on a quarterly basis in 2012, issuing some $500 million of bonds.

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