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Credit Crisis Continues to Slam AmeriCredit
Fairholme Funds acquires an additional percentage of AmeriCredit. Transaction was necessary to maintain the financial viability of the subprime lender.
Shares exchanged for notes and portion of next securities offering
Here at Auto Credit Express, we wanted our dealers to be aware of the latest news from AmeriCredit Financial Services, a major subprime lender serving the retail automotive market.
In a press release today, Fort Worth-based AmeriCredit announced that it entered into an agreement with Fairholme Funds, Inc. to swap its 8.5% Senior Notes that are due in 2015 for 15.1 million shares of its common stock. Fairholme has also agreed, as part of the deal, to purchase approximately $123 million of notes, rated below AAA, in AmeriCredit’s next ABS offering expected sometime this month.
The agreement also limits Fairholme’s ownership of AmeriCredit to 28.9% for the next two years. The share issuance is also an admission of AmeriCredit’s current tenuous credit position as the issuance of additional shares normally requires current shareholder approval and this procedure was not adhered to. According to the release, AmeriCredit “determined that the delay necessary in securing shareholder approval would impair the Company’s ability to complete a securitization transaction in a timely fashion, which, in turn would put the financial viability of the Company at substantial risk.”
Letter mailed to shareholders
AmeriCredit’s Audit Committee acted on an exception in the shareholder approval policy for this type of situation and has applied to the New York Stock Exchange for the exception (NYSE accept the application).
The lender is also mailing a letter to all shareholders outline its actions and will issue the new shares no less than 10 days after the mailing is completed.
Latest setback in a soft market
AmeriCredit’s latest news is only the latest setback in a market that has been hard hit by the current credit crisis. With the inability to sell its ABS offerings on the open market, the Texas-based subprime auto lender has had to mortgage itself in order to maintain liquidity.