There was some good news this week from the subprime auto lender as reported by Sarah Mulholland from Bloomberg News. There was also good news regarding the captive finance companies of all three domestic manufacturers.
May 20 (Bloomberg) -- AmeriCredit Corp., the provider of financing to car buyers with poor credit, raised $750 million in the year's first public sale of bonds backed by subprime auto loans.
The offering was increased from the $500 million initially planned, adding to evidence that investor appetite for asset- backed debt has returned. The AAA portion of the sale with a three-year maturity priced to yield 365 basis points over benchmark rates, according to a person familiar with the transaction, who declined to be identified because the terms of the sale haven't been announced. The bonds were being marketed at a spread of 380 basis points over the benchmark.
``It is definitely a good sign that a subprime auto issuer can get a deal done in the current market,'' said Tom Reese, head of asset-backed securities at Hartford Investment Management Co. in Hartford, Connecticut. The firm has $147.2 billion in assets under management.
Demand for securities backed by consumer payments picked up in the past month, narrowing the cost of borrowing for auto lenders, credit-card companies and student-loan providers. Investors returned after the Federal Reserve orchestrated a bailout of Bear Stearns Cos. and said it would accept AAA rated asset-backed securities as collateral for its Term Securities Lending Facility.
Spreads on similar securities to those sold today fell by 10 basis points to 190 basis points more than benchmark rates in secondary trading last week, according to New York-based JPMorgan Chase & Co. A basis point is 0.01 percentage point.
AmeriCredit, based in Fort Worth, Texas, had been unable to sell asset-backed debt since September, curbing its ability to lend and helping drive profit down 63 percent in the most recent quarter.
Investors shunned debt sales tied to consumer payments after the collapse of the subprime mortgage market that spawned $379.2 billion in writedowns and credit losses at financial institutions worldwide.
AmeriCredit, which depends on securitizing loans for financing, has cut the amount of loans it plans to write in 2008 by about half to $3 billion because of a lack of funding.
Getting a deal done has been a ``near-constant focus'' for the company for the past six months, Chris Choate, AmeriCredit's chief financial officer, said in an interview earlier this month. Choate didn't immediately return a call seeking comment.
The company turned to Deutsche Bank AG for financing in April. Deutsche Bank, based in Frankfurt, agreed to purchase up to $2 billion in securities backed by auto loans from AmeriCredit.
AmeriCredit fell 40 cents, or 2.9 percent, to $13.62 in New York Stock Exchange composite trading. The shares have declined 46 percent in the past year.
The AAA securities sold today are insured by Financial Security Assurance Holdings Ltd., a unit of Brussels and Paris- based Dexia SA. The credit market turmoil spread to bond insurers including MBIA Inc. and Ambac Financial Group Inc. The two largest bond insurers recorded a combined $6.7 billion of first- quarter charges for losses on home-equity loans and collateralized debt obligations.
In 2007, AmeriCredit underwrote $9.22 billion in auto loans to subprime borrowers and then sold $5.2 billion in debt backed by those loans.
Deutsche Bank and Credit Suisse Group managed the sale.
CPS Auto Finance completed a privately placed securitization of subprime auto loans in March.
Demand is also returning for bonds backed by car loans made to borrowers with good credit. The finance arms of Ford Motor Co., GMAC LLC and Chrysler LLC have raised a total of $9.7 billion since April 15 by selling asset-backed debt, including a $5 billion sale by Ford, its biggest since 2002.