AmeriCredit Breaches Covenant, Waiver in Effect Until

Early March

In a January 2009 conference call with analysts, Dan Berce, AmeriCredit president and CEO, said, “As we highlighted in our first quarter earnings conference call in October, we have an 8.5 percent rolling six-month portfolio net credit loss covenant in our warehouse lines … While results are not final, we anticipate that we may breach this covenant this month and are working with our warehouse line providers to obtain waivers and amend the warehouse facilities.” On AmeriCredit’s second quarter (July ‘08 to Dec. ‘08) operating results report, which was released Jan. 29, 2009, annualized net charge-offs as a percent of average finance receivables was 8.3 percent.

To Berce’s statement on breaching the covenant, Chris Choate, AmeriCredit CFO, said, “We are currently working with our lenders to restructure the warehouse lines and anticipate obtaining a temporary waiver for any non-compliance until an amendment of the lines is completed. We expect that an amendment will result in reduced warehouse capacity, consistent with our lower origination run rate, as well as lower advance rates and higher cost of funds more reflective of current market conditions.”

In AmerCredit’s 10-Q regulatory filing, filed Feb. 6, 2009, states, “Our credit facilities contain covenants, which if breached, could restrict our ability to borrow under such facilities to fund new loan originations, or in the worst case, could result in events of default under most of our debt agreements …. Subsequent to December 31, 2008, we breached the 8.5 percent six month net credit loss ratio and a waiver through March 7, 2009 was granted. We are currently negotiating with our credit providers to amend our credit facilities to modify the most restrictive covenants in exchange for a reduction in facility size, lower advance rates and higher pricing among other changes. If we are unable to enter into an amendment, there are several possible outcomes. The credit providers could restructure the facilities to prohibit future borrowings, thereby resulting in our inability to fund new loan originations and the receivables that we currently have pledged to the credit facilities would be used to pay down the outstanding balance of the respective facilities. In the worst case, the credit providers could declare an event of default, which would permit the lenders to accelerate the debt, foreclose on the collateral and remove us as servicer. An event of default would also result in a cross default under our senior note and convertible senior note indentures and certain securitizations transactions. Failure to negotiate an amendment would raise substantial doubt about our ability to continue as a going concern.”

As of late February, the independent, indirect auto finance company hadn’t announced an asset-backed securitization since November 2008, which has contributed to the company’s lack of liquidity and ability to originate new loans. Like many finance companies dependant on asset-backed securitizations, AmeriCredit’s origination volume has substantially decreased.

While the company operates on a fiscal year beginning in July, many businesses operate on the calendar year (CY), so for the sake of comparison, here are some calendar year comparisons, compiled from AmeriCredit press release data.

 
In 2008, compared to CY 2007, the company saw a decrease in asset-backed securitizations of about 74 percent, origination volume decreased by about 63 percent, operating expenses decreased by about 16 percent, and revenue decreased by about 7 percent. In the January 2009 conference call, Choate said, “We do not anticipate having to access the securitization market until late 2009, at the earliest.”
 
Vol. 3, Issue 2