AmeriCredit Originates Close to $1 Billion in 4Q
FORT WORTH, Texas — Not long after announcing that General Motors is acquiring AmeriCredit in an all-cash transaction valued at about $3.5 billion, the subprime auto lender announced its fiscal fourth-quarter and full-year financial results.
The company more than doubled its net income over the same period last year and went from an $11 million net loss in the last fiscal year to a gain of $221 million this year.
AmeriCredit posted net income of $86 million, or $0.61 per share, for its fiscal fourth quarter, compared with $32 million, or $0.24 per share, in the same time frame of last year.
For the fiscal year, the company reported net income of $221 million, or $1.60 per share, compared with a net loss of $11 million, of $0.09 per share, in the prior year.
Results for the three months and fiscal year ending June 30, 2009, were revised from net income of $31 million, or $0.23 per share, and net income of $14 million, or $0.11 per share, respectively, to reflect the retrospective adoption of a new accounting standard that changed the accounting for convertible bonds on July 1, 2009, officials noted.
Originations for the recent quarter climbed to $906 million, compared with $624 million in the previous quarter and $175 million for the 2009 quarter.
For the year, originations came in at $2.1 billion, soaring up from $1.3 billion in the 2009 fiscal year.
Moreover, management indicated that finance receivables totaled $8.7 billion, compared with $8.8 billion as of March 31, 2010 and $10.9 billion as of June 30, 2009.
Continuing on, AmeriCredit said annualized net charge-offs were 4.5 percent of the average finance receivables for the quarter, compared with 7.1 percent for the same time frame in 2009. For the fiscal year, this figure came in at 7.4 percent, compared with 7.9 percent.
Meanwhile, receivables 31-60 days delinquent were 6.2 percent of the portfolio for the quarter, compared with 6.9 percent in the prior year period. Accounts more than 60 days delinquent were 2.7 percent, compared with 3.5 percent a year ago.
The allowance for loan losses as a percentage of finance receivables came in at 6.6 percent for the quarter, compared with 7.1 percent in the last quarter and 8.2 percent in the year-ago quarter.
"The company had total available liquidity of $772 million at June 30, 2010, consisting of $282 million in unrestricted cash and approximately $490 million in borrowing capacity on unpledged eligible receivables," officials highlighted.
In relation to the proposed merger of AmeriCredit with GM, the subprime lender indicated it plans to file a proxy statement with the SEC.
"Investors and security holders are advised to read the proxy statement when it becomes available because it will contain important information about the merger and the parties to the merger," management advised.
More on GM, AmeriCredit Deal
While AmeriCredit management was tight-lipped given the proposed purchase of the company by GM, the team did hold a conference call back in late July to discuss the deal.
Dan Berce, president and chief executive officer of AmeriCredit, said at the time, "We have focused primarily on the non-prime market, generally targeting consumers with credit scores ranging from 500 to 650. Recent data indicate this market represents over 28 percent of the U.S. credit bureau population. The non-prime market is currently underserved with application approval rates at historically low levels.
"AmeriCredit has been able to manage and price for credit risk across economic cycles on the strength of our experienced underwriters and collectors and data-driven strategies. Our operating platform is efficient and scalable," he added. "In the past, our annualized loan origination run rate has been as high as $10 billion and our portfolio size has exceeded $16 billion. While our core competency has been non-prime lending in the U.S., we have also originated prime and near-prime loans and in prior year, developed a leasing program and operated a Canadian non-prime auto finance business."
Berce went on to call the GM and AmeriCredit transaction the "right one" for his company, saying GM "is an ideal partner."
"First, we will maintain our organizational structure with minimal integration disruption. Second, we will be able to continue providing auto finance solutions to non-GM dealers. Most importantly, our new relationship with GM opens avenues to expand our business through closer relationships with GM dealers and the introduction of new products such as leasing," he highlighted.
"While our relationship with GM dealers has been a notable part of our overall business since our inception, we have seen significant growth in loans made to GM customers since a formal relationship with GM developed last September. Loans for purchases of new GM vehicles now make up approximately 15 percent of total AmeriCredit business. We look forward to continuing our support of GM's drive to sell more vehicles and can't wait to get started," Berce stressed.
During the call, Ed Whitacre, GM chairman and CEO, said, "For some time, our dealers and customers have said that not having an in-house finance arm hurt our ability to finance certain loans and leases, which in turn hurt our sales. As a result, we were not as competitive as we could be, and it hurt our ability to meet rising customer demand for GM cars and trucks.
"Now, we are going to fix that, and in doing so, we will bring more competition to the market, more choice for the customers and more growth for GM," he continued. "I am very pleased to announce that General Motors and AmeriCredit have entered into a definitive agreement for GM to acquire AmeriCredit in an all-cash transaction valued at approximately $3.5 billion."
Whitacre also noted that his company looks forward to continuing its relationship with Ally Financial. Ally will tend to work more in the prime spectrum, albeit the lender has lowered its approval level.
Strategic and Operational Overview
Prior to the announcement that GM is seeking to acquire AmeriCredit, the subprime lender issued a Strategic and Operational Overview report in July. In that report, the company said the market is ripe for growth.
"The rational competitive environment allows for continued originations of loans with strong loan-level returns. The portfolio is expected to trough in the $8.5 billion range in late CY2010."
The management team also noted that there is a "strong ABS (asset-backed securities) market for retail auto loans." This is a turnaround from when the markets were seized up and companies, especially subprime companies, had a tough time getting any kind of securitization deals through.
To drive the company's growth, AmeriCredit said it is adding origination staff and dealer relationships, implementing more competitive pricing, in addition to expanding credit risk appetite in select geographic regions based on credit performance and regional economic outlook.
The company also said the GM subprime subvention program contributed about 10 percent of originations during the March quarter.
"There were no changes to other key underwriting standards such as LTV and verification requirements," according to officials.
Management indicated it is not anticipating notable changes to loan pricing in the near future.
For the March quarter, average APR was 17.1 percent, compared with 17.3 percent in 2009 and 15.3 percent in the same period of 2008. Meanwhile, net fees averaged 1 percent in the March quarter, compared with 2.1 percent in 2009 and negative 1 percent in 2008.
The management team also pointed out that there are fewer competitors in the subprime space, with many exiting in 2008 and 2009. Those that remain are "rational." Meanwhile, consumer demand has increase, but the team said it remains "constrained compared to historical levels."
Looking ahead, AmeriCredit highlighted that 40 percent of the population falls in the below-prime credit category.
Management said it's "well-positioned to take advantage of the favorable competitive environment to originate loans with high risk-adjusted return on assets and generate attractive return on equity."
The team went on to say the company has a "strong balance sheet with ample liquidity and funding capacity to support higher origination levels. Improved access to the securitization markets further strengthens funding platform and increases capital efficiency."
Finally, the company is expecting sustained improvement in credit performance.