Sue,
Stop 6 1/8, target 8 1/2 but may flip sooner.
I don't see too many similarities between FNV and MFN, but I can see what your fear is. Most of MFN's loans were to people with credit problems. They offset their high risk by making high interest rate loans. In addition, many of their loans were asset based (automobiles). The vehicles were overpriced, but people bought them because they didn't have credit and needed a vehicle. Often when the creditor defaulted, Mercury Finance was left with a vehicle that wasn't worth anything close to what was on the books. This was a similar problem at OLM (AAC). Finova, on the other hand, makes loans primarily to middle sized businesses. These loans aren't nearly as risky as the loans that companies like AAC and MFN made. The problem with FNV, as I see it, is that Moodys lowered their rating on FNV's bonds, and this raised their cost of capital, and will squeeze their profit margins. My guess is that Moodys lowered their rating on FNV bonds because of the uncertainty surrounding their sale of assets. |
