I was talking yesterday via PM about ACF and was asked to publish RealMoneyPro's comments about them. Since it helps expose ACF's deteriorating business model and at the same time shows the quality of work you get for the money at RealMoneyPro, here it is:
Kass Katch of the Week
03/11/02 07:39 AM EST
This week's Kass Katch is to short AmeriCredit (ACF:NYSE) via the purchase of puts.
AmeriCredit is a leading subprime lender to the automobile industry. The company purchases, packages (into trusts that issue bonds backed by the loans) and services car loans of late-model used and new vehicles.
The subprime auto business is not a high quality business. Several large financial institutions, like Bank of America (BAC:NYSE), have recently exited it.
ACF's market capitalization approximates $3 billion. The company pays no dividend and has 85 million shares outstanding.
ACF faces a number of negative operating trends and potential threats that might undermine its ability to meet Wall Street estimates and projected growth rates.
Rising interest rates will lead to a compression of financing margins and lower originations. ACF's balance sheet is levered, with debt more than twice equity (these figures omit the large potential liability from the securitized portfolio for which ACF will have to contribute capital should loss and delinquency ratios continue to lift). While the company uses derivative financial instruments to manage interest rate risk, the company borrows shorter than it lends (or earns).
There is growing evidence that the credit quality of AmeriCredit's loan receivable portfolio has been deteriorating over the last three to six months. Every month ACF discloses pool-by-pool data on its Web site (the next disclosure will be made on Tuesday, March 12). Moreover, in several of the AmeriCredit Trusts, it appears that the company is granting loan extensions in order to maintain delinquency percentages lower than the level that would trigger the retention of reserves from ACF into the AmeriCredit Trusts. The triggers represent a potentially large off-balance sheet liability, that, if met, will force the company to substantially slow its growth and boost its loan loss reserves.
Heads ACF loses, tails ACF loses? A second-half economic dip will wreak havoc on the company's reported results. Even if growth continues in this year's second half, the late 2001 zero-cost financing for new car models and a glut of late-model vehicles coming off lease contracts are depressing the value of used vehicles. Because the company's net loss rate is influenced by a combination of defaults and recoveries from repossessions, this is a potential problem for the company -- suggesting that any further erosion in used car prices might render the company's loss reserves inadequate.
The company depends on a fluid securitization market. Any disruption in the asset-backed market will hurt AmeriCredit's ability to finance it's growth.
AmeriCredit is vulnerable to competition from better capitalized lenders or by more aggressive moves to lend into the subprime market by automobile manufacturers.
AmeriCredit short interest is an extraordinarily high 38% of the float, so its stock movement tends to be extremely volatile. Short interest rose from 15 million shares at year-end to 25 million shares in early February, which helps to explain the recent short squeeze (the stock rose by $5/share on Friday). After hitting a low of $14 in early November 2001, ACF's common stock has advanced by 150% to $35/share as of March 8.
I suggest defining your risk by buying puts on AmeriCredit.
Tomorrow will be an important day for the company as it will release the February asset backed securities data tomorrow.
No positions in stocks mentioned (but I will be shorting ACF today).
ACF in the Crosshairs
03/12/02 10:23 AM EST
Thus far, the market decline appears well-contained.
AmeriCredit (ACF:NYSE), yesterday's Kass Katch of the Week, is ahead by $2 as the performance of the asset-backed securities is released today. I am trying to get a bead on it now.
AmeriCredit Not Making Sense
03/12/02 11:08 AM EST
AmeriCredit's (ACF:NYSE) trust data were much better than expected as extension rates and delinquencies declined. That said, the units' cash flows were down on the month -- which doesn't make sense!
I am trying to figure out this contradiction, as it is more common to see cash flows improving when delinquencies drop.
I have shorted a bit more stock into this morning's lift, and will pass on further analysis shortly.
Short ACF.
Still Puzzling Over ACF
03/13/02 10:55 AM EST
I am still looking at the AmeriCredit release of its February asset-backed securities yesterday, which fueled the share advance.
While delinquencies and losses improved, cash flows did not -- I will get to the bottom of this!
Short ACF.
David Rocker
Sometimes common sense is more useful than statistics. ACF case in point.
3/13/02 12:20 PM EST
When something seems too good to be true, it usually isn't true. The sudden drop in delinquencies and extensions is just inconsistent with this company's prior experience and that of others in the industry. The giveaway is the cash flow. If delinquencies and exensions are down, it goes without saying that receipts should be rising. If losses on sales are down,cash flow should be rising. The weak cash flow gain from January is inconsistent with these improvements. Something is amiss.In the coming days, it is likely that the mystery will be solved and my guess is that things won't look as rosy for ACF as they do now with the stock having nearly doubled in the last 3 weeks. Say goodnight,Gracie.
short acf
David Rocker
ACF MYSTERY SOLVED
3/14/02 03:13 PM EST
Ventana has just put out a release that clarifies the ACF data that propelled the stock this month. In fact, business is NOT better. There is just a seasonal phenomenon related to why Feb data LOOKS better and it relates to Feb having only 28 days. As a result, people who miss This month cannot,by definition, be 30 days delinquent. Similarly Jan and Feb together are only 59 days so people 2 months late in this period are dropped from the 60 day statistics. This happens each year. However an analysis of the data shows that the decline in delinquencies this year are actually LOWER than that which prevailed last year. Net net, business is no better than it looked last month-higher loss rates lie ahead.
short acf |
