PHOENIX--(BUSINESS WIRE)--Nov. 17, 1997--Ugly Duckling Corp.
(Nasdaq NM: UGLY) Monday announced that it has entered into several
agreements related to the secured senior bank debt and other aspects
of the operations of First Merchants Acceptance Corporation (FMAC)
(Nasdaq NM: FMACE).
On July 11, 1997, FMAC filed for reorganization under Chapter 11 of
the Federal Bankruptcy Code. On August 21, 1997, Ugly Duckling
announced that it had closed the purchase of approximately 78
percent of the secured senior bank debt from a group of commercial
banks at a 10 percent discount.
Monday, Ugly Duckling announced that it has entered into an
agreement to purchase the remaining 22 percent of FMAC's senior debt,
subject to certain conditions precedent. The senior debt currently
totals approximately $85 million.
Ugly Duckling also announced that it has entered into a letter
agreement with FMAC and the Official Committee of Unsecured Creditors
in the FMAC bankruptcy case.
The more significant terms of this Plan Agreement are, among
others:
(1) the sale of the retail installment sales contracts that
secure the FMAC senior debt to the agent of Ugly Duckling or a third
party in satisfaction of the senior debt;
(2) a release of liens on the remaining assets of FMAC that secure
the senior debt; and
(3) FMAC shall provide Ugly Duckling a guaranty of full recovery
on the senior debt.
The guarantee of recovery is secured by a lien on all of FMAC's
retained residual interests relating to various pools of securitized
retail installment contracts, which are currently serviced by FMAC.
The Plan Agreement, if approved as part of a plan of
reorganization, will provide that:
(1) Ugly Duckling will begin providing service and/or consulting
services on the securitized pools of contracts currently serviced by
FMAC and all other retail installment sales contracts currently owned
by FMAC;
(2) Ugly Duckling may increase its "debtor-in-possession"
financing up to $16.5 million; and
(3) FMAC will, after payment in full to Ugly Duckling of the
secured claim and the debtor-in-possession loan, pay 20 percent of
receipts on the residual interests to Ugly Duckling.
Income tax refunds of approximately $10 million, when received by
FMAC, will be applied to repayment of the debtor-in-possession loan.
Ugly Duckling is currently discussing the potential sale of the
contracts that secure the FMAC senior debt, with future servicing
rights to be retained by Ugly Duckling.
Although there can be no assurance in this regard, if Ugly
Duckling does consummate a sale of the contracts on terms under
discussion, it would expect to record a gain of approximately
$6 million to $7 million in the fourth quarter of 1997.
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