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Non-Tech : Creditrust Corp. (CRDT)
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To: Doug (Htfd,CT) who wrote (4)3/21/1999 10:18:00 AM
From: bgarner  Read Replies (1) of 11
 
Dear Doug,

In theory there is nothing wrong with securitizing an assest to accelerate cashflow and to reduce cost of funds. All the major credit card companies do it with perfroming loans. With performing loans, the liquidity is very very projectible and has an extremely low standard deviation, hence the major rating agencies willingness to rate them on a stand aloen basis. CRDT however, deals with an asset class which is extremely hard to analyze and highly susceptible to revenue shortfalls. The inherent problem with CRDT are the projections that have been put forth upon with the securitization has been based. Speaking with those people inside the industry who are very knowledgable about industry collection experience versus valuing blocks of bad debt seem to feel that the company is putting out unrealistically high projections relateing to liquidity of the underlying asset (these are the same people who predicted CFS's downfall very early in the process). It very clear that without gains from securitizations, the company losses money, just read the 10Qs. The securitization model allows for a 20% servicing fee post securitization. This makes net recovery overly inflated because now the cash flow on the bond looks great, but the company is shelling out money in the collection process to do that. Again, this is borne out by the netloss of operations in any quarter that lacks a securitization.

At the end of your post you say you see no inherent flaw in the securitization of assests. I agree unless your assumptions for future recoveries are just plain unrealistic and not ever experienced by anyone else in the industry except for CFS and we know what happened to them.
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