Magazine article American Banker

Another Subprime Auto Lender Joining the Loan-Loss Pileup

Magazine article American Banker

Another Subprime Auto Lender Joining the Loan-Loss Pileup

Article excerpt

TFC Enterprises Inc. is the latest subprime auto lender to crack up while hurtling down the road of excessively fast growth. Analysts fear it will not be the last.

TFC, based in Norfolk, Va., surprised the industry last week by announcing it expects to report a fourth-quarter loss of about $12.5 million, resulting in a loss of some $7 million for the full year.

Conceding that it was in technical default on its credit agreements with two major lenders, TFC said in a statement that it was holding talks with them on "alternatives to address its liquidity needs."

The company cited "significant deterioration" in its receivables portfolio, requiring a massive ratch-up in its loan-loss provision, to $25 million from $1.3 million at Sept. 30.

TFC first reported credit problems in the third quarter but suggested that company officials had the situation under control.

"I don't think anybody expected a loss of this magnitude," said Wheat First Butcher Singer analyst David C. Stumpf.

The problems at TFC represent just the latest episode in a rash of badnews to hit companies that specialize in making auto loans to credit-impaired customers. Others reporting rising credit losses or earnings setbacks include General Acceptance Corp., Eagle Finance Corp., Olympic Financial Ltd., MS Financial Corp., and Monaco Finance Inc.

"The way a lot of companies were approaching this business was a recipe for disaster," said Joseph A. Jolson of Montgomery Securities. "In their drive to grow rapidly, they sacrificed credit quality for growth. They didn't take into account that things change and there are business cycles."

TFC appears to be a case in point. After raising $50 million in an initial public offering underwritten by Wheat First, the company expanded from its Norfolk headquarters to open new service centers in Jacksonville, Dallas, and San Diego. …

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