FOR IMMEDIATE RELEASE
January 11, 2001
UGLY DUCKLING ANNOUNCES CLOSING OF SENIOR SECURED
LOAN FACILITY AND SUBORDINATED LOAN WITH
CHAIRMAN AND LARGEST SHAREHOLDER
PHOENIX - January 11, 2001 - Ugly Duckling Corporation (Nasdaq NM:
UGLY), today announced that it has entered into a $35 million senior secured
loan facility. The facility is a renewal of a $38 million senior loan facility
entered into in May of 1999. The company intends to use the facility for working
capital and to pay down existing debt, including the payoff of approximately
$11.2 million on the existing senior secured loan. The new facility has a
twenty-five month term, interest is payable monthly at LIBOR plus 600 basis
points and it is secured by the residual interests retained by the company from
its securitization transactions.
The company also announced that as a condition for the new facility,
its Chairman and largest shareholder, Mr. Ernest C. Garcia (or an affiliate of
Mr. Garcia), was required to invest $7 million in the company by way of a
subordinated loan, which will be placed in escrow as additional collateral for
the $35 million senior secured loan. Among other conditions, if the company has
at least $7 million in pre-tax income during the first six months of the year,
the $7 million in escrow will be released in July of 2001 and at that time Mr.
Garcia will guarantee the payment of 33% of the $35 million senior secured loan
until it is paid in full. The $7 million in escrow is subject to pro rata
reductions tied to reductions in the outstanding principal under the $35 million
senior secured loan.
Mr. Garcia's loan has a three year term, interest is payable quarterly
at LIBOR plus 600 basis points and it is secured by the residual interests
retained by the company from its securitization transactions but in a
subordinate position to the new senior secured loan facility. If Mr. Garcia's
senior loan is not paid off and the guarantee of the $35 million senior secured
loan removed by no later than July 25, 2001, Mr. Garcia will receive warrants
from the company for 1.5 million shares of stock, vesting over a one year
period, at an exercise price of the price of the stock as of the close of market
today. The issuance of the warrants is conditioned upon the receipt by the
company of a fairness opinion, among other conditions. If the company is unable
to obtain such an opinion, the parties are required to use commercially
reasonable efforts to renegotiate the terms of the warrants.
Greg Sullivan, president and chief executive officer of the company,
stated: "Given very tight and what appear to be tightening credit markets, and
the announced exit in early December of our primary warehouse lender from the
automotive finance business, we are very pleased to have closed this facility at
this time. We are also pleased with the expression of confidence in our business
reflected by our chairman's $7 million investment. We are confident that we will
exceed the $7 million pre-tax income performance target in the $35 million
senior secured loan and obtain the release of the $7 million in escrow in July
2001. In addition, we are focusing on continuing to enhance our business model,
particularly through improved underwriting and expense controls, higher down
payments and in store collections, all of which should positively impact
operating earnings."
"From a financing standpoint, we can now focus on replacing our
warehouse receivables and inventory lines of credit. Given the recently
completed senior secured loan for $35 million, our five-year history of
successful securitizations and strong balance sheet, we believe we will be able
to replace our principal lending facilities, notwithstanding the tightening
credit markets."
About Ugly Duckling Corporation
Headquartered in Phoenix, Arizona, Ugly Duckling Corporation is the largest
operator of used car dealerships focused exclusively on the sub-prime
market. The company underwrites, finances and services sub-prime contracts
generated at its 77 Ugly Duckling dealerships, located in 11 metropolitan areas
in eight states.
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This press release includes statements that constitute forward-looking
statements within the meaning of the safe harbor provisions of the Private and
Securities Litigation Reform Act of 1995. We claim the protection of the
safe-harbor for our forward looking statements. Forward-looking statements are
often characterized by the words "may," "anticipates," "believes," "estimates,"
"projects," "expects" or similar expressions and do not reflect historical
facts. Forward-looking statements in this release relate, among other matters,
to: our ability to exceed the $7 million performance target in the senior
secured loan and obtain the release of the $7 million in escrow; our ability to
obtain in a timely manner alternative receivables and inventory financing on
terms reasonably acceptable to us; and anticipated financial results and cash
flows, and improvements in underwriting, expense controls, down payments, loan
performance, in store collections and collections, including delinquencies and
chargeoffs. Forward looking statements include risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from those expressed or implied by such forward looking
statements. Factors that could affect our results and cause or contribute to
differences from these forward-looking statements include, but are not limited
to: any decline in consumer acceptance of our car sales strategies or marketing
campaigns, including but not limited to our e-commerce related sales and loan
performance; any inability of the Company to finance its operations in light of
a tight credit market for the sub-prime industry; any deterioration in the used
car finance industry or increased competition in the used car sales and finance
industry; any inability of the Company to monitor and improve its underwriting
and collection processes; any changes in estimates and assumptions in, and the
ongoing adequacy of, our allowance for credit losses; any inability of the
Company to continue to reduce operating expenses as a percentage of sales; any
material litigation against us or material, unexpected developments in existing
litigation; and any new or revised accounting, tax or legal guidance that
adversely affect used car sales or financing. Other factors are detailed in the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors," "Factors That May Affect Future
Results and Financial Condition" and "Factors That May Affect Future Stock
Performance" in our most recent reports on Form 10-K and Form 10-Q (including
Exhibit 99 attached to any such Form 10-Q) and elsewhere in our Securities and
Exchange Commission filings. In addition, the foregoing factors may affect
generally our business, results of operations and financial position. There may
also be other factors that we are currently unable to identify or quantify, but
may arise or become known in the future. Forward looking statements speak only
as of the date the statement was made. By making these forward-looking
statements, we undertake no obligation to update these statements for revisions
or changes after the date of this report. References to Ugly Duckling
Corporation as the largest chain of buy-here pay-here used car dealerships in
the United States is management's belief based upon the knowledge of the
industry and not on any current independent third party study.
