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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period------
COMMISSION FILE NUMBER 000-21673
AUTOBOND ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2487218
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
301 CONGRESS AVENUE, AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip Code)
(512) 435-7000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
AS OF MAY 1, 1997, THERE WERE 6,512,500 SHARES OF THE REGISTRANT'S COMMON
STOCK, NO PAR VALUE, OUTSTANDING.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION...........................................................................3
ITEM 1. FINANCIAL STATEMENTS.........................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................................................10
PART II. OTHER INFORMATION.............................................................................22
ITEM 1. LEGAL PROCEEDINGS............................................................................22
ITEM 2. CHANGES IN SECURITIES........................................................................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..............................................................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................22
ITEM 5. OTHER INFORMATION............................................................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................22
SIGNATURES..............................................................................................25
EXHIBIT 27.1............................................................................................26
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
---------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,121,342 $ 606,056
Restricted cash 318,515 694,281
Cash held in escrow 2,662,934 5,000,000
Finance contracts held for sale, net 228,429 5,911,360
Repossessed assets held for sale, net 152,580 85,560
Class B Certificates 10,465.294 9,686,073
Interest-only strip receivable 4,247,274 6,520,234
Debt issuance cost 997,338 1,149,192
Trust receivable 2,230,003 2,889,341
Due from affiliate 168,847 143,547
Class C Notes sold pending settlement -- 1,476,258
Prepaid expenses and other assets 683,955 2,061,934
----------------------------
Total assets $ 26,276,511 $ 36,223,836
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facilities $ -- $ 9,530,904
Notes payable 10,174,633 9,424,623
Accounts payable and accrued liabilities 1,474,586 1,049,403
Bank overdraft -- 830,998
Payable to affiliate 265,998 211,000
Deferred income taxes 2,075,553 2,272,565
----------------------------
Total liabilities 13,990,770 23,319,493
============================
Commitments and contingencies
Shareholders' equity:
Preferred stock, no PAR value; 5,000,000 shares
authorized; no shares issued
Common stock, no par value; 25,000,000 shares 1,000 1,000
authorized; 6,512,500 shares
issued and outstanding
Additional paid-in capital 8,617,466 8,617,466
Deferred compensation (11,422) (7,995)
Loans to shareholders (235,071) (2,333)
Unrealized appreciation on interest-only
strip receivable -- 203,409
Retained earnings 3,913,768 4,092,796
----------------------------
Total shareholders' equity 12,285,741 12,904,343
----------------------------
Total liabilities and shareholders' equity $ 26,276,511 $ 36,223,836
============================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
----------------------
<S> <C> <C>
Revenues:
Interest income $ 804,632 $ 514,092
Interest expense (593,023) (872,625)
---------------------------
Net interest income (expense) 211,609 (358,533)
Gain on sale of finance contracts 3,142,859 3,575,747
Servicing fee income 170,924 191,819
Unrealized gain on Class B Certificates -- 6,913
---------------------------
Total revenues 3,525,392 3,415,946
---------------------------
Expenses:
Provision for credit losses 456,498 --
Salaries and benefits 789,219 1,758,176
General and administrative 286,848 997,502
Other operating expenses 362,170 389,014
---------------------------
Total expenses 1,894,735 3,144,692
---------------------------
Income before income taxes 1,630,657 271,254
Provision for income taxes 560,000 92,226
---------------------------
Net income $ 1,070,657 $ 179,028
===========================
Income per common share $ 0.19 $ 0.03
===========================
Weighted average shares outstanding 5,691,495 6,529,887
===========================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN DEFERRED LOANS TO
SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS
--------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,512,500 $1,000 $8,617,466 $ (11,422) $(235,071)
Unrealized appreciation on interest-only
strips receivable
Amortization of deferred compensation 3,427
Net payments received 232,738
Net income
--------- ------ ---------- ------------ ------------
Balance, March 31, 1997 6,512,500 $1,000 $8,617,466 $ (7,995) $ (2,333)
--------- ------ ---------- ------------ ------------
--------- ------ ---------- ------------ ------------
<CAPTION>
UNREALIZED
APPRECIATION RETAINED
INTEREST-ONLY STRIPS EARNINGS TOTAL
-------------------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1996 $ -- $3,913,768 $12,285,741
Unrealized appreciation on interest-only
strips receivable 203,409 203,409
Amortization of deferred compensation 3,427
Net payments received 232,738
Net income 179,028 179,028
---------- ---------- -----------
Balance, March 31, 1997 $203,409 $4,092,796 $12,904,343
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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AUTOBOND ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1996 1997
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,070,657 $ 179,028
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of finance contract acquisition discount and insurance (397,195) (11,472)
Amortization of deferred compensation 12,984 3,427
Amortization of debt issuance costs 56,000 211,120
Depreciation and amortization - 46,305
Provision for credit losses 456,498 -
Deferred income taxes 560,000 92,225
Accretion of interest-only strip receivable (38,507) -
Unrealized gain on Class B Certificates - (6,913)
Changes in operating assets and liabilities:
Restricted cash 89,104 (375,766)
Cash held in escrow (173,477) (2,337,066)
Prepaid expenses and other assets (72,947) (1,424,283)
Class B Certificates - 786,134
Interest-only strip receivable (2,687,015) (1.964,764
Accounts payable and accrued liabilities (3,072) (425,183)
Due to/due from affiliate (114,507) (29,698)
Class C Notes sold pending settlement - (1,476,258)
Purchases of finance contracts (15,175,515) (32,968,892)
Sales of finance contracts 16,563,366 27,092,951
Repayments of finance contracts 271,687 204,481
----------------------------
Net cash provided by (used in) operating activities 418,061 (12,404,624)
----------------------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts (331,000) (659,338)
Loan payments from (to) shareholders (57,910) 232,738
Disposal proceeds from repossessions - 67,020
----------------------------
Net cash used in investing activities (388,910) (359,580)
----------------------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities (802,535) 9,530,904
Debt issuance costs - (362,974)
Proceeds (repayments) from borrowings under repurchase agreement (1,061,392) -
Proceeds from notes payable 2,059,214 15,150
Payments on notes payable (204,301) (765,160)
Proceeds from subordinated debt borrowings 300,000 -
Increase in bank overdraft 257,206 830,998
----------------------------
Net cash provided by financing activities 548,192 9,248,918
----------------------------
Net increase (decrease) in cash and cash equivalents 577,343 (3,515,286)
Cash and cash equivalents at beginning of period 92,660 4,121,342
----------------------------
Cash and cash equivalents at end of period $ 670,003 $ 606,056
============================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to regulations. In the opinion of management, the
financial statements reflect all adjustments (of a normal and recurring nature)
which are necessary to present fairly the financial position, results of
operations and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of the results for a full year. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31, 1996 (Number
000-21673).
Certain data from the prior year has been reclassified to conform to
1997 presentation.
2. EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Primary
and fully diluted earnings per share are the same for all periods presented.
Effective May 30, 1996, the Board of Directors of the Company voted to effect a
767.8125-for-1 stock split. All share information and earnings per share
calculations for the periods presented in the financial statements herein, and
the notes hereto, have been retroactively restated for such stock split.
The weighted average number of common and common equivalent shares
outstanding for the purposes of computing net income per share were 5,691,495
and 6,529,887 for the three months ended March 31, 1996 and 1997, respectively.
3. FINANCE CONTRACTS HELD FOR SALE
The following amounts are included in finance contracts held for sale
as of:
<TABLE>
<CAPTION>
December 31, March, 31,
1996 1997
------------------------------
(Unaudited)
<S> <C> <C>
Unpaid principal balance $266,450 $5,771,198
Prepaid insurance 18,733 415,525
Contract acquisition discounts (31,554) (250,163)
Allowance for credit losses (25,200) (25,200)
-------- ----------
$228,429 $5,911,360
======== ==========
</TABLE>
4. INTEREST-ONLY STRIP RECEIVABLE
The Company adopted Statement of Financial Accounting Standards No. 125
"Transfer and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) as of January 1, 1997.
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SFAS No. 125 provides new accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
This statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings
and requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value.
As a result of adopting the statement, the excess servicing receivable
previously shown on the Consolidated Balance Sheet as of December 31, 1996 has
been reclassified as interest-only strip receivable, and accounted for like an
investment security classified as "available for sale" under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). Accordingly, any unrealized gain or
loss in the fair value is included as a component of equity, net of the income
tax effect.
The fair value of interest-only strip receivable is calculated based
upon the present value of the estimated future interest income after considering
the effects or estimated prepayments, defaults and delinquencies. The discount
rate utilized is based upon assumptions that market participant's would use for
similar financial instruments subject to prepayments, defaults, collateral value
and interest rate risks.
The Company periodically reviews the fair value of the interest-only
strip receivable. Changes in the fair value of securities available for sale are
recognized as an adjustment to stockholders' equity. Such adjustment amounted to
a net unrealized gain of $203,409, net of related tax effect of $104,787, on
the valuation of the interest-only strip receivable for finance contracts held
for sale in the quarter ended March 31, 1997.
5. REVOLVING CREDIT FACILITIES
At March 31, 1997, the Company had a $4.5 million balance outstanding
on a $10.0 million revolving credit facility (the "Sentry Facility") with Sentry
Financial Corporation ("Sentry"), which expires on December 31, 2000. The
proceeds from borrowings under the Sentry Facility are used to acquire finance
contracts, to pay applicable credit default insurance premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per month on the average outstanding balance under the Sentry
Facility. The Sentry Facility also requires the Company to pay up to 0.62% per
quarter on the average unused balance. Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (which was approximately 10.25% at March
31, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company paid interest of approximately $179,000 for the three months ended March
31, 1997. In April 1996, the Company paid a one-time commitment fee of $700,000
to Sentry.
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (which was approximately 6.83% at March
31, 1997) or (y) 11% per annum. The Company also pays a non- utilization fee of
.25% per annum on the unused amount of the line of credit. Pursuant to the Daiwa
Facility, the Company paid a $243,750 commitment fee. The debt issuance cost is
being amortized as interest expense on a straight line basis through March 1998.
The Daiwa Facility contains certain covenants
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and representations similar to those in the agreements governing the Company's
existing securitizations including, among other things, delinquency and
repossession triggers. Advances under the Daiwa Facility totaled $5,000,000 at
March 31, 1997 and the Company paid interest of approximately $115,000 during
the three months ended March 31, 1997.
6. COMMITMENTS AND CONTINGENCIES
The Company is required to represent and warrant certain matters with
respect to the finance contracts sold to the Trusts, which generally duplicate
the substance of the representations and warranties made by the dealers in
connection with the Company's purchase of the finance contracts. In the event of
a breach by the Company of any representation or warranty, the Company is
obligated to repurchase the finance contracts from the Trust at a price equal to
the remaining principal plus accrued interest. The Company has generally not
recorded any liability and has not been obligated to purchase finance contracts
under the recourse provisions during any of the reporting periods. However, the
Company repurchased loans with principal balances of $620,000 in total from
a Trust during the three months ended March 31, 1997. The Company expects that
it will recover, under dealer representations and warranty provisions, the
amounts due on the repurchased loans from the dealership who sold the Company
the loans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the other financial data
included herein. The financial information set forth below has been rounded in
order to simplify its presentation. However, the ratios and percentages set
forth below are calculated using the detailed financial information contained in
the Financial Statements and the Notes thereto, and the financial data included
elsewhere in this Form 10-Q. Results for interim periods are not necessarily
indicative of the results for a full year. For further information, refer to the
audited financial statements and footnotes thereto included in the Company's
Form 10-K for the year ended December 31, 1996 (Number 000-21673).
AutoBond Acceptance Corporation (the "Company") is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ("finance contracts") originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ("sub-prime consumers"). Sub-prime consumers generally are borrowers
unable to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit;
employment or residence histories; or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts generally from franchised
automobile dealers, makes credit decisions using its own underwriting guidelines
and credit personnel and performs the collection function for finance contracts
using its own collections department. The Company also acquires finance
contracts from third parties other than dealers, for which the Company
reunderwrites and collects such finance contracts in accordance with the
Company's standard guidelines. The Company securitizes portfolios of these
retail automobile installment contracts to efficiently utilize limited capital
to allow continued growth and to achieve sufficient finance contract volume to
allow profitability. The Company markets a single finance contract acquisition
program to automobile dealers which adheres to consistent underwriting
guidelines involving the purchase of primarily late-model used vehicles. The
Company has experienced significant growth in its finance contract portfolio
since it commenced operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components:
net interest income, gain on sale of finance contracts and servicing and
collection fees.
Net Interest Income. Net interest income consists of the sum of two
components: (i) the difference between interest income earned on finance
contracts held for sale and interest expense incurred by the Company pursuant to
borrowings under its warehouse and other credit facilities; and (ii) the
accretion of finance contract acquisition discounts. Other factors influencing
net interest income during a given fiscal period include (a) the annual
percentage rate of the finance contracts acquired, (b) the aggregate principal
balance of finance contracts acquired and funded through the Company's warehouse
and other credit facilities prior to securitization, (c) the length of time such
contracts are funded by the warehouse and other credit facilities. Finance
contract acquisition growth has had a significant impact on the amount of net
interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization
prior to 1997, the Company recognized a gain on sale of finance contracts equal
to the present value of future excess spread cash flows from the securitization
trust, and the difference between the net proceeds from the securitization
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and the net carrying cost (including the cost of insurance premiums, if any) to
the Company of the finance contracts sold. Excess spread cash flows were
comprised of Class B Certificates and an interest-only strip receivable. Due to
the Company's utilization of a trust indenture structure for its securitizations
starting in 1997, excess spread cash flows are comprised of Class C Notes (until
sold to investors) and interest-only strip receivables. Excess spread cash flows
represent the difference between the weighted average contract rate earned and
the rate paid on multiple class Certificates or Notes issued to investors in the
securitization, less servicing fees and other costs, over the life of the
securitization. Excess spread cash flows are computed by taking into account
certain assumptions regarding prepayments, defaults, proceeds from disposal of
repossessed assets, and servicing and other costs. The fair value of the
interest-only strip receivable is determined by discounting the excess spread
cash flows at a rate based on assumptions that market participants would use for
similar financial instruments subject to prepayment, default, collateral value
and interest rate risks. The subordinated certificates are then formed by
carving out 65% to 80% of the discounted excess spread cash flows. The remaining
20% to 35% of the discounted excess spread cash flows represent interest-only
strip receivable. All of the excess spread cash flows are paid by the
securitization Trustee to the investor security holders until such time as all
accrued interest together with principal have been paid in full. Subsequently,
all remaining excess spread cash flows are paid to the Company.
The Company adopted Statement of Financial Accounting Standards No. 125
"Transfer and Servicing of Financial Assets and Extinguishment of Liabilities"
(SFAS No. 125) as of January 1, 1997. SFAS No. 125 provides new accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. This statement also provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings and requires that liabilities and derivatives
incurred or obtained by transferors as part of a transfer of financial assets be
initially measured at fair value. For transfers that result in the recognition
of a sale, SFAS No. 125 requires that the newly created assets obtained and
liabilities incurred by the transferors as a part of a transfer of financial
assets be initially measured at fair value. Interests in the assets that are
retained are measured by allocating the previous carrying amount of the assets
(e.g. finance contracts) between the interests sold (e.g. investor certificates)
and interests retained (e.g. interest-only strip receivable) based on their
relative fair values at the date of the transfer. The amounts initially assigned
to these financial components will be a determinant of the gain or loss from a
securitization transaction under SFAS No. 125.
The discounted excess spread cashflows is reported on the balance sheets
as "Interest-Only Strip Receivable". An impairment review of the interest-only
strip receivable is performed by calculating the net present value of the
expected future excess spread cash flows to the Company from the securitization
trust utilizing the same discount rate used to record the initial interest-only
strip receivable. To the extent that market and economic changes occur which
adversely impact the assumptions utilized in determining the interest-only strip
receivable, the Company would record a charge against servicing fee income and
write down the asset accordingly. Impairment is determined on a disaggregated
basis consistent with the risk characteristics of the underlying finance
contracts, consisting principally of origination date and originating
dealership, as well as the performance of the pool to date. There were no
adjustments required as a result of impairment reviews during any of the periods
presented in the financial statements. Should the Company be unable to
securitize finance contracts in the form of a sale in a financial reporting
period, the Company would likely incur a significant decline in total revenues
and net income or report a loss for such period.
Gain on sale of finance contracts was $3,142,859 and $3,575,747 for each
of the securitizations occurring in March 1996 and March 1997, respectively.
This represents approximately 16.60% and 12.75% of the outstanding balances of
the finance contracts at each of the respective securitization dates. Gain on
sale can be broken into three major components: the amount by which the proceeds
from the sale of multiple class securities exceed the Company's cost basis in
the finance contracts; costs of sale (primarily placement, rating agent, and
legal and accounting fees); and discounted excess spread cash flows (the
Transferor's Interests).
Page 11
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The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 103% of the value of the senior investor securities. This
portion of recognized gain on sale will vary based on the Company's cost of
insurance covering the finance contracts and the discount obtained upon
acquisition of the finance contracts. Generally, the Company acquired finance
contracts from dealers at a greater discount than with finance contracts
acquired from third parties.
Additionally, costs of sale reduce the total gain recognized. As the
Company's securitization program matures, placement fees and other costs
associated with the sale are expected to shrink as a percentage of the size of
the securitization. For example, costs of sale for the March 1996 transaction
were $280,000 (or 1.7%), while costs for the March 1997 transaction were about
$293,000 (or 1.0%).
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the senior investor
securities and the age of the finance contracts in the pool, as the excess
spread cashflow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts from dealers at approximately an 8.5% discount.
The gain on sale of finance contracts is affected by the aggregate
principal balance of contracts securitized and the gross interest spread on
those contracts. The following table illustrates the gross interest spread for
each of the Company's securitizations:
<TABLE>
<CAPTION>
Remaining Weighted
Balance at Average
Original March 31, Contract Certificate Gross
Securitization Balance(1) 1997 Rate Rate Ratings(2) Spread(3)
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A $26,261 $17,177 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A 16,563 12,817 19.7% 7.15% A/A3 12.5%
AutoBond Receivables
Trust 1996-B 17,833 15,264 19.7% 7.73% A/A3 12.0%
AutoBond Receivables
Trust 1996-C 22,297 22,297(4) 19.7% 7.45% A/A3 12.3%
AutoBond Receivables
Trust 1996-D 25,000 25,000(4) 19.5% 7.37% A/A3 12.1%
AutoBond Receivables
Trust 1997-A (5) 27,196 27,196 20.8% 7.82% A/A2 13.0%
--------------------- BBB/BB
Total $ 135,150 $ 119,751
=====================
</TABLE>
------------------------
(1) Refers only to balances on senior investor certificates.
(2) Indicates ratings by Fitch Investors Service, L.P. and Moody's Investors
Service, Inc., respectively.
(3) Difference between weighted average contract rate and senior certificate
rate.
(4) Before expiration of the revolving periods for each trust.
(5) Includes Class A and Class B Notes.
Servicing Fee Income. The Company earns substantially all of its
servicing fee income on the contracts it services on behalf of securitization
trusts. Servicing fee income consists of: (i) contractual
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servicing fees received through securitizations, equal to $7.00 per month per
contract included in each trust (excluding amounts paid to third-party servicers
by the trust); (ii) the accretion of the discount applied to excess spread cash
flows in calculating the carrying value of the interest-only strip receivable;
and (iii) fee income earned as servicer for such items as late charges and
documentation fees, which are earned whether or not a securitization has
occurred.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1997
-------------------
(Dollars in thousands)
<S> <C> <C>
Number of finance contracts acquired 1,310 3,062
Principal balance of finance contracts acquired $ 15,487 $ 34,015
Number of active dealerships (1) 148 336
Number of enrolled dealerships 340 890
</TABLE>
-------------------
(1) Dealers who have sold at least one finance contract to the Company
during the period.
RESULTS OF OPERATIONS
Period-to-period comparisons of operating results may not be meaningful,
and results of operations from prior periods may not be indicative of future
results. The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
TOTAL REVENUES
Total revenues decreased $109,446 to $3.4 million for the three months
ended March 31, 1997 from $3.5 million for the three months ended March 31, 1996
due to the timing of finance contract acquisition and securitization activity
resulting in decreased net interest income.
Net Interest Income. Net interest income (expense) decreased $570,142 to
($358,533) for the three months ended March 31, 1997 from $211,609 for the three
months ended March 31, 1996. Interest expense increased by $279,602 due to
higher net borrowing costs associated with the Revolving Credit Facilities,
along with increased debt issuance costs amortization of $155,120. Interest
income declined by $290,541 due to a reduction in the average daily balance of
finance contracts held for sale.
Gain on Sale of Finance Contracts. For three months ended March 31,
1997, gain on sale of finance contracts amounted to $3.6 million, compared with
$3.1 million for the comparable 1996 period. The Company completed one
securitization aggregating approximately $28.0 million in principal amount of
finance contracts and the gain on sale of finance contracts accounted for 104.7%
of total revenues. For three months ended March 31, 1996, there was one
securitization transaction in the principal amount of $16.6 million. The gain on
sale of finance contracts for this sale transaction accounted for 89.2% of total
revenues in 1996. The margin of gain on sale to the outstanding balances of the
finance contracts securitized for the three months ended March 31, 1997 was
19.75%, compared with 11.50% for the March
Page 13
<PAGE>
<PAGE>
1996 transaction, due to the inclusion of finance contracts acquired from a
third-party at a 3.75% discount, in the March 1997 securitization.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are securitized. For the three months ended
March 31, 1997, servicing fee income was $191,819, of which $189,077 was
collection agent fees. Servicing fee income increased $20,895 from the three
months ended March 31, 1996 as a result of increased securitization activity by
the Company. As of March 31, 1996, the Company had completed only two
securitizations and servicing income amounted to $170,924 for the quarter.
TOTAL EXPENSES
Total expenses of the Company increased $1.2 million to $3.1 million for
the three months ended March 31, 1997 from $1.9 million for the three months
ended March 31, 1996. Although operating expenses increased during the quarter
ended March 31, 1997, the Company's finance contract portfolio grew at a faster
rate than the rate of increase in operating expenses. Total expenses as a
percentage of total principal balance of finance contracts acquired in the
period decreased to 9.24% during the three months ended March 31, 1997 from
12.5% for the three months ended March 31, 1996.
Provision for Credit Losses. No provision for credit losses on finance
contracts held for future securitizations was taken for the three months ended
March 31, 1997, due to the timing of finance contract acquisition and
securitization activity compared with a provision of $456,498 for the three
months ended March 31, 1996.
Salaries and Benefits. Salaries and benefits increased $968,957 to $1.8
million for the three months ended March 31, 1997 from $789,219 for the three
months ended March 31, 1996. This increase was due primarily to an increase in
the number of the Company's employees necessary to handle the increased contract
acquisition volume and the collection activities on a growing portfolio of
finance contracts, and due to compensation of the Company's Chief Executive
Officer, which the Company began paying in May 1996.
General and Administrative Expenses. General and administrative expenses
increased $710,655 to $997,502 for the three months ended March 31, 1997 from
$286,848 for the three months ended March 31, 1996. This increase was due
primarily to growth in the Company's operations. General and administrative
expenses consist principally of office, furniture and equipment leases,
professional fees, communications and office supplies, and are expected to
increase as the Company continues to grow and also due to the costs of operating
as a public company.
Other Operating Expenses. Other operating expenses (consisting
principally of servicing fees, credit bureau reports and insurance) increased
$26,844 to $389,014 for the three months ended March 31, 1997 from $362,170 for
the three months ended March 31, 1996. This increase was due to increased
finance contract acquisition volume.
NET INCOME
In the three months ended March 31, 1997, net income decreased $892,628
to $179,027 from $1.1 million for the three months ended March 31, 1996. The
decrease in net income was primarily attributable to an increase in
infrastructure costs to support higher finance contract acquisition volume. The
principal balance of finance contracts acquired increased $18.5 million to $34.0
million for the three months ended March 31, 1997 from $15.5 million for the
three months ended March 31, 1996, including $12.5 million of finance contracts
which the Company acquired in March 1997 from Credit Suisse First Boston.
Page 14
<PAGE>
<PAGE>
FINANCIAL CONDITION
Finance Contracts Held for Sale, Net. Finance contracts held for sale,
net of allowance for credit losses, increased $5.7 million to $5.9 million at
March 31, 1997, from $228,429 at December 31, 1996. The number and principal
balance of contracts held for sale are largely dependent upon the timing and
size of the Company's securitizations. The Company plans to securitize finance
contracts on a regular quarterly basis.
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior investor securities.
Additionally, depending on the structure of the securitization, a portion of
the future excess spread cash flows from the trust is required to be deposited
in the cash reserve account to increase the initial deposit to a specified
level. Amounts on deposit in cash reserve accounts are also reflected as
advances to the relevant trust under the item "Cash flows from investing
activities" in the Company's consolidated statements of cash flows. The initial
cash reserve deposits for the December 1995, March 1996, June 1996, September
1996, December 1996 and March 1997 securitizations were $525,220, $331,267,
$356,658, $445,934, $500,000 and $56O,744, respectively, equivalent to 2% of
the initial principal amount of the senior trust certificates. A portion of
excess spread cash flows will increase such reserves until they reach 6%.
Interest-Only Strip Receivable. The following table provides historical
data regarding the interest only strip receivable:
<TABLE>
<CAPTION>
Three
Months Ended
March 31,
1997
--------------
(Dollars in thousands)
<S> <C>
Beginning balance $ 4,247
Unrealized appreciation 308
Additions 1,965
Accretion -
-------------
Ending balance $ 6,520
=============
</TABLE>
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the Company's
finance contract portfolio:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------------------------------------
(Dollars in thousands)
<S> <C> <C>
Principal balance of finance
contracts outstanding $ 104,889 $ 131,654
Delinquent finance contracts (1):
60-89 days past due 1,827 1.74% 2,O56 1.56%
90 days past due and over 1,328 1.27% 1,610 1.22%
-------------------------------------
Total $3,155 3.01% $3,666 2.78%
=====================================
</TABLE>
- -------------
(1) Percentage based on outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or there
are insurance claims filed.
Page 15
<PAGE>
<PAGE>
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for all contracts held for
sale. The Company reports a provision for credit losses on finance contracts
held for sale. Management evaluates the reasonableness of the assumptions
employed by reviewing credit loss experience, delinquencies, repossession
trends, the size of the finance contract portfolio and general economic
conditions and trends. If necessary, assumptions will be changed in the future
to reflect historical experience to the extent it deviates materially from that
which was assumed. Since inception, the Company's assumptions have been
consistent and are adequate based upon actual experience. Accordingly, no
additional charges to earnings to date have been necessary to accommodate more
adverse experience than anticipated.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency, the Company's Collections Department will initiate the repossession
of the financed vehicle. Bonded, insured outside repossession agencies are used
to secure involuntary repossessions. In most jurisdictions, notice to the
borrower of the Company's intention to sell the repossessed vehicle is required,
whereupon the borrower may exercise certain rights to cure his or her default or
redeem the automobile. Following the expiration of the legally required notice
period, the repossessed vehicle is sold at a wholesale auto auction (or in
limited circumstances, through dealers), usually within 60 days of the
repossession. The Company closely monitors the condition of vehicles set for
auction, and procures an appraisal under the relevant VSI policy prior to sale.
Liquidation proceeds are applied to the borrower's outstanding obligation under
the finance contract and loss deficiency claims under the VSI policy and Credit
Endorsement are then filed.
Beginning in the first quarter 1997, the Company elected not to obtain
credit deficiency insurance on every finance contract which it acquires. Of the
$32 million in finance contracts which the Company acquired in the first quarter
of 1997, $12.9 million, were covered by an Interstate Fire & Casualty credit
deficiency policy. However, VSI damage policies were and continue to be
purchased for all finance contracts. The March 1997 securitization structure
generated less cash proceeds than prior issuances due to the lack of credit
deficiency insurance on many of the finance contracts collateralizing the
transaction. However, offsetting much of this reduction in cash proceeds, is the
fact that the Company did not pay the up front premiums associated with the
credit deficiency insurance, which resulted in a lower cost basis in the finance
contracts than in the past.
Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned. This effect on the delinquency statistics can
be observed in the comparison of quarter ended March 31, 1997 versus 1996
delinquency percentages. The portfolio is tangibly more seasoned as of March 31,
1997 versus March 31, 1996. Accordingly, delinquency and charge-off rates in the
portfolio may not fully reflect the rates that may apply when the average
holding period for finance contracts in the portfolio is longer. Increases in
the delinquency and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its receivables.
REPOSSESSION EXPERIENCE - STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage losses on the basis of a percentage of the
Company's finance contract portfolio, because percentages can be favorably
affected by large balances of recently acquired finance contracts. Management
monitors actual dollar levels of delinquencies and charge-offs and analyzes the
data on a "static pool" basis.
The following table provides static pool repossession frequency analysis
in dollars of the Company's portfolio performance from inception through March
31, 1997. In this table, all finance contracts have been segregated by quarter
of acquisition. All repossessions have been segregated by the quarter in which
the repossessed contract was originally acquired by the Company. Cumulative
Page 16
<PAGE>
<PAGE>
repossessions equals the ratio of repossessions as a percentage of finance
contracts acquired for each segregated quarter. Annualized repossessions equals
an annual equivalent of the cumulative repossession ratio for each segregated
quarter. This table provides information regarding the Company's repossession
experience over time. For example, recently acquired finance contracts
demonstrate very few repossessions because properly underwritten finance
contracts to subprime consumers generally do not default during the initial term
of the contract. Between approximately one year and 18 months of seasoning,
frequency of repossessions on an annualized basis appear to reach a plateau.
Based on industry statistics and the performance experience of the Company's
finance contract portfolio, the Company believes that finance contracts seasoned
in excess of approximately 18 months will start to demonstrate declining
repossession frequency. The Company believes this may be due to the fact that
the borrower perceives that he or she has equity in the vehicle. The Company
also believes that since the loans generally amortize more quickly than the
collateral depreciates, losses and/or repossessions will decline over time.
<TABLE>
<CAPTION>
Repossession Frequency
------------------------------------------------
Principal Balance of Principal Balance
Year and Quarter of Repossessions by of Contracts
Acquisition Quarter Acquired Cumulative(1) Annualized(2) Acquired
- --------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1994
Q3 $ 22.05 23.67% 8.61% $ 93.17
Q4 524.08 22.10% 8.84% 2,371.60
1995
Q1 1,301.63 20.63% 9.17% 6,310.42
Q2 1,073.34 17.43% 8.72% 6,157.77
Q3 1,135.68 15.76% 9.01% 7,205.90
Q4 1,999.82 16.41% 10.94% 12,188.86
1996
Q1 1,986.24 12.85% 10.28% 15,459.93
Q2 2,124.48 11.51% 11.51% 18,458.89
Q3 1,469.63 6.19% 8.26% 23,735.10
Q4 526.12 2.04% 4.08% 25,802.89
1997
Q1 14.28 0.04% 0.17% 34,014.88
</TABLE>
- -------------------
(1) For each quarter, cumulative repossession frequency equals the number of
repossessions divided by the number of contracts acquired.
(2) Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, principal balance of
$524.08 thousand in repossessions divided by principal balance of $2.372
million in contracts acquired, divided by 10 quarters outstanding times
four equals an annual repossession frequency of 8.84%).
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent
to complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. As less of
the Company's finance contracts are acquired with credit deficiency insurance,
the Company expects its net loss per repossession to increase. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
Page 17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
From
August 1, 1994
(Inception to
March 31, 1997)
-------------
<S> <C>
Number of finance contracts acquired 13,124
Number of finance vehicles repossessed 987
Repossessed units disposed of 531
Repossessed units awaiting disposition (2) 456
Cumulative gross charge-offs (1) $5,840,912
Costs of repossession (1) 144,892
Proceeds from auction, physical damage insurance and refunds (1) (3,828,745
----------
Net loss 2,157,059
Deficiency insurance settlement received (1) (1,308,805)
----------
Net charge-offs (1) $848,254
==========
Net charge-offs per unit disposed 1,597
Recoveries as a percentage of cumulative gross charge-offs (3) 87.96%
</TABLE>
- ----------------
(1) Amounts are based on actual liquidation and repossession proceeds (including
insurance proceeds) received on units for which the repossession process had
been completed as of March 31 1997.
(2) The vehicles may have been sold at auction; however AutoBond might not have
received all insurance proceeds as of March 31, 1997.
(3) Not including the costs of repossession which are reimbursed by the
securitization trusts.
LIQUIDITY AND CAPITAL RESOURCES
Since inception. the Company has primarily funded its operations and the
growth of its finance contract portfolio through seven principal sources of
capital: (i) cash flows from operating activities; (ii) funds provided from
borrowers' payments received under finance contracts held for sale; (iii)
borrowings under various warehouse and working capital facilities; (iv) proceeds
from securitization transactions; (v) cash flows from servicing fees: (vi)
proceeds from the issuances of subordinated debt and capital contributions of
principal shareholders and (vii) an initial public offering of common stock.
Cash Flows. Significant cash flows related to the Company's operating
activities include the use of cash for purchases of finance contracts, and, cash
provided by payments on finance contracts and sales of finance contracts. For
the three months ended March 31, 1996 and 1997, $15.2 million and $33.0 million,
respectively, was used by the Company to purchase finance contracts. $271,687
and $204,481, respectively, was received as payments on finance contracts, and
$16.6 million and $27.1 million, respectively, was received from sales of
finance contracts, primarily through securitizations. The Company used $331,000
and $659,338 to fund cash reserve accounts for the securitizations completed in
the three months ended March 31, 1996 and 1997, respectively.
Significant activities comprising cash flows from financing activities
include net borrowings (repayments) under Revolving Credit Facilities of
($802,535) and $9.5 million for the three months ended March 31, 1996 and 1997,
respectively.
Revolving Credit Facilities. The Company obtains a substantial portion
of its working capital for the acquisition of finance contracts through
revolving credit facilities. Under a warehouse facility, the lender generally
advances amounts requested by the borrower on a periodic basis, up to an
aggregate maximum credit limit for the facility, for the acquisition and
servicing of finance contracts or other similar assets. Until proceeds from a
securitization transaction are used to pay down outstanding advances, as
principal payments are received on the finance contracts, the principal amount
of the advances may be paid down incrementally or reinvested in additional
finance contracts on a revolving basis.
Page 18
<PAGE>
<PAGE>
At March 31, 1997, the Company had a $4.5 million balance outstanding on
a $10.0 million revolving credit facility (the "Sentry Facility") with Sentry
Financial Corporation ("Sentry"), which expires on December 31, 2000. The
proceeds from borrowings under the Sentry Facility are used to acquire finance
contracts, to pay applicable credit default insurance premiums and to make
deposits to a reserve account with Sentry. The Company pays a utilization fee of
up to 0.21% per month on the average outstanding balance under the Sentry
Facility. The Sentry Facility also requires the Company to pay up to 0.62% per
quarter on the average unused balance. Interest is payable monthly and accrues
at a per annum rate of prime plus 1.75% (which was approximately 10.25% at March
31, 1997).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company paid interest of approximately $179,000 for the three months ended March
31, 1997. In April 1996, the Company paid a one-time commitment fee of $700,000
to Sentry.
The Company and its wholly owned subsidiary, AutoBond Funding
Corporation II, entered into a $50 million revolving warehouse facility (the
"Daiwa Facility") with Daiwa Finance Corporation ("Daiwa") effective as of
February 1, 1997. Advances under the Daiwa Facility mature on the earlier of 120
days following the date of the advance or March 31, 1998. The proceeds from the
borrowings under the Daiwa Facility are to be used to acquire finance contracts
and to make deposits to a reserve account. The Daiwa Facility is collateralized
by the finance contracts acquired with the outstanding advances. The Daiwa
Facility does not require that the loans funded be covered by default deficiency
insurance. Interest is payable upon maturity of the advances and accrues at the
lesser of (x) 30 day LIBOR plus 1.15% (which was approximately 6.83% at March
31, 1997) or (y) 11% per annum. The Company also pays a non-utilization fee of
.25% per annum on the unused amount of the line of credit. Pursuant to the Daiwa
Facility, the Company paid a $243,750 commitment fee. The debt issuance cost is
being amortized as interest expense on a straight line basis through March 1998.
The Daiwa Facility contains certain covenants and representations similar to
those in the agreements governing the Company's existing securitizations
including, among other things, delinquency and repossession triggers. Advances
under the Daiwa Facility totaled $5.0 million at March 31, 1997 and the Company
paid interest of approximately $115,000 during the three months ended March 31,
1997.
Securitization Program. In its securitization transactions through the
end of 1996, the Company sold pools of finance contracts to a special purpose
subsidiary, which then assigned the finance contracts to a trust in exchange for
cash and certain retained beneficial interests in future excess spread cash
flows. The trust issued two classes of fixed income investor certificates:
"Class A Certificates" which were sold to investors, generally at par with a
fixed coupon, and subordinated excess spread certificates ("Class B
Certificates"), representing a senior interest in excess spread cash flows from
the finance contracts, which were typically retained by the Company's
securitization subsidiary and which collateralize borrowings on a nonrecourse
basis. The Company also funded a cash reserve account that provides credit
support to the Class A Certificates. The Company's securitization subsidiaries
also retained a "Transferor's Interest" in the contracts that is subordinate to
the interest of the investor certificate holders.
Commencing with the Company's March 1997 securitization transaction, the
Company sells pools of finance contracts to a special purpose subsidiary, which
then assigned the finance contracts to an indenture trustee. Under the trust
indenture, the special purpose subsidiary issued three classes of fixed income
investor notes: "Class A Notes", "Class B Notes" and "Class C Notes", which were
sold to investors, generally at par, with fixed coupons. A portion of the Class
C Notes represent a senior interest in certain excess spread cash flows from the
finance contracts, In addition, the securitization subsidiary retains rights to
the remaining excess spread cash flows, which may be used to collateralize
borrowings on a non-recourse basis. The Company also funds a cash reserve
account that provides credit support to the Class A Notes, Class B Notes and a
portion of the Class C Notes.
Page 19
<PAGE>
<PAGE>
The retained interests entitle the Company to receive the future cash
flows from the trust after payment to investors, absorption of losses, if any,
that arise from defaults on the transferred finance contracts and payment
of the other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in
two ways. First, the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. In December 1995, March 1996, June 1996, September
1996, December 1996 and March 1997, the Company securitized approximately $26.2
million, $16.6 million, $17.8 million, $22.3 million, $25.0 million and $28.0
million, respectively, in nominal principal amount of finance contracts and used
the net proceeds to pay down borrowings under its warehouse credit facilities.
Second, additional working capital is obtained through the Company's
practice of borrowing funds, on a nonrecourse basis, collateralized by its
interest in future excess spread cash flows from its securitization trusts. At
March 31, 1997, the Company held interest-only strip receivables and Class B
Certificates totaling $16.2 million, substantially all of which had been pledged
to collateralize notes payable of $9.5 million. The Class C Notes from the March
1997 transaction were sold to investors during the quarter.
Initial Public Offering. On November 14, 1996, the Company completed the
initial public offering of its Common Stock. The closing comprised 825,000
shares sold by the Company (including 75,000 shares issued pursuant to the
exercise of the underwriters over allotment option) and 250,000 shares sold by
the Selling Shareholders. With a price to public of $10 per share and an
underwriting discount at $.70 per share, the Company received gross proceeds of
$7,725,000 from the offering, from which it paid offering expenses of
approximately $1.7 million. The net proceeds were being utilized for working
capital, repayment of subordinated debt of $300,000 and investment in finance
contracts.
Although management believes the proceeds of the initial public offering
of the Company's common stock, proceeds from finance contracts, securitization
proceeds and borrowings under its warehouse facilities should be sufficient to
fund expansion of the Company's business through the end of 1997, management
also believes that additional capital through equity or subordinated debt
issuances would allow the Company to take better advantage of growth
opportunities. There can be no assurance, however, that the Company will be able
to obtain such additional funding.
The statements contained in this document that are not historical facts
are forward looking statements. Actual results may differ from those projected
in the forward looking statements. These forward looking statements involve
risks and uncertainties, including but not limited to the following risks and
uncertainties: changes in the performance of the financial markets, in the
demand for and market acceptance of the Company's loan products, and in general
economic conditions, including interest rates, presence of competitors with
greater financial resources and the impact of competitive products and pricing;
the effect of the Company's policies; and the continued availability to the
Company of adequate funding sources. Investors are also directed to other risks
discussed in document filed by the Company with the Securities and Exchange
Commission.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
Page 20
<PAGE>
<PAGE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. The Company
believes the implementation of SFAS No. 128 will not have an effect on earnings
per share calculation.
Page 21
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any material litigation,
although it is involved from time to time in routine litigation incident to its
business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
<S> <C>
3.1* Restated Articles of Incorporation of the Company
3.2* Amended and restated Bylaws of the Company
4.1* Specimen Common Stock Certificate
10.1* Amended and Restated Loan Origination, Sale and Contribution
Agreement dated as of December 15, 1995 by and between the
Company and AutoBond Funding Corporation I
10.2* Security Agreement dated as of May 21, 1996 among AutoBond
Funding Corporation II, the Company and Norwest Bank Minnesota,
National Association
10.3* Credit Agreement and Side Agreement, dated as of May 21, 1996
among AutoBond Funding Corporation II, the Company and Peoples
Life Insurance Company
</TABLE>
Page 22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
<S> <C>
10.4* Servicing Agreement dated as of May 21, 1996 among AutoBond
Funding Corporation II, CSC Logic/MSA L.L.P., doing business as
"Loan Servicing Enterprise", the Company and Norwest Bank
Minnesota, National Association
10.5* Loan Acquisition Sale and Contribution Agreement dated as of May
21, 1996 by and between the Company and AutoBond Funding
Corporation II
10.6* Second Amended and Restated Secured Revolving Credit Agreement
dated as of July 31, 1995 between Sentry Financial Corporation
and the Company
10.7* Management Administration and Services Agreement dated as of
January 1, 1996 between the Company and AutoBond, Inc.
10.8* Employment Agreement dated November 15, 1995 between Adrian Katz
and the Company
10.9* Employment Agreement dated February 15, 1996 between Charles A.
Pond and the Company
10.10* Employment Agreement effective as of May 1, 1996 between William
O. Winsauer and the Company
10.11* Vender's Comprehensive Single Interest Insurance Policy and
Endorsements, issued by Interstate Fire & Casualty Company
10.12* Warrant to Purchase Common Stock of the Company dated March 12,
1996
10.13* Employee Stock Option Plan
10.14* Dealer Agreement dated November 9, 1994, between the Company and
Charlie Thomas Ford, Inc.
10.15* Automobile Loan Sale Agreement, dated as of September 30, 1996,
among the Company, First Fidelity Acceptance Corp., and Greenwich
Capital Financial Products, Inc.
10.16+ Servicing Agreement, dated as of January 29, 1997, between CSC
LOGIC/MSA L.P.P., doing business as "Loan Servicing Enterprise"
and the Company
10.17+ Credit Agreement, dated as of February 1, 1997, among AutoBond
Funding Corporation II, the Company and Daiwa Finance Corporation
10.18+ Security Agreement, dated as of February 1, 1997, by and among
AutoBond Funding Corporation II, the Company and Norwest Bank
Minnesota, National Association
10.19+ Automobile Loan Sale Agreement, dated as of March 19, 1997, by
and between Credit Suisse First Boston Mortgage Capital L.L.C., a
Delaware limited liability company, and the Company
21.1+ Subsidiaries of the Company
27.1 Financial Data Schedule
Page 23
<PAGE>
<PAGE>
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 333-05359).
+ Incorporated by reference from the Company's 1996 Annual Report on Form 10-K.
(b) Reports of Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1997.
Page 24
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on May 15, 1997.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ William O. Winsauer
------------------------------------------
William O. Winsauer, Chairman of the Board
and Chief Executive Officer
By: /s/ R. T. Pigott, Jr.
------------------------------------------
R. T. Pigott, Jr., Vice President and Chief
Financial Officer
Page 25
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 6,300,337
<SECURITIES> 9,686,073
<RECEIVABLES> 5,936,560
<ALLOWANCES> 25,200
<INVENTORY> 85,560
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,223,836
<CURRENT-LIABILITIES> 0
<BONDS> 9,424,623
<COMMON> 1,000
0
0
<OTHER-SE> 12,903,343
<TOTAL-LIABILITY-AND-EQUITY> 36,223,836
<SALES> 0
<TOTAL-REVENUES> 3,415,947
<CGS> 0
<TOTAL-COSTS> 3,144,692
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,120
<INCOME-PRETAX> 271,254
<INCOME-TAX> 92,226
<INCOME-CONTINUING> 179,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,028
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
