During the fourth quarter of 1998, the Company sold all remaining repossessed vehicles, closed its Norfolk, Virginia operating facility, further reduced overhead and completed the restructuring of outstanding debt under its warehouse facility with CSFB and subordinated note holders. After the sale of all of its automobile revceivables, the Company owed CSFB approximately $4.5 million. CSFB agreed to a reduction of $2.25 million and the Company paid the remaining balance of approximately $2.3 million in cash. The Company also granted CSFB a five year warrant to purchase 1,357,467 common shares at $ .03 per share. Further, the holders of the Company's $8.2 million of 12% subordinated notes, due in 1999 and 2000, exchanged such notes for new notes totaling approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The New Notes include accrued the capitalization of interest of approximately $1.15 million through December 31, 1998 to principal. Interest on these new notes is due quarterly at the option of the Company at the rate of 10% if paid in cash and 12% if paid in common shares of the Company. In addition, representatives of these note holders have designated three members of the Company's Board of Directors.
The provision for credit losses for the year ended December 31, 1998 was $3,942,000 as compared to $12,456,000 in the prior year, a decrease of $8,514,000. This provision is the result of the Company recording additional credit losses based upon an increase in delinquency rates, the higher than anticipated level of repossessions and the poor performance of loans originated by specific independent automobile dealers.
Depreciation and amortization expense for the year ended December 31, 1997 was $708,000 as compared to $1,189,000 in the prior year and was primarily attributable to the amortization of goodwill and other intangible assets associated with the acquisition of FFC in December 1995. The decrease in depreciation and amortization expense of $481,000 is related to the reduction in amortization ($784,000) due to the write off of $11,193,000 of this goodwill as of December 31, 1996 offset by an increase in
The provision for credit losses for the year ended December 31, 1997 was $12,456,000 as compared to $5,251,000 in the prior year, an increase of $7,205,000. This provision is the result of the Company recording additional credit losses based upon an increase in delinquency rates, the higher than anticipated level of repossessions and the poor performance of loans originated by specific independent automobile dealers.
Total delinquent loans $5,029,000 6.3% $3,458,000 7.8% ---------- --- ---------- ---
In October 1996, the Company issued $36.3 million of securitized notes backed by $40.3 million of automobile receivables to a group of institutional investors in a private placement transaction. These notes were issued in two classes, $ 34.3 million of 6.53% Class "A" notes rated, at the time of issuance, "AAA" by Standard & Poor's Rating Group and "Aaa" by Moody's Investors Service and $ 2.0 million of 11.31% Class "B" notes rated, at the time of issuance, "BB" by Standard & Poor's Rating Group. The Class "A" notes were credit enhanced with an insurance policy issued by MBIA Insurance Corporation. The proceeds from the securitization were used to fund Cash Reserve accounts ($5.6 million) and the balance was used to reduce the amount outstanding under the Company's Senior Credit facility. Among other provisions, the notes require the maintenance of certain performance standards with respect to the portfolio of loan contracts securitized and certain overall financial considerations of the Company as a whole, including not realizing a net loss from operations in any two consecutive quarters and maintenance of minimum tangible net worth, as defined, of $7 million. At December 31, 1997 the Company had a tangible deficiency, as defined, of ($200,000) and, accordingly, did not meet the minimum tangible net worth standard. In addition, the Company has had experienced a net loss from operations for each of the quarters ended September 30, 1997, December 31, 1997, March 31, 1998 and June 30, 1998. Accordingly, the Company did not meet the interest coverage ratio requirement. In July 1998, the Company sold approximately $7.7 million of these automobile receivables and received proceeds of approximately $6.5 million. These proceeds, as well as available balances in Cash Reserve accounts, were used to redeem the Class A and Class B notes in full.