NEW YORK — Fitch Ratings upgraded the long-term issuer default rating (IDR) of AmeriCredit Corp. to 'B+' from 'B-' and the senior debt rating to 'BB-/RR3' from 'B/RR3'. The rating outlook is stable. Approximately $532.6 million of debt, at par, is affected by this action.
The ratings firm said the upgrade reflects AmeriCredit's improved credit trends, profitability prospects, capitalization and access to market liquidity. Tighter underwriting standards since March 2008 have combined with strong used-car recovery values and a stabilizing economic environment to yield an improvement in year-over-year net loss rates, despite continued portfolio contraction. Poorer performing 2006 and 2007 vintages are nearing peak loss rates and stronger 2008 and 2009 vintages are contributing to better overall portfolio performance. Net charge-offs in the March 31, 2010 quarter were 7.6 percent compared to 7.8 percent a year ago. Fitch said it expects this trend will continue over the balance of calendar 2010.
Earnings through the first nine months of fiscal 2010 amounted to $135 million compared to a net loss of $42.7 million in the comparable 2009 period. While net finance charge income has declined due to 28.1 percent contraction in the average receivable portfolio, net margins have grown 110 basis points year-over-year with higher average annual percentage rates and a lower cost of funds, given interest rate levels. Fitch expects AmeriCredit to remain solidly profitable.
AmeriCredit's leverage ratio, as measured by debt-to-equity, has declined from 7.5 times (x) at fiscal year-end 2008 to 3.3x at March 31, 2010. Receivable contraction, debt repurchases, a debt exchange, positive earnings, and higher enhancement levels on secured borrowings have all contributed to this reduction. Fitch believes leverage will continue to decline until the portfolio troughs later in 2010, before gradually rising to the low-to-mid 5.0x range over time. AmeriCredit's leverage is not expected to return to historical levels over the medium-term.
The company's access to liquidity has improved significantly in recent quarters with the upsizing and extension of its primary warehouse facility in February 2010 and with the completion of three asset-backed securities (ABS) transactions, aggregating $1.4 billion, since January 2010.
AmeriCredit's most recent senior subordinate transaction, completed in May, was its first transaction after the expiration of the TALF program. The company sold $600 million of debt, with a weighted average cost of funds of 3.8 percent, down through the 'BB' notes. AmeriCredit was also able to complete a $200 million bond insured transaction in March, which was not TALF-eligible, its first wrapped deal since May 2008. While credit spreads remain higher than historical levels, spreads have tightened significantly in recent quarters. Fitch views the company's access to ABS market liquidity favorably.
The stable outlook reflects Fitch's expectation for favorable credit comparisons on a year-over-year basis, consistent earnings generation, adequate liquidity relative to planned origination targets, the retention of sufficient capitalization for the rating category, and economically attractive access to the ABS markets.
