UPDATE 1-AmeriCredit slumps to 5-year low on liquidity concerns
(Recasts, adds details, updates share movement)
Oct 28 (Reuters) - AmeriCredit Corp (ACF.N) slumped as much as 52 percent Tuesday to a 5-year low, after the subprime auto lender said increasing bad loans may curb its ability to raise cash and maintain liquidity.
The company said it may not be able to repurchase receivables by May next year as required under a covenant of a $2.25 billion master warehouse facility due to insufficient liquidity and forecast higher credit losses for the second quarter on Monday.
There is a risk that "continued increases in unemployment and deterioration in credit quality could force the company into bankruptcy," Keefe, Bruyette & Woods analyst Sameer Gokhale said.
The used-car lender charged-off 7.3 percent of finance receivables in the current quarter compared with 6 percent in the year-ago.
As of Sept. 30, AmeriCredit's unrestricted cash fell 44 percent sequentially to $244 million.
Gokhale downgraded the stock to "underperform" from "market perform" and slashed his price target by $5 to $3.
AmeriCredit shares have fallen 54 percent since January as a slowing economy and rising unemployment levels led to increased defaults on the loans the lender originated.
Liquidity risk should intensify over the next several months as AmeriCredit has the potential to breach key covenant triggers due to deteriorating consumer credit amplified by lack of portfolio growth, Friedman Billings Ramsey analyst Scott Valentin wrote in a note to clients.
Tighter lending conditions has forced the used-car loans company to significantly scale down on its loan origination volumes. For the quarter the company originated $579.3 million in loans, nearly a fifth of what it originated in the year-ago quarter.
"The decline in originations volume is driven internally by our focus on preserving liquidity in light of the current capital markets environment and externally by a reduction in new and used car demand," Chief Executive Daniel Berce said in a post earnings call with analysts.
The company expects to further decrease its origination target to about $100 million a month.
AmeriCredit also announced that its co-chief operating officers, will leave the company at the end of 2008.
"That's just part of our overall streamlining of our organization...we have to cut costs and make difficult decisions," CEO Berce said.
On Monday, the company posted a first-quarter loss as bad loans rose and loan originations fell amid a weak lending market.
Shares of the company pared some of its losses and was trading down 32 percent at $3.99 in mid-day trade on the New York Stock exchange. They touched a low of $2.85 earlier in the session. (Reporting by Sweta Singh in Bangalore, Editing by Dinesh Nair)
