Not that we encourage excessive drinking at smallcapword, but some say the best way to cure a hangover is to bite the hair of the dog and find remedy in a bloody mary. The phrase means that the best cure for what ails you is to have some more of it. The U.S. Treasury is betting that cheap financing and leverage – two of the elements that got us into such trouble – can get us out.
Its TALF program is a roughly $500 billion (for starters) non-recourse lending program to private investors as a way to encourage them to buy newly underwritten securities backed by auto loans, credit-card receivables and student loans, among other asset classes. The stagnant market for mortgage and asset backed securities are clogging the capital markets and need to be moved before new lending can return to normal, and leverage is the key to get them moved. Only this time the leverage is being provided by you and me and the rest of the taxpayers. The FDIC will guarantee loans for up to 85 percent of the purchase price. The U.S. Treasury and private asset managers each kick in 6.5%.
Writer William Cohan refers to it as Geithner’s Gift to Wall Street and details just how attractive these deals will be for Wall Street and breaks down how they would work for student, auto and credit card receivables. http://money.cnn.com/2009/05/18/news/economy/geithner-talf.fortune/index.htm
So, if we are paying for the TALF program, it would be nice to make some of that money back with smallcaps that stand to benefit. Like the market at large, many of these companies started to regain some life after the plan was announced in mid March. But there could be some more momentum ahead.
The first quarter of ’09 for Irvine, CA-based United PanAm Financial Corporation (Nasdaq:UPFC), http://www.upfc.com, was about surviving for a better day. The auto loan provider closed 40 branches, released 25% of its staff and continued its suspension of new originations. Its stock reached a low of $.57 in February, but has responded to the Company’s survive and fight another day strategy and currently trades at $3.30. Volume is very thin, averaging about 23K shares a day. Another thinly traded auto loan maker is Credit Acceptance Corp. (Nasdaq:CACC), www.credaccept.com, of Southfield, MI. The Company services and buys and holds loans to subprime borrowers. At $20.82, the stock trades at the middle of its 52-week low and high.
First Marblehead of Boston, (Nasdaq:FMD), www.firstmarblehead.com, was a very high-flying student loan stock back when banks were gorging on assets to securitize. Its CEO’s high flying lifestyle gets a lot of attention, and he has been a poster boy for Wall Street excess by many who think it unseemly to make millions on the back of student loans. The Company’s reach is likely second to only Sally Mae in terms of originating, processing ans securitizing student loans. It trades at $1.80 (low/high: .58/5.14) on volume of about 500k shares a day. The more conservative Student Loan Group of Stamford, CT. (Nasdaq:STU), www.studentloan.com, is very active in the federal student loan program and has a shareholder base that is 95% institutional. It even offers a 3% dividend.
Atlanta’s CompuCredit Corp. (Nasdaq:CCRT) www.compucredit.com, securitizes credit card receivables. The Company reported a loss of $2.40 a share, larger than the $.85 average the 2 analysts who covered it had expected. In its press release, the Company said it planned to focus on new business that does not rely on securitization markets, like its charged-off-debt-buying business and standalone third party servicing capabilities. Though the dormant market for asset securitization hit the company hard, TALF should make the short term climate sunnier. At $2.86, it far off its $10.22 high and up from its $1.56 low.
Cohan said that two months into the program as the first TALF- backed deals hit the market, you can see why the likes of hedge fund Fortress Investment Group are drooling over it. CEO Wes Edens said he expects that Fortress will be “a big participant” in the TALF program “three to six months from now.” Fortress, (NYSE:FIG), www.fortressinv.com recently completed a $200 M secondary offering at $5. Though it may help provide financing for TALF plays, it did not help the stock. It now trades at $4.02, and the Company has its detractors, including you know who. http://tinyurl.com/p6wvsu. Yup. That guy.
The TALF program is set to extend, in June, to the issue of new commercial real-estate mortgage-backed securities. New York-based Gramercy Capital. (NYSE:GKK), www.gramercycapitalcorp.com, engages in a broad suite of commercial real estate financing, including acquiring distressed debt and mortgage backed securities. An invigorated CMBC market is welcome news for any commercial real estate player.