Friday, February 22, 2008

Asset Acceptance Gives Poor Earnings Preview for 2007

Asset Acceptance Capital Corp. (Nasdaq: AACC) , the Warren, Mich.-based purchaser and collector of charged-off consumer debt, released preliminary fourth quarter and annual results early Friday that showed a significant drop in income and revenue. The company also reported it borrowed heavily from its lenders in the fourth quarter, as it increased its purchases of debt portfolios. The borrowing caused Asset Acceptance to violate a credit agreement with its lenders.

Asset Acceptance said that it expects to report a 59 percent decrease in net income for the quarter to $4 million. Revenues in the quarter are expected to rise 1.1 percent to $62.2 million. For the full year 2007, Asset Acceptance expects to report net income of $20.4 million, down 55 percent from 2006. Total revenues declined 2.7 percent in 2007 to $248 million. It plans to announce final results on Feb. 26.

Investors sent the company's shares lower by more than 4 percent in early trading Friday.

The company said that in 2007 it spent $172.4 million to buy $5.3 billion in face value debt. In the fourth quarter alone, it invested $62.8 million to purchase portfolios with a face value of $1.5 billion. The company ramped up purchasing in the fourth quarter in what it called a “favorable debt purchasing environment.”

As Asset Acceptance drew down from its credit facilities, its ratio of liabilities to assets rose, violating an agreement with its lenders.

In the fourth quarter, Asset Acceptance's ratio of total liabilities to net worth fell below 3-to-1, a requirement set by Chase and others. On Thursday, Chase gave Asset Acceptance a temporary waiver of noncompliance with the covenant through March 17, 2008, provided that the ratio does not exceed 3-to-1. The company anticipates obtaining an amendment to the credit agreement by March 17, 2008. At the end of December the ratio was 2.65-to-1, slightly higher than the 2.5-to-1 rate that applies to 2008.

As of February 21, 2008, Asset Acceptance had borrowed $25 million from its $100 million revolving credit facility, and nearly the entire balance of its $150 million term loan facility.

No comments: