Subprime auto lender Flagship Credit Acceptance has sold its business operations to InterVest Capital Partners, amid heightened concerns about the riskier auto-loan market.
The details: Flagship Credit (which is held by funds tied to Perella Weinberg Partners Capital Management LP) has been exploring a sale for over a year, and news of an actual agreement was announced late last week.
Early attempts to solicit interest in selling the company pegged the transaction estimates at around $400 million.
Company officials have not provided any details on exactly how much Flagship Credit was sold for in the agreement.
A newly formed company, Flagship Financial Group, has acquired the assets, with auto industry veteran Jim Landy hired to head the group as its CEO.
Flagship Credit began operations in 2010 and has originated over $16 billion in auto loans over 15 years of operations in its affiliation with Perella and its partners that are sub-advised by Innovatus Capital Partners, a firm formed by former Perella executives.
What they’re saying: “There is a great opportunity ahead to grow our originations, while adding value to our dealer network,” stated Flagship Credit CEO Bob Hurzeler.
Why it matters: The sale of Flagship Credit underscores how shaky the subprime auto-loan segment has become, which is where many auto retailers rely on lenders to approve marginal-credit customers and move metal. At the same time, the creation of Flagship Financial Group with an industry veteran at the helm suggests that, while risk appetite is being recalibrated, there’s still money to be made in subprime—just likely on more cautious, lender-friendly terms.
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Between the lines: Flagship Credit’s sale comes at a critical juncture, as more Americans fall behind on their auto loan payments, higher interest rates, and rising car prices—which have had a significant impact on smaller subprime lenders like Flagship, Bloomberg reports.
The lender has seen the yield gap on some of its bonds widen in recent weeks.
Some of those securities are expected to deliver losses to their investors.
Bottom line: This is another sign that subprime auto finance is in flux, not dead—but likely getting tighter and more selective. Dealers that lean on lenders like Flagship for marginal-credit deals should expect possible changes to programs and approvals, and make sure they’re diversified on the finance side so one lender shake-up doesn’t hit their volume or grosses too hard.
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