Santander to Purchase DriveTime in $700 Million Transaction
By Nick Zulovich, Editor
September 19, 2012
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PHOENIX and DALLAS — A regulatory filing with the Securities
and Exchange Commission confirmed DriveTime Automotive Group, its shareholders
and certain affiliates entered into definitive agreements with Santander
Officials explained that DT Acceptance Corp. and its subsidiary, DT Credit Co., will sell its finance receivable portfolio, which consists of vehicle-related installment sales contracts, certificates representing its residual interests in securitizations of finance receivables, and certain other assets to Santander Consumer USA.
Immediately thereafter, officials indicated, a new entity owned by third-party investors will purchase all of the outstanding stock of DTAG (not to be confused with Dollar Thrifty Automotive Group) and DTAC, effectively acquiring DTAG's dealership operations, currently consisting of 91 owned and leased stores and 16 reconditioning and other facilities throughout the United States.
In respect of the purchase transactions, the filing showed the shareholders of DTAG and DTAC will receive aggregate proceeds of approximately $700 million and the purchasers will assume, refinance or repay certain items of existing indebtedness of DriveTime.
"The purchase transactions are subject to customary closing conditions, including the receipt of required regulatory approvals, if any, and, with respect to the obligations of the purchasers to consummate the purchase transactions, the successful completion of an offer to repurchase DriveTime's $200 million publicly traded senior notes," the company said in its SEC filing.
Officials went on to mention these definitive agreements contain customary representations, warranties and covenants made by DriveTime and the purchasers. DriveTime and its shareholders have agreed, among other things, not to solicit alternative transactions or to enter into discussions concerning, or provide confidential information in connection with, any alternative transaction.
"In addition, each of the parties has agreed to use its reasonable best efforts to cause the purchase transactions to be consummated," officials pointed out.
Furthermore, the SEC document showed the definitive agreements provide certain termination rights for each party, including in the event of a failure by the purchasers to secure certain third-party financing necessary to consummate the transaction. The agreement also provides that upon termination of the purchase agreements under certain circumstances, each party may be obligated to pay the other party a termination fee of $25 million that's subject to adjustment as provided in the document.
As part of the purchase transactions, the DriveTime shareholders will purchase and retain the equity interests of DriveTime's wholly owned subsidiaries Carvana and GFC Lending, which operates as Go Financial and provides financing to third-party dealerships collateralized by pools of subprime loans primarily in markets where DriveTime does not have existing dealership.
DLA Piper advised as external counsel to DriveTime on matters related to the definitive agreements.
When reached by SubPrime Auto Finance News today, Santander Consumer USA vice president of communications Laurie Kight said the company had no comment on the proposed transaction.
DriveTime's Latest Quarterly Performance
Santander Consumer USA's acquisition of DriveTime comes after a quarterly performance where the dealership company posted higher revenues but watched its net income soften year-over-year.
During the second quarter that wrapped up on June 30, DriveTime reported that its net income slid from $32.0 million to $29.3 million. However during Q2, the company's revenue climbed from $275.4 million to $302.2 million.
Like so many other dealers, DriveTime's cost to acquire inventory grew significantly during the second quarter. Officials tabulated that their second-quarter figure to fill inventory was $148.2 million, up from the year-ago figure of $132.4 million.
Meanwhile, DriveTime's second-quarter portfolio performance showed mixed developments when compared to the year-ago period as well as the close of 2011.
The company's level of 60-day delinquencies stood at 2.9 percent at the end of Q2, marking a rise from the year-ago reading that was 2.6 percent. However, DriveTime's 60-day delinquency level on Dec. 31 stood at 3.8 percent.
DriveTime's total portfolio at the end of the second quarter settled at $1.61 billion, up from the amount at the end of 2011, which was $1.46 billion.
More Details about Go Financial
As noted in the SEC filing, DriveTime will retain Go Financial, which has been gaining steam since being rolled out late last year.
In six months, the company indicated it partnered with dealers in 27 states and became licensed in 40 states. Early results exceeded management's initial expectations.
"Dealers have really responded well to the combination of up-front advances and sharing in the payment stream through our pooling program," Go Financial president Colin Bachinsky said.
"They like that Go Financial was created from experience running the DriveTime model, a national used-car dealership group that understands the challenges dealers face trying to grow their business," Bachinsky insisted.
As the company continues to add volume, Go Financial reiterated that it has been exploring new ways to include benefits for dealers.
Go Financial now includes overnight shipping for original documents as a benefit to Go Dealer Partners. By providing prepaid overnight shipping labels, dealers can save money and speed up their funding time.
Last month, Go Financial added inventory integration as an enhancement to the Go Portal. Dealers can filter and search their inventory to find the best match for their customer based on a variety of options, including down payment, upfront profit or customer payment.
Bachinsky insisted the interface will help dealers find vehicles that meet their customer's needs, while maximizing profit for their store.
"We are always looking for ways to make the dealer experience more streamlined. We think that Go Financial's unique non-recourse end-to-end solution allows a dealer to focus on selling more cars," Bachinsky stated.
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