Guillermo “Bill” Bron made a fortune when General Electric Co.’s NBC bought Telemundo Communications Group Inc. for $2 billion three years ago.
Bron’s Century City-based Bastion Capital Fund LP owned a big chunk of the Miami-based Spanish-language broadcaster, a stake worth about $330 million in the sale. Bastion first invested in Telemundo in 1995.
Now Bron, a former managing partner with Drexel Burnham Lambert Inc., has carved out a niche with Newport Beach United PanAm Financial Corp.
United PanAm makes and buys auto loans for borrowers with imperfect credit. Bron owns about 70% of the company, a stake worth about $315 million based on United PanAm’s recent market value of $450 million.
Bron leaves decision-making at United to Chief Executive Ray Thousand, a finance veteran, and his management team. Thousand holds telephone briefings with Bron on the company’s strategic direction.
“I’m not the company,” Bron said. “We have no egos.”
United is Bron’s only investment in Orange County, he said. In the 1990s, he and Daniel Villanueva, a former kicker with what then was the Los Angeles Rams, started Hispanic-focused investment firm Bastion.
According to Hispanic Business magazine, Bron and Villanueva are among the nation’s richest Hispanics, a group that also includes Los Angeles Angels of Anaheim owner Arturo “Arte” Moreno.
United has its roots in the savings and loan meltdown. Bron and other investors bought the assets of Pan American Federal Savings Bank from the Resolution Trust Corp. in 1994.
The thrift became the basis of United’s auto lending business. This year, the company sold off its savings and loan arm after regulators warned of “unacceptable” risks in United’s auto loans.
Regulators were uneasy over United’s funding of its auto loans with insured deposits, though the average delinquency rate for loans past due 30 days was 0.7%.
Instead of deposits, United now packages loans and sells them to Wall Street investors. The proceeds go toward making new loans.
So far, the company has closed on two securitizations. In September, it sold $420 million of auto receivable-backed securities. In April, it closed on a $195 million offering. Company officials said they plan an offering every six months.
United also has a $250 million credit line it can tap to make loans.
Subprime Contingent
The company is part of a sector,subprime lending,that’s heavily concentrated in OC. Most of the local players are in home mortgages, including Orange-based Ameriquest Capital Corp. and Irvine’s New Century Financial Corp.
Ameriquest’s Long Beach Acceptance Corp., a subprime auto financier, is a United rival, as is Irvine’s Consumer Portfolio Services Inc.
Big competitors include AmeriCredit Corp. of Texas and HSBC Finance Corp. of Illinois.
The subprime auto lending market has undergone dramatic change in the past decade. It fell on hard times in the late 1990s amid the global currency crisis, which spooked investors on all risky debt.
Consolidation ensued. AmeriCredit now is seen as the leader in the $65 billion to $100 billion yearly market.
United looks past credit scores and income to stability in home and work,seeking an average 4.6 years at the same job and address.
“We’re dealing with customers who never borrowed before, or who are getting a second chance,” said Garland Koch, United’s chief financial officer. “If you change jobs every six months, I don’t care if you make $100,000, I won’t lend to you.”
But the loans, which go up to $15,000, don’t come cheap. Borrowers pay an average interest rate of 22.7% for a four- to five-year old car, or about two to three times what a borrower with good credit would pay at a traditional lender.
The high rates insulate United’s market from rising short-term interest rates. But, like other subprime lenders, United has to be leery of rate hikes.
Spread Squeeze
The company gets interest from fixed-rate auto loans and uses it to pay off credit lines and bondholders at prevailing rates for short-term borrowing.
As short-term rates go up, payments to creditors start to eat into United’s profits.
For now, United is humming.
In its first quarter, the lender reported income from continuing operations of $6.6 million, up 57% from a year earlier. Revenue, or total interest income, was $31.1 million in the quarter, up 28%. Auto loans outstanding totaled $570.5 million in the quarter, up 30% from a year ago.
Branches are key to United’s strategy. The company runs 92 lending offices in 29 states. Branch managers are responsible for everything from underwriting and buying auto loan contracts to hands-on service and collection.
They even phone borrowers, many of them Hispanic, before the first payment is due.
“If they pay us right, then they won’t need us,” Koch said.
United has opened 64 branches since 2001 with plans to open another 15 by year’s end.
“It’s taken them a while to build out this model,” said Daniel F. Welden, an analyst with Jefferies & Co. United opens branches near “dealer rows.” Branch heads solicit business directly from the dealers. They usually comb through two or three applications per day from dealers.
“They run their ship very tightly,” said Alexandra Lyon, an analyst with Samuel A. Ramirez & Co. “They don’t want branches too big because when you’re dealing with a subprime market, you need to keep it under control.”
