With the subprime loan industry booming, many small to midsize private lenders need infusions of cash to facilitate growth. As a result, they face a difficult choice: raise capital by going public or be swallowed up by a larger company.
Delta Funding Corp. just chose the former. The Woodbury, N.Y.-based lender filed a registration agreement with the Securities and Exchange Commission this month for a proposed initial public offering of four million shares of stock.
The price will be $14 to $16 and is expected to bring in $56 million to $64 million.
Like many in the subprime loan business, Delta has seen phenomenal growth in the last two years. Its loan originations increased more than 505% in the New England, Middle Atlantic, and Northwest regions from 1994 to 1995.
The company has reportedly rejected several acquisition proposals. Because Delta is still in the requisite "quiet period" following an SEC filing, president Hugh Miller could not comment on why he chose to take the company public, but other chief executives faced with the same choice say that the decision reflects common desire to remain at the helm.
The stock offering is being underwritten by Natwest Securities Ltd., Prudential Securities Inc., and Piper Jaffray Inc.
Meanwhile, National Loans Inc., a consumer loan originator based in Holly Springs, Miss., opted for acquisition. First Plus Consumer Finance Inc., the Dallas-based retail lending arm of RAC Financial Group Inc., signed a letter of intent to acquire the Mississippi company last week. Terms of the deal were not disclosed.
National Loans, founded in 1971, has a network of 27 retail offices throughout Mississippi and Tennessee. First Plus will be using the offices to supplement its 44-branch home loan origination network, the company said.
First Plus is planning more acquisitions, officials said.
Making the decision to sell off your company or go public means weighing many options, said Randall Sage, chief executive of First Finance, a Bloomfield Hills, Mich.-based home equity lender that caters to borrowers with poor credit.
The company, barely two years old, has seen its origination volume skyrocket, making it an attractive target for larger home equity lenders.
Mr. Sage says he considered making a public offering, but he hopes to receive a buyout offer or arrange a merger with another company instead.
"As a new company going public, you have to ask yourself questions: You may have gotten yourself there through niche marketing and new marketing techniques, but does management really have the experience necessary?
"I know our strength to originate, but sometimes it's better to team up with a company with financial strategists who know back-room operations," Mr. Sage said.
Mr. Sage, who noted that many of the newly public companies have yet to face delinquency problems because they are so young, said First Finance is leaning toward a merger partnership.
Equivantage, a Houston-based subprime lender, is also reportedly considering going public, sources say.
