Things were looking up late Friday for beleaguered Mercury Finance Co.
Sources said a possible buyer had emerged for the automobile finance specialist, which is at the center of an accounting scandal. At the same time, the company got its bank group's consent to seek a secured loan that could allow it to sidestep bankruptcy.
The possible buyer is Reliance Acceptance Corp., a subprime auto lender that is expected to be spun off by Cole Taylor Financial Group next week. The new company is expected to have $100 million of capital, which will make it one of the most liquid companies in the business.
"We still believe that Mercury is a good company," said Thomas Barlow, chief executive of Reliance, "and are certainly interested in acquiring any company that offers synergies with ours. We have looked over several companies and are looking at buying all or part of the receivables of Mercury."
Mercury's market value, based on its stock price, had fallen to $333 million Friday, from $2.6 billion 10 days earlier, when disclosures of accounting irregularities forced the company to restate its earnings for the past four years.
According to sources familiar with the situation, Howard Silverman, chairman of Reliance and a former president of Mercury, has been trying for some time to negotiate a purchase of Mercury. Mr. Silverman, who served as president of Mercury for five years in the 1980s, declined to comment.
Meanwhile, sources close to the bank group said the unsecured lenders had agreed after marathon negotiations to relinquish their senior claims on Mercury. BankAmerica Corp. was said to be the leading candidate to provide the secured loan; the San Francisco-based banking company declined to comment.
While white knights may be coming to Mercury's rescue, other subprime auto lenders continued to experience difficulties.
Moody's Investors Service downgraded its rating of Olympic Financial Corp. And First Enterprise Financial Inc. of Evanston, Ill. delayed releasing fourth quarter results, which it said would be 80% lower than expected.
And one day after Fleet Financial Group forced Jayhawk Acceptance Corp. to file for bankruptcy, shares of that lender, based in Dallas, fell $1.75 Friday, to $2.25.
Also on Friday, it was announced that Illinois schools that invested in a fund holding Mercury's commercial paper were bailed out by the money management firm that operated the fund.
The money management firm-Cadre Financial, a unit of AMBAC Inc.-did not experience a loss, spokesman John Cathey said. But AMBAC had to pony up to buy back $12 million in Mercury commercial paper. Mr. Cathey declined to say how much the move cost AMBAC, saying only that it would have no impact on earnings.
Mercury has defaulted on $61 million of commercial paper payments due to investors. Another $127 million is due Friday. Despite Mercury's troubles, traders said its commercial paper was still going for 87 cents on the dollar.
Wayne Sampson, executive director for the Illinois Association of School Boards, said the fund sold paper Tuesday and Wednesday at no loss to the schools.
