In Brief: Moody's Downgrades Olympic Financial

Citing rising concerns over subprime auto lending in the wake of the Mercury financial scandal, Moody's Investors Service lowered the ratings on Olympic Financial Ltd. senior notes to B2 from B1 and its subordinated notes to B3 from B2.

The Minneapolis auto lender, which relies almost entirely on the asset- backed securities market to fund itself, has been a target of selling by investors nervous about the implications of the unexpected restatement of earnings by Mercury, a subprime auto lender.

In downgrading the debt, Moody's cited Olympic's increasing reliance on subprime lending. The agency warned that Olympic's portfolio shift may force it to pay more to raise funds in the asset-backed market.

Moody's said that this portfolio shift has been accompanied by an increase in delinquencies and credit losses. While the company has taken significant steps toward improving the recoveries on repossessed vehicles, Moody's said the past performance in this area raises questions regarding the long-term effectiveness of this approach.

Moody's said Olympic's ratings were confirmed on Jan. 24 on the basis of Olympic's assertions that it was no longer for sale. At that time the rating outlook was changed to "negative."

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