BankAmerica Corp. granted Mercury Finance Co. a 90-day extension on a $50 million line of credit set to mature today.
The extension gives the embattled subprime auto finance lender until June 10 to make good on the loan, and allows it to continue to pledge its assets as collateral.
Investors warmed to the news, boosting Mercury's stock price early Thursday as much as 20% to $3 on heavy trading.
"This extension relieves the company of the necessity of focusing every day on tomorrow and how are we going to satisfy the banks," said an official at the Dillenschneider Group, Mercury's spokesman.
In January, Lake Forest, Ill.-based Mercury said it had overstated its earnings for the last four years. The news sent the company's stock into a tailspin.
Received in February, the BankAmerica loan was originally structured as a 30-day credit line set to expire this past Monday. Earlier this week, the bank extended the deadline till Friday.
Mercury will use the BankAmerica loan to meet interest payments on nearly all of its debt-which is about $1 billion-and to maintain its operations.
Meanwhile, Salomon Brothers, Mercury's investment bank, continues to try to arrange the sale of some of the company's assets, including the Lyndon Insurance Group.
"Salomon is talking to people who are seriously interested," said the Dillenschneider official. "There's nothing definitive right now."
One highly-placed auto-finance expert said that in addition to ensuring liquidity, Mercury needs to hire one or two key executives who can gain Wall Street's confidence.
"Mercury needs a strong operator who understands how to manage a decentralized branch environment, as well as has a good understanding of sub-prime auto finance," he said. "If they can get the right people, they ought to be able to work their way out of this thing."
