Credit worries have knocked as much as 25% off the share prices of consumer lenders in recent months, but that isn't stopping two companies from launching public offerings.
The offerings of Contifinancial Corp. and Cityscape Financial Corp., due in the next few weeks, will give investors a chance to voice their views on credit quality and forecasts of lower interest rates for the new year.
The offerings come as investors are dumping shares of existing specialty lenders. Rising delinquencies in consumer loan portfolios have sent many such stocks tumbling recently.
Over two days in October, for instance, shares of Money Store Inc. fell 28%. The shares closed at $16.62 a share on Dec. 18, shortly after reaching a 52-week-high of $22.
Joseph Jolson, a specialty finance analyst with Montgomery Securities in San Francisco, questioned the timing of the offerings by Contifinancial and Cityscape.
"The time to come out raising money in this area was before people started worrying about rising delinquencies," Mr. Jolson said. These companies, he maintained, have "missed the top of the market."
Besides the timing, the offerings are unusual in that both companies have connections to commodity giant Continental Grain Co.
The company currently owns all of Contifinancial and will retain at least 81% following the offering. Another subsidiary, ContiTrade Services Corp., is selling its 450,000 share interest in Cityscape as part of the four million share offering. Continental is expected to take in an additional $5.5 million from this offering.
The underwriters for the Contifinancial offering - Merrill Lynch & Co., Bear, Stearns & Co., Dillon, Read & Co., and Lehman Brothers - are hoping to sell nearly five million shares in the United States and more than 1.2 million internationally. The estimated stock price of $22 amounts to 13.75 times the company's annualized 1995 earnings per share.
According to an amended registration form filed with the Securities and Exchange Commission on Dec. 6, Contifinancial has used a network of loan originators to develop a home-equity-loan securitization program.
The company has structured $3.1 billion of home-equity pools since 1991 and plans to pursue a similar strategy in commercial, small-business, and consumer loans, and equipment leases.
Privately held Continental Grain's ownership of Contifinancial is not its first foray into financial services. During a tumultuous period in the 1970s and 1980s, the company operated a commodity subsidiary called ContiCommodity Services Inc.
That operation was sold to Refco Inc. in September 1984 after some high- profile missteps, including its alleged involvement in the Hunt brothers' attempt to manipulate the silver market. According to published reports, ContiCommodity in 1986 was fined $1.5 million for this and other actions by the Commodity Futures Trading Commission. At the time, the company maintained that the settlement contained no findings of fact or law. A spokesman for Continental Grain said on Tuesday that ContiCommodity "was a completely separate business, with separate management, and was sold." He said ContiCommodity had no relationship to Contifinancial.
Cityscape said it intends to use the $31 million it expects from its offering to reduce its $62.3 million debt and expand its mortgage origination and purchases here and in the United Kingdom. The expected price of around $25 a share would price the Elmsford, N.Y.-based company's shares at nearly 28 times annualized 1995 earnings per share.
By comparison, Dallas-based Amresco Inc., the onetime asset workout arm for NationsBank Texas, sold 4 million shares in a secondary offering on Dec. 7 at $11.75 a share, or about 17 times annualized 1995 earnings.
Contifinancial and Cityscape need to make sure they do not lend as freely as some rivals, said Frank Anderson, a financial services analyst with Stephens Inc., Little Rock.
"Our concern is that there have been so many new entrants into this market that many have thrown money at the consumer," he said. "The key to this business is in collections."
