The corporate descendent of the defunct First City Bancorporation of Texas is preparing to enter the market for triple-A asset-backed securities.
Less than a year after emerging from Chapter 11 bankruptcy protection, FirstCity Financial Corp. is preparing to sell $100 million worth of performing real estate loans during the second quarter, in its first securitization.
The company said the goal would be to lower funding costs, which are inflated by short-term acquisition loans used to buy distressed assets from other lenders.
Interest on this debt cost $2.1 million in the first quarter, or 23.6% of revenues excluding interest from assets recovered after First City's settlement with the Federal Deposit Insurance Corp. in July.
Matt Landry, FirstCity's chief financial officer, said the securitization will give the company a permanent financing source to buy performing as well as nonperforming loans.
"Now that we've matured and have some market presence, we find that securitization provides us with an alternative source of financing," he said.
He said the assets the company is securitizing are seasoned loans purchased in recent years. The previously nonperforming loans have been modified and restructured, Mr. Landry said.
The securitization is expected to include several tranches, ranging from a triple-A-rated security to noninvestment grade and unrated tranches.
Mr. Landry said the company expanded its markets by buying $140 million of consumer loans during the quarter.
More than $112 million of the total was mostly small-business loans backed by real estate and purchased from a commercial bank and an economic development authority.
The remaining $28 million was performing automobile loans bought from a portfolio lender. The company intends to buy a steady flow of these loans through a loan origination network it is establishing.
This foray into performing consumer loans will not distract the company from its core business of acquiring and managing distressed financial assets, Mr. Landry said.
Still, the strategic shift may entail more risk for the company than its core business in distressed assets, said Bill Eddleman, an analyst who follows FirstCity.
"These guys know what they're doing in buying distressed assets," he said. "This is a new endeavor, so I think they are going to have to take it cautiously in the beginning."