NICK - Nicholas Financial

[collegeinvestor]

Looks like a sold company to own. The founder/manager of Nicholas owns a large portion of shares outstanding. Peter Vosotas runs a very sold company, with good cost controls. They purchase installment contracts on car loans in the subprime sector for around 1/11 off the face value of the contract. They have a line of credit at around 4% and charge 25-30% per annum. Trading for a relatively low P/E given the economics of this company. Does anyone else have an opinion on this company?

[bookie71]

There should be quite a bit written on this company.  I agree it seems solid and earnings are increasing.  The ideal time to have gotten in on it was when it was about 2.50 or so a share.

[leftcoast]

Looks like a sold company to own. The founder/manager of Nicholas owns a large portion of shares outstanding. Peter Vosotas runs a very sold company, with good cost controls. They purchase installment contracts on car loans in the subprime sector for around 1/11 off the face value of the contract. They have a line of credit at around 4% and charge 25-30% per annum. Trading for a relatively low P/E given the economics of this company. Does anyone else have an opinion on this company?

 

Very good little company with a great owner/manager who has compounded BVPS at something like 20% for over 20 years with disciplined underwriting and while keeping leverage in check. No analyst coverage at all. Peter is now 69 years old and seems to be looking for an exit. The credit crisis forced him to delay his retirement plans, but my sense is that he'll sell the company when he can get what he feels it's worth (more than the current stock price).

 

I bought shares in early 2009 when anything with the word "subprime" in its business model was being treated as radioactive. I sold all of them late last year to make room for BAC, so I don't currently have a position in NICK.

 

Here's a nice little interview with Peter from 2006:

http://www.sbnonline.com/2006/11/branching-out-peter-vosotas-uses-hands-on-communication-to-grow-nicholas-financial/

 

Q: How do you manage employees at so many branch offices?

You need to walk around and talk, get inside the different offices, so I try to travel. We are really hands-on. I’ll call up managers and say, ‘Hey Bill, why is this bathroom in your branch office a pigpen? Look, we pay a lot of money for this office and a lot of money for you, and you’re a pig.’

 

[benhacker]

Long time holder of NICK.

 

I think this is a pretty nice environment for them but may be turning. 

 

1) Short rates are low, but unlike other lenders, their long rates are not generally coupled with rates, so their spreads are essentially at all time highs... this will likely last for another 1-2 years, but it isn't "normalized" by any means.

 

2) They are coming out of a period where competition was muted, and that seems to be turning with some foolishness (anecdotal) appearing in the auto lending space (remember, this was basically a safe haven even in the structured debt markets, so I think capital is likely to get stupid here faster than, say, home loans).  I'd still say the environment is decent though.

 

3) The sale of the company / Mr V's long term plans are a big wild card.  This is a business that very much requires a strong manager.

 

Clearly though, they are a good operator, and likely deserve a premium to book.  Whether they can sustain a 15%+ ROE over time, or just 12-14% is hard to handicap, and in this day and age, you likely won't get the market will to pay up for much unless they can see some more consistency.  But I view the companies history of returns, their savvy leverage management leading into the crisis and their growth coming out as good signs that this is a survivor and an above average operator.

 

Even if earnings aren't normal, it's cheap, and you get paid to wait.

 

You could do a lot worse.

 

Ben

[jay21]

Long time holder of NICK.

 

I think this is a pretty nice environment for them but may be turning. 

 

1) Short rates are low, but unlike other lenders, their long rates are not generally coupled with rates, so their spreads are essentially at all time highs... this will likely last for another 1-2 years, but it isn't "normalized" by any means.

 

2) They are coming out of a period where competition was muted, and that seems to be turning with some foolishness (anecdotal) appearing in the auto lending space (remember, this was basically a safe haven even in the structured debt markets, so I think capital is likely to get stupid here faster than, say, home loans).  I'd still say the environment is decent though.

 

3) The sale of the company / Mr V's long term plans are a big wild card.  This is a business that very much requires a strong manager.

 

Clearly though, they are a good operator, and likely deserve a premium to book.  Whether they can sustain a 15%+ ROE over time, or just 12-14% is hard to handicap, and in this day and age, you likely won't get the market will to pay up for much unless they can see some more consistency.  But I view the companies history of returns, their savvy leverage management leading into the crisis and their growth coming out as good signs that this is a survivor and an above average operator.

 

Even if earnings aren't normal, it's cheap, and you get paid to wait.

 

You could do a lot worse.

 

Ben

 

I own this company and think it is very attractive.  In addition to the points noted above, the company appears to be facing two more headwinds.  First, provisions will start increasing to normal levels.  This isn't that much of a concern and only impacts reported earnings as opposed to the economics of the company.  Second, delinquencies are rising.  Management said this was due to increased competition.  This is a real concern for me, but if the company were to drop another 10% or so I might add more.

[jay21]

America's CarMart, another subprime auto player, reported today.  Here are the comments from the press release

 

"While we are facing some near-term revenue challenges, we are convinced that the direction we are going will provide significant profitable long-term opportunities for America's Car-Mart. We are confident that our business model is strong and our growth opportunities are outstanding. The amount of funding for the sub-prime auto industry has increased recently and appears to have had somewhat of a negative effect on our overall revenues during the 2nd quarter, especially in some of our older, more established markets," said William H. ("Hank") Henderson, President and Chief Executive Officer of America's Car-Mart. "This is not the first time we have seen this situation over our 31 year history and we are making adjustments to help retain our better repeat customers who now may have a few more options than they have had in the recent past. We believe that Car-Mart's local presence and face to face relationships give us the ability to work with customers far more effectively than subprime finance companies. We offer the best long-term choice for our customers and we will work tirelessly to earn their repeat business by providing quality vehicles, affordable payment terms and excellent service. We have over 55,000 active accounts and many more past customers who know what Car-Mart stands for and the lengths we go to help them succeed. We are committed to fighting to keep our best customers and we look forward to a bright future. In addition to serving our existing markets, we believe that there has never been a better time for Car-Mart to be adding new locations to serve an ever expanding customer base."

 

This is consistent with NICK has said.  So at least their rising delinquencies are due to the market and not a loosening of underwriting.  It appears we are in a weird spot in the credit cycle.  Low grade credits are loosening, but underwriting from banks is still stringent, as Bernanke mentioned.

[jay21]

Saw this: 

 

4:59PM Nicholas Finl retains financial advisor to assist in evaluating strategic alternatives (stock halted) (NICK) 13.24 +0.14 : Co announced that the Board of Directors of the Company has retained Janney Montgomery Scott LLC as its independent financial advisor to assist the Board of Directors in evaluating possible strategic alternatives for the Company, including, but not limited to, the possible sale of the Company or certain of its assets, potential acquisition and expansion opportunities, and/or a possible debt or equity financing. The Company also announced today that it has received an unsolicited, non-binding indication of interest from a potential third-party acquirer.

 

I saw something like this before but they didn't end up selling. 

[bookie71]

Don't know if this is same thing but

http://www.fool.com/investing/general/2013/03/20/nicholas-financial-receives-acquirer-interest-will.aspx

nice jump today

[jay21]

The Company was bought out at $16.  Seems like a good deal for the buyer not so much for the sellers.  Buyer also seems to be levering it up so more.

[benhacker]

Just wish I wanted to own PSEC... I have very large unrealized gains in NICK that I'd not mind rolling forward. 

 

I guess a high quality problem.  I've owned this one for 7 years.  Sad to see it go, and I'm also disappointed with the price, but I understand Mr V wants to cash out and you don't always get a great price.  It's fair at least.

 

Ben

[Fowci]

Looks like this deal might not go ahead:

http://www.marketwatch.com/story/nicholas-financial-makes-announcement-regarding-status-of-arrangement-agreement-with-prospect-capital-2014-05-12?reflink=MW_news_stmp

 

The stock's down at $14.80 (offer was cheap at $16). I'm thinking about entering. If the stock gets bought for $16, it's a decent return. If it doesn't, it's selling cheaper than it was before the deal was announced, and the market is up since then...

[petey2720]

Looks like the deal may be resurrected:

 

http://finance.yahoo.com/news/prospect-capital-announces-no-restatement-200100728.html

 

 

[no_free_lunch]

The deal is off:

 

At its June 11, 2014 meeting, the Company's Board of Directors determined to terminate the Arrangement Agreement on the basis that certain conditions requisite to consummation of the Arrangement could not be satisfied by the termination deadline.

 

https://finance.yahoo.com/news/nicholas-financial-makes-announcement-regarding-180000190.html

[rishig]

The deal is off:

 

At its June 11, 2014 meeting, the Company's Board of Directors determined to terminate the Arrangement Agreement on the basis that certain conditions requisite to consummation of the Arrangement could not be satisfied by the termination deadline.

 

https://finance.yahoo.com/news/nicholas-financial-makes-announcement-regarding-180000190.html

 

I started buying in the recent sell off a few weeks back when it dropped to ~$11. Merger arb guys have been getting out due to the deal that didn't happen.

 

Trading below tangible book value. I can't find any other finance company with such a conservative balance sheet yet making 13-15% on tangible book value. Debt / Equity has dropped to below 1. Reserves continue to grow. Dealer finance receivable discount provides yet another level of protection to the book from loan losses. I made this into a 10% position and happy to add if it drops.

 

This is the third time I am buying this company. First time was thanks to Alex Bossert on some blog somewhere in 2007. I know he is a member here. Thank you Alex for a great pick! I owe you big time. Would love to hear your thoughts if you still follow NICK.

[rishig]

Thanks Rishig,

 

I don't think its a bad idea at the current price but it is certainly not the most interesting thing I can find in today's market. Check out PKX and GM! NICK has always traded at low multiples. Back in 2009 it became way too cheap. It was literally at 2x earnings. I made enough money to pay for all of college with Nicholas (I bought in 2009 at $2.50 and sold a few years later around $15) but it doesn't get me that excited today. I think you'll probably do okay buying here but I have a hard time justifying a double at today's price. After all, they've been shopping the company for 4 years and the best they got was a $16 offer. Private equity guys are smart and I think that's a good estimate of intrinsic value.  Another way to look at it is I think they can do 12-15% ROE in the long run. At a 10x multiple that gets you 1.2x-1.5x tangible book. So its not a bad idea but 25-50% upside doesn't get me interested. PKX is a 3-4X and GM warrants also could be a 4x. In Nicholas's case you have some headwinds in the form of rising interest rates, challenges in finding new branch managers and a subprime auto market where pricing and quality is degrading. I think you'll do okay from here but not great. If they decide to become shareholder friendly and do a tender offer, buyback, leverage the balance sheet etc that could offer some additional upside.

 

Alex

 

Alex,

 

Thanks for the response. I own GM warrants (bought in the recent sell off at ~12) and I have looked at Posco but haven't gotten comfortable. I can ask you more questions on Posco on the Posco thread.

 

I bought NICK at $10, $6 and $3 during the crisis. It helped me pay for my home in California! I again bought it at $8 in 2011. I see your point about it not being super interesting. Yet, if it does 12-15% ROE and never trades at a premium, then one should make 12-15% in the long run. They recently announced that they may do something interesting with the balance sheet. So, we'll see. At some point if someone is willing to pay 1.2x to 1.5x to tangible book, that's just gravy on the top. 15% is my hurdle to act. So, I am fine with owning this.

[ItsAValueTrap]

The subprime industry is very tough and very cyclical.  I don't think it's reasonable to expect Nick to earn 12-15% ROE unless you really like management.  Management recently changed.  There are things about the current management that I don't like.  They've been increasing their loan volumes when they should probably decrease them a bit like what Credit Acceptance is doing.

 

Their latest press release is bizarre.  It says that they are thinking about expanding (presumably this requires an investment of capital) and thinking about returning capital to shareholders.  Well... the board of directors clearly haven't made up their minds about anything and released a fairly useless press release.  They don't strike me as the sharpest knives in the drawer.

 

[rishig]

The subprime industry is very tough and very cyclical.  I don't think it's reasonable to expect Nick to earn 12-15% ROE unless you really like management.  Management recently changed.  There are things about the current management that I don't like.  They've been increasing their loan volumes when they should probably decrease them a bit like what Credit Acceptance is doing.

 

Their latest press release is bizarre.  It says that they are thinking about expanding (presumably this requires an investment of capital) and thinking about returning capital to shareholders.  Well... the board of directors clearly haven't made up their minds about anything and released a fairly useless press release.  They don't strike me as the sharpest knives in the drawer.

 

When Vosotas was at helm, they did >13% in all years in the last decade other than 2009. Within their lending model, they build two levels of protection. The first one is the discount to face value when they acquire loans from dealers. The second one is in the loan reserves. I see that loan loss reserves as % of avg finance receivables has been going up.  I have followed the subprime auto industry through my ownership of Leucadia for over a decade, so I quite understand that this industry can be brutal. Leucadia first owned a subprime auto company in the late 90s and then they got out. Then, they again purchased Americredit.

 

I hear you though. Things may very well have changed with Vosotas out. I'll try to get a call with the CFO to understand really if the philosophy has changed.

[no_thanks]

http://finance.yahoo.com/news/nicholas-financial-inc-announces-intention-223500861.html

 

Nicholas Financial, Inc. Announces Intention to Commence Modified Dutch Auction Tender Offer

Nicholas Financial, Inc.

3 hours ago

GlobeNewswire



CLEARWATER, Fla., Dec. 22, 2014 (GLOBE NEWSWIRE) -- Nicholas Financial, Inc. (NICK) (the "Company") today announced that it expects to commence within 30 days of this announcement a "modified Dutch auction" tender offer (the "Tender Offer") to repurchase a number of its outstanding Common shares not to exceed an aggregate purchase price of $70.0 million. In accordance with rules of the Securities and Exchange Commission (the "SEC"), the Company may increase the number of shares accepted for payment in the offer by no more than 2 percent of the outstanding shares without amending or extending the tender offer.

 

The Tender Offer will allow shareholders to indicate how many shares and at what price within the Company's specified range they wish to tender. The Company will select the lowest single per-share purchase price that will allow it to buy up to $70.0 million of its outstanding Common shares at the completion of the Tender Offer. The specified range is expected to be $14.60 to $15.60 per share. All Common shares purchased by the Company in the Tender Offer will be purchased at the same price and will be cancelled. The Company will not purchase shares below a shareholder's indicated price, and in some cases, the Company may purchase shares at a price that is above a shareholder's indicated price under the terms of the Tender Offer.

 

The Tender Offer will be conditioned upon a minimum of $50.0 million of the Company's outstanding Common shares being tendered, as well as other customary conditions that will be described in the Tender Offer documents. The offer to purchase and related Tender Offer documents, which will be distributed to shareholders upon commencement of the Tender Offer, will also contain tendering instructions and a complete explanation of the Tender Offer's terms and conditions.

 

None of the Company, its board of directors or its agents is or will be making any recommendation to shareholders as to whether to tender or refrain from tendering their Common shares into the Tender Offer. Shareholders must decide whether to tender their shares and, if so, how many shares to tender and at what price or prices. In doing so, shareholders should carefully evaluate all of the information in the Tender Offer documents, when available, before making any decision with respect to the Tender Offer, and should consult their own financial and tax advisors.

 

Ralph Finkenbrink, the Company's President and Chief Executive Officer, has advised the Company that he expects to participate in the tender offer.

 

Important Information Regarding the Expected Tender Offer

 

This press release is for informational purposes only and is neither an offer to buy nor the solicitation of an offer to sell any of the Company's Common shares. The expected Tender Offer described in this press release has not yet commenced, and there can be no assurances that the Company will commence the Tender Offer on the terms and conditions described in this press release or at all. If the Company commences the Tender Offer, the solicitation and offer to buy the Company's Common shares will only be made pursuant to the offer to purchase and related Tender Offer documents, which are currently expected to be distributed to shareholders within thirty days of the date of this press release. Shareholders will be able to obtain copies of the offer to purchase and related Tender Offer documents when available without charge through the SEC's website at www.sec.gov or from the Company's information agent in connection with the Tender Offer. The offer to purchase and related Tender Offer documents will contain important information, and shareholders are urged to carefully read these materials, when available, prior to making any decision with respect to the offer.

 

Forward-Looking Statements

 

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our expected Tender Offer and the related terms and conditions of the Tender Offer. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual events to differ materially from those described in the forward-looking statements. Other potential risk factors that could affect the Company's business, results of operations and financial condition are described from time to time in the Company's Reports on Forms 8-K, 10-Q and 10-K and other filings with the SEC. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to the Company as of the date they are made. The Company assumes no obligation to update any forward-looking statements, except as may be required by law.

 

 

Contact:

Katie L. MacGillivary

Vice President, CFO

Ph # 727-726-0763

[WeiChiLoh]

Has anyone been following this company? Seems like a very interesting special situation-ish company.

The company recently closed a dutch tender, reducing its share count by 38%. Note that 80% of shares were tendered, and combined with the thin liquidity (average daily volume of ~50k), this seems to be the perfect setup for non-fundamental selling, as event-driven guys sell.

This company seems to have all three characteristic of a value investment, unloved (subprime auto lending), unknown (50k average daily volume, adjusted market cap < $100m) and special situation (dutch tender).

 

Now to the interesting part, valuation.

 

The Dec 2014 10Q shows NICK has $155m in tangible capital. Since the company drew $70m from its credit lines for the tender, the new tangible capital is $85m ($155m - $70m).

Pre-tender, the company had 12.3m in share outstanding. Post-tender, 4.7m share were bought back ($70m/$14.86 per share), leaving the new share out 7.7m.

Currently trading @ $12.64 would mean that the P/TBV of this company is ~1.15x.

 

Downside seems pretty protected. It is interesting to know that the company recently rejected a $16 offer for the company.

 

Now, lets talk about the UPSIDE. Always exciting to talk about the upside.

 

Over the LTM, the company generated $15.9m in net income, which includes a non-tax-deductible (although it can be deducted in the later period) $1m professional fees. This fees are the fees relating to the potential sale of the business. This means the adjusted net income of this business is $16.9m or $2.20 per share ($16.9m/7.7m).

MEANING, this company is trading at 5.75x P/E. Run rate margin is approximately at average margin. So normalized P/E should be around the area too.

 

While I like to use comparable (CACC trading at 17x P/E), i think the business economics is just too different. NICK seems to have a more stringent underwriting threshold, combining quantitative factors (like most auto lenders do) and qualitative factors (interviewing the applicant). The result is a slower growth rate, as compared to CACC, but a more stable net profit margin (CACC STDEV % AVG is ~48%, compared to NICK's 20%). The company has never made a loss in its reported history.

 

Thoughts?

 

 

[JRH]

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/nicholas-financial-(nick)-6897/

[WeiChiLoh]

Has anyone been following this company? Seems like a very interesting special situation-ish company.

The company recently closed a dutch tender, reducing its share count by 38%. Note that 80% of shares were tendered, and combined with the thin liquidity (average daily volume of ~50k), this seems to be the perfect setup for non-fundamental selling, as event-driven guys sell.

This company seems to have all three characteristic of a value investment, unloved (subprime auto lending), unknown (50k average daily volume, adjusted market cap < $100m) and special situation (dutch tender).

 

Now to the interesting part, valuation.

 

The Dec 2014 10Q shows NICK has $155m in tangible capital. Since the company drew $70m from its credit lines for the tender, the new tangible capital is $85m ($155m - $70m).

Pre-tender, the company had 12.3m in share outstanding. Post-tender, 4.7m share were bought back ($70m/$14.86 per share), leaving the new share out 7.7m.

Currently trading @ $12.64 would mean that the P/TBV of this company is ~1.15x.

 

Downside seems pretty protected. It is interesting to know that the company recently rejected a $16 offer for the company.

 

Now, lets talk about the UPSIDE. Always exciting to talk about the upside.

 

Over the LTM, the company generated $15.9m in net income, which includes a non-tax-deductible (although it can be deducted in the later period) $1m professional fees. This fees are the fees relating to the potential sale of the business. This means the adjusted net income of this business is $16.9m or $2.20 per share ($16.9m/7.7m).

MEANING, this company is trading at 5.75x P/E. Run rate margin is approximately at average margin. So normalized P/E should be around the area too.

 

While I like to use comparable (CACC trading at 17x P/E), i think the business economics is just too different. NICK seems to have a more stringent underwriting threshold, combining quantitative factors (like most auto lenders do) and qualitative factors (interviewing the applicant). The result is a slower growth rate, as compared to CACC, but a more stable net profit margin (CACC STDEV % AVG is ~48%, compared to NICK's 20%). The company has never made a loss in its reported history.

 

Thoughts?

 

Sorry! I made a small mistake, I forgotten to take into account of the new interest expenses relating to the tender. $70m @ 4% interest rate (300bps + Libor or 1%, whichever is higher) = $2.8m. The after tax cost should be ~ $1.7m, making adjusted net income $15.2m, or a P/E of 6.4x.

[WeiChiLoh]

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/nicholas-financial-(nick)-6897/

 

Why isnt there a follow up after the tender? Some people seem to believe that the company is undervalued to the $16 offer, the tender would have make this company even more attractive than what it was.

[HJ]

Agreed on the facts, and I bought some after the tender. 

 

The biggest thing that gives me pause to buying more is that with all the things going on last couple of years, a failed sale to Prospect, a Dutch Auction Tender Offer designed to get certain major share holder out, in conjunction with Peter Vostas' retirement, there seem to be somewhat of a lack of direction at the company going forward.  Will they run a permanently more levered balance sheet, and continue to tender ala Credit Acceptance?  Or is this sort of it, and they will de-lever going forward?  Are they still trying to sell themselves or has a more permanent shareholder base been found, who maybe able to provide some kind of backstop if funding environment changes?  The last annual report they posted on their IR website, for example, is from 2012.  How is the company doing operationally with the senior management quite distracted over the last couple of years?  They seem to be expanding operation, and in the land of subprime it could be somewhat of a dangerous combination to have expanding operation, and an unfocused management. 

 

The second thing to ponder is, at this particular moment in the consumer credit cycle, how much above book value do you really want to pay for this sort of deep subprime lending.  You are, afterall, still at above book. 

 

All this said, I agree, statistically it's quite cheap.

[WeiChiLoh]

Agreed on the facts, and I bought some after the tender. 

 

The biggest thing that gives me pause to buying more is that with all the things going on last couple of years, a failed sale to Prospect, a Dutch Auction Tender Offer designed to get certain major share holder out, in conjunction with Peter Vostas' retirement, there seem to be somewhat of a lack of direction at the company going forward.  Will they run a permanently more levered balance sheet, and continue to tender ala Credit Acceptance?  Or is this sort of it, and they will de-lever going forward?  Are they still trying to sell themselves or has a more permanent shareholder base been found, who maybe able to provide some kind of backstop if funding environment changes?  The last annual report they posted on their IR website, for example, is from 2012.  How is the company doing operationally with the senior management quite distracted over the last couple of years?  They seem to be expanding operation, and in the land of subprime it could be somewhat of a dangerous combination to have expanding operation, and an unfocused management. 

 

The second thing to ponder is, at this particular moment in the consumer credit cycle, how much above book value do you really want to pay for this sort of deep subprime lending.  You are, afterall, still at above book. 

 

All this said, I agree, statistically it's quite cheap.

 

Interesting. Do you think a pair trade would work better here? Long NICK - Short CACC, to hedge out the credit cycle risk, probably a bad idea. I didnt consider that...an unfocused management team could be dangerous...especially since Peter Vostas is out. However, I take comfort in the fact that in even 2008 and 2009, pre-tax spread is still positive, at 4%, a little less than half of the current pre-tax spread.

Also, regarding the consumer credit cycle, is NICK really at peak earnings? Its pre-tax spread is quite low at <9%. There were years where its pre-tax spread was 13%-15%, and even in the credit bust, spread was 4%-7%.

[HJ]

Interesting. Do you think a pair trade would work better here? Long NICK - Short CACC, to hedge out the credit cycle risk, probably a bad idea. I didnt consider that...an unfocused management team could be dangerous...especially since Peter Vostas is out. However, I take comfort in the fact that in even 2008 and 2009, pre-tax spread is still positive, at 4%, a little less than half of the current pre-tax spread.

Also, regarding the consumer credit cycle, is NICK really at peak earnings? Its pre-tax spread is quite low at <9%. There were years where its pre-tax spread was 13%-15%, and even in the credit bust, spread was 4%-7%.

I never liked pair trade much, especially not on small, iliquid stocks.  I actually think it's quite dangerous.

On earnings, these certainly are peak earnings.  Historically wide NIM at historically low (even though higher than recent past) chargeoff's.  The high pro-forma ROE will also be delivered against historically high leverage (copmared with the company's own history).    That said, if one believes in a sort of grinding it through kind of macro environment, it may work out just fine. 

The other thing to think about is how the company is financed.  They took on $70MM incremental debt, so pro-forma, it's something like 200MM debt against $282MM last reported finance receivables, almost 70% advance rate.  While I'm no Asset Based Lending expert, I have to imagine that it's cutting awfully close to the bank's limit in how much they would lend.  They had better be very comfortable with the portfolio that they currently have.  Small slip ups could cause them financing issues, let alone growth aspirations.  The high ROE will be accomplished with a significantly riskier balance sheet posture. 

That's why I think one needs to have a much better understanding in the nature of new equity sponsorship and direction of the company going forward before making a judgement.  In deep subprime, things could fall apart very quickly.