AmeriCredit Corp. F3Q08 (Qtr End 03/31/08) Earnings Call Transcript

AmeriCredit Corp. (ACF)

F3Q08 Earnings Call

April 24, 2008 5:30 pm ET

Executives

Daniel Berce - President and Chief Executive Officer

Chris Choate - Executive Vice President, Chief Financial Officer and Treasurer

Steven Bowman - Executive Vice President, Chief Credit and Risk Officer

Mark Floyd - Executive Vice President, Co-Chief Operating Officer

Preston Miller - Executive Vice President, Co-Chief Operating Officer

Caitlin DeYoung – Vice President, Investor Relations

Analysts

John Hecht – JMP Securities

Chris Brendler – Stifel, Nicolaus & Co.

Carl Drake – SunTrust Robinson Humphrey

Robert Napoli – Piper Jaffray & Co.

Sameer Gokhale – Keefe, Bruyette & Woods

Scott Valentin – Friedman, Billings, Ramsey & Co.

Daniel Furtado – Jeffries & Co.

Presentation

Operator

Good afternoon. My name is Kevin and I’ll be your conference facilitator today. At this time I would like to welcome everyone to the AmeriCredit third quarter fiscal year 2008 earnings conference call. This call is being recorded. All lines have been placed on mute to prevent any background noise. After management’s remarks there will be a question-and-answer period.

I will now turn the call over to Caitlin DeYoung, Vice President Investor Relations. Please go ahead, Ma’am.

Caitlin DeYoung

Thank you Kevin. Good afternoon and welcome to AmeriCredit’s third quarter fiscal year 2008 conference call. With me today are Dan Berce, President and CEO and Chris Choate, Chief Financial Officer.

Also joining us are Steven Bowman, Chief Credit and Risk Officer and Co-Chief Operating Officer’s, Mark Floyd and Preston Miller.

Before we proceed I must remind everyone that the topics we will discuss during today’s call will include forward-looking statements that will involve risks and uncertainties detailed in the Company’s filings and reports with the Securities and Exchange Commission including the annual report on form 10K for the year ended June 30, 2007. Forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. Actual results and events may differ materially. We will be posting a transcript of the prepared remarks to our Web site shortly after we conclude today’s call.

I will now turn the call over to Dan Berce.

Dan?

Daniel Berce

Thank you, Caitlin. As you have seen from our earnings release earlier today we earned $38 million dollars during the quarter, or $0.31 cents per share. During the March quarter we saw some seasonal improvement in our portfolio from the weak credit performance we experienced during the December quarter.

However, on a year-over-year basis credit performance is still considerably worse. On the capital markets front last week we announced that we entered into a $2 billion dollar forward purchase agreement with Deutsche Bank. This is a positive step in strengthening our ability to access the securitization market.

Nonetheless, in order to conserve liquidity, manage our warehouse line capacity and deal with weak consumer credit, we have further reduced our origination levels. In our prepared remarks today, I will cover our portfolio credit performance and our outlook for future credit performance.

I will also discuss in detail the steps we have taken to lower originations and tighten credit and our operating strategies for managing our business through this challenging environment. Chris will then provide you with an update on funding, liquidity and the capital markets.

Now, starting with credit. For the March quarter credit results followed normal seasonal trends. Net credit losses declined to 6.6% from 6.9% for the December quarter but were up from 4.6% a year ago.

31 to 60 day delinquencies were 5.3% at March 31, 2008, compared to 6.8% last year and 4.1% a year ago. Accounts greater than 60 days delinquent were 2.3% at the end of the quarter compared to 3% at December 31, 2007 and 1.5% last year.

Although credit results showed some seasonal improvement on a sequential basis, overall credit performance remained soft. Generally weak economic conditions including higher unemployment and underemployment and increased inflationary pressures continue to strain our consumer base.

Additionally, we are still seeing pressure in our portfolio in certain geographic regions such as Florida and Southern California.

We experienced lower used car pricing than we typically see in the March quarter due to decreased consumer vehicle demand. Recovery rates remained stable at 44% for the March quarter compared to the December quarter and decreased from 50% a year ago.

For the June quarter we expect to see some modest seasonal improvement in credit loss rates before experiencing the normal seasonal decline in the second half of the calendar year.

Over the remainder of calendar year 2008 we forecast net credit losses to fluctuate in the 6 to 7% range assuming the economic environment does not significantly deteriorate further. If the economic slowdown intensifies actual losses will likely be higher than our current forecast.

Beginning in late January, we reduced origination volume by significantly tightening credit through raising minimum cutoff scores, lowering loan-to-value and reigning in other credit parameters. With this credit tightening, our average custom credit score in our core sub-prime originations increased 8 points which had the impact of reducing approval rates to approximately 20% from 30%. Loan-to-value for our sub-prime originations decreased approximately 5 percentage points to 115%.

Because of the credit tightening measures we implemented, we expect loans originated in 2008 to show meaningful improvement in cumulative net losses as compared to the 2006 and 2007 [vintages].

One final note on credit, we implemented our six generation credit scoring models during the March quarter. The new credit scoring models incorporate historical performance from our sub-prime portfolio and as well as the performance of the specialty prime and near-prime portfolios we acquired enabling us to underwrite a full spectrum of credit on one seamless set of scorecards.

Because of the weak consumer credit environment detailed above and the challenging capital markets that Chris will speak to in a few minutes we have reduced our annualized origination run rate to the $3 billion range. We believe that this lower origination level will provide us the flexibility to operate within currently available warehouse capacity and liquidity constraints assuming limited access to the securitization market. While we remain committed to offering a full spectrum of financing options to our key dealer relationships we will continue to evaluate the profitability and efficiency of our existing partnerships and business lines as we manage origination volume.

To this end, we have discontinued new originations in our direct lending and leasing platforms as well as certain partner relationships.

As we have pulled back on originations this past quarter, so have many of our major competitors. This industry wide retrenchment has led to an improved competitive environment which we were able to take advantage of to tighten credit while maintaining loan pricing.

For the remainder of calendar year 2008, we will look to maintain higher credit standards while seeking to incrementally increase pricing and profitability in certain markets and credit ranges.

I will now turn the call over to Chris Choate to discuss our balance sheet and capital and liquidity position.

Chris Choate

Thanks Dan. For the March quarter we earned $38 million, or $0.31 per share. We recorded a provision for loan losses of $251 million or 6.2% of average receivables for the March quarter. The allowance for loan losses was 5.7% at March 31, 2008, compared

to 5.6% at December 31, 2007.

The increase in the allowance for loan losses reflects our expectation that credit performance, including used car values will remain weak through the remainder of the calendar year.

Finally, consistent with our approach in the December quarter our allowance and provision for loan losses does not explicitly assume further deterioration in the economic environment.

Now turning to funding and the capital markets. We had hoped to execute a securitization transaction during the quarter but did not do so given the ongoing uncertainty in the capital markets.

Over the past several weeks there have been some signs of improvement as several prime auto, equipment and credit card securitizations and one sub-prime auto securitization have been completed.

The prime auto securitizations utilized senior subordinated structures with the issuers retaining the subordinated [trenches] either due to lack of demand or pricing considerations.

The sub-prime securitization, while it was wrapped by FSA, was relatively small and was privately placed versus being publicly registered as in our AMCAR securitization program.

So, although the successful completion of these recent deals may evidence improving liquidity in the ABS markets generally and increased investor demand for auto deals specifically, there continues to be uncertainty about effective execution of larger sub-prime issuances under our AMCAR program.

To mitigate our execution risk we entered into a forward purchase agreement with an affiliate of Deutsche Bank whereby Deutsche will purchase at specified spread levels that we consider to generally represent primary issuance market pricing up to $2 billion of AAA rated AMCAR securitization notes that we issue over the next year.

In exchange for this commitment, we paid $20 million in upfront commitment fees and granted Deutsche a warrant to purchase 7.5 million shares of common stock with an exercise price of $12.01. We estimate that we will incur a non-cash charge of approximately $40 to $60 million in connection with the issuance of the warrant which we will recognize ratably as interest expense over the next year.

Although the Deutsche commitment allows for the purchase of AAA notes issued in senior-subordinated structures, we anticipate using the commitment in connection with FSA wrapped securitizations pursuant to the arrangement we have with FSA for $4.5 billion of insurance capacity.

We believe there will be sufficient investor demand for the shorter dated [trenches] in our securitizations but more limited demand for the longer dated [trenches]. Our plan will be to use the Deutsche commitment primarily for the longer dated [trenches] in our securitization transactions in order to leverage this commitment and issue more than $2 billion in total securitization notes.

This will help clear out existing loan inventory on our warehouse lines and free up borrowing capacity. Assuming that we fully utilize Deutsche’s commitment to purchase unsold notes over the next year we will realize marginally profitable returns on loans originated during the back half of calendar 2007.

We should realize significantly better risk adjusted returns on loans originated after the credit tightening that began in late January.

With this forward purchase agreement secured we will work towards executing an AMCAR securitization this quarter. Specific details of the transaction will not be determined until closer to the transaction date. However, due to a reduction of our net spread from an increase in funding costs, we anticipate that initial credit enhancement requirements in our AMCAR securitizations will be in the low 20% range.

Now, turning to existing securitizations. As we mentioned in our January conference call three Long Beach securitizations, 2006 A, 2006 B and 2007 A, breached their level one performance triggers.

As part of our arrangement with FSA we agreed to use excess cash flows from our current FSA insured securitizations to help fund the higher credit enhancement requirements brought on by these trigger breaches.

Through the April distribution date, $37 million of cash otherwise distributable to AmeriCredit was used to fund the higher credit enhancement requirements. We anticipate that we will reach those requirements for our May trust distribution date and will once again be receiving cash distributions from our FSA insured AMCAR securitizations.

We also mentioned in our January earnings call that we were keeping a close watch on the performance of the 2007 2M Apart transaction that we completed in October due to its high concentration of Long Beach collateral.

Earlier this month we entered into an agreement with another of our securitization bond insurers, MBIA, to increase performance triggers in this Apart transaction to provide us more leeway as we continue to experience increased credit pressures in this trust due to the problems we have previously discussed with the Long Beach portfolio.

In return we agreed to provide MBIA with a limited cross collateralization from excess cash generated from securitization transactions insured by MBIA.

In April, $13 million of cash otherwise distributable to AmeriCredit from MBIA insured transactions was used to fund the target credit enhancement for 2007 2M.

We anticipate that it will take an additional two months and $21 million to satisfy the higher credit enhancement requirements in this transaction. As a reminder, once these higher target credit enhancement levels are reached for the FSA and MBIA insured transactions we are not required to utilize excess cash from performing securitizations to fund any increase in total required credit enhancement due to a breach of a performance trigger in the future.

The agreements with FSA and MBIA only support the build of credit enhancement to its target level within a specified time frame and the maintenance of target credit enhancement once it is met. Assuming that the economic environment does not deteriorate further we do not currently expect any additional securitization transactions to breach their performance triggers during the remainder of the calendar year.

Now, turning to liquidity. At March 31, we had $484 million of unrestricted cash down from $567 million at December 31, 2007. This decrease resulted primarily from lower cash distributions from securitizations due to weak credit performance, the cash trapping I just discussed and funding of an additional $24 million of lease originations during the quarter.

With the cash that will begin to accumulate from the run off of our $15.8 billion portfolio, we expect to maintain unrestricted cash in approximately the range of $300 to $400 million throughout the calendar year.

Embedded in our liquidity forecast are the following assumptions: Our origination target for this calendar year will result in run off of our portfolio of approximately $3 billion by December 31. This run off will result in the release to us of approximately 15% in capital supporting these receivables.

Our sub-prime warehouse facilities carry an effective enhancement level of approximately 15%. This enhancement level will increase to the low 20% range at the time of securitization. Accordingly, the net impact of a securitization would be cash usage of approximately 5 to 7%.

Soft consumer credit will continue to result in lower distributions from securitization trusts and higher delinquencies in unsecuritized receivables.

Cash trapping under the limited cross collateralization arrangements with FSA and MBIA will conclude over the next couple of months.

We will be able to access the securitization market and issue at least $2 billion of FSA-wrapped securitization notes by calendar year end.

Warehouse credit facilities that are maturing this year will either be reduced or eliminated.

Finally, we will repay our $200 million convertible notes in November.

We had available warehouse capacity to support an additional $2.5 billion of originations at March 31st. Subsequent to quarters end we amended our prime near-prime warehouse facility to address a potential covenant violation in the facility related to credit losses in our Bay View and Long Beach portfolios.

The size of this facility was reduced to $1.12 billion and the effective advance rate decreased to below 80%. With this amendment we are in compliance with the covenants in all of our warehouse facilities and we have available warehouse capacity to support an additional $2 billion of originations as of today’s conference call.

Our $500 million call facility and the $1.12 billion prime near-prime facility have renewal dates in August and September 2008 respectively. We are having preliminary discussions with our lenders on the renewals of these facilities and anticipate that one or both of these facilities could be reduced in capacity size or even eliminated.

However, with our lower origination targets and the freed up warehouse capacity we should achieve through securitizations supported by the Deutsche commitment we should have sufficient warehouse capacity into calendar 2009.

As we discussed in our January conference call we consolidated and closed several branch offices and implemented various staffing reductions over the March quarter as necessary to align our infrastructure with reduced originations targets.

We also completed the consolidation of the Long Beach underwriting and servicing platform into our own operations. We recognized a charge of $9 million in the quarter related to those activities.

We expect to have some additional staff reductions in the June quarter as we seek to maintain an operating expense ratio in the mid 2% range over time even with a declining portfolio balance.

Shareholder’s equity at quarter-end totaled $1.986 billion. Tangible book value was $15.39 per share at March 31. Managed assets to equity decreased to 8.0 times equity at March 31, 2008, compared to 8.3 times at December 31, 2007. Leverage has decreased and will continue to decrease throughout calendar year 2008 as our portfolio balance declines and we put higher levels of capital support into our financing structures.

I will now turn the call over to Dan for some closing remarks.

Daniel Berce

Thanks, Chris. As you can see from our comments today our access to the capital markets remains constrained and the weakening economic environment is pressuring consumer credit.

In light of these factors we have, by necessity, maintained a short range focus on managing our business to conserve liquidity and protect our franchise until economic conditions improve.

One final note, given the uncertainty affecting key elements of our financial forecast including the timing and funding of future securitization transactions and the volatility in consumer credit performance we are no longer providing earnings guidance.

Instead through our prepared remarks today we have set out our outlook for key performance metrics for our business.

In conclusion, as we continue to navigate through this economic downturn we remain vigilant in monitoring both the credit and capital markets environment and will take further actions, if necessary, to conserve liquidity and protect the long term value of our franchise. The resilience of our business model has been tested over the past several quarters and we are confident that the strength and value of the platform will be affirmed on the other side of this economic cycle.

I will now turn the call back over to Caitlin.

Caitlin DeYoung

Thank you, Dan. As a reminder to everyone we will be posting a transcript of the prepared remarks on our web site shortly after the call. Operator this concludes our prepared remarks and we are ready to open the call for questions.

Question-And-Answer Session

Operator

The question-and-answer session will be conducted electronically. If you would like to ask a question at this time please press *1 on your phone. If you are using a speakerphone please be sure your mute function is turned off to allow your signal to reach our equipment.

Again, it is *1 to ask a question.

We’ll pause for a moment to assemble our roster.

We’ll take our first question from John Hecht of JMP Securities.

John Hecht – JMP Securities

Good afternoon. Thanks for taking my questions. A couple of just modeling questions. The “other income” what does it consist of at this point and should that decline with the declining balance sheet given the constrict of that line item?

Chris Choate

John, “other income” consists mainly of lease income from our lease portfolio as well as investment income at this point, plus late fees and other incremental servicing fees and yes it will decrease as the portfolio declines and if the lease portfolio declines over the next few quarters.

John Hecht – JMP Securities

And are you fully approved for restructuring charges or should we expect any more of those in the coming periods?

Daniel Berce

As I think I noted in my comments we will have some incremental staffing reductions in the June quarter. Beyond that I really couldn’t say and we would expect to see some incremental restructuring charges in the June quarter.

John Hecht – JMP Securities

Okay. Now, moving on to trends. If I recall your pools tend to have peak charge off zones and I think 20-30. So you are able to look back at some of the 2006 pools that were underwritten in the more aggressive era and also are experiencing the effects of the slowing economy, are you seeing some of those pools kind of stabilize as they kind of move through the peak charge off periods?

Chris Choate

John, as you know, first of all credit is pretty seasonal so we certainly experienced an increase in defaults through that November/December into January/February time period. With lower delinquencies this quarter we would expect losses over the next few months in those pools to be less. So it is going to fluctuate seasonal regardless.

John Hecht – JMP Securities

I guess when you compare the static pools to other pools maybe in 2005, and you see the ramp up of charge offs in the key charge off zone and theoretically the stabilization of that, are you seeing similar dynamics occur in some of the earlier 2006 pools yet?

Chris Choate

We are seeing a similar shaped loss curve for 2006 originations compared to 2005 albeit at an elevated loss and default level.

John Hecht – JMP Securities

Okay. And then if you could speak, Chris you mentioned a $40 million accrual over the next four quarters for the warrants you gave Deutsche Bank. What about the $20 million fee? Is that also going to be approved at that $5 million rate over the next four quarters through interest expense?

Chris Choate

Yes, roughly. That is correct.

John Hecht – JMP Securities

And then the last question is, within the context of your securitizations you guys expect, and of course you are going to be pricing considerate, but do you intend to sell subordinates beyond the wrapped portion of the deal?

Daniel Berce

Not at this time do we have any plans to do that.

Chris Choate

At this point our goal would be just to get as I mentioned FSA wrapped transactions effectively executed into the market. At some point down the road we could certainly assess whether there is an opportunity to sell subordinated below those levels.

John Hecht – JMP Securities

So, Chris, they are then the $300-$400 million cash expectations assumes you don’t sell subordinated pieces of the deals?

Chris Choate

That is correct.

John Hecht – JMP Securities

Thanks very much guys.

Operator

We’ll take our next question from Chris Brendler with Stifel.

Chris Brendler – Stifel, Nicolaus & Co.

Hi thanks. I apologize in advance for the background noise. Real quick if you could just talk about the warehouse line and if you could just walk us through where the warehouse line…I thought it was a little bit smaller increase in the quarter in the outstanding…how many loans do you have to pull out of the warehouse line? Is that a concern here? Or are you progressing towards securitization so that will be less of an issue going forward? I’m going to mute my line.

Daniel Berce

Chris…unfortunately you broke up a couple of times so we didn’t really catch the first part of your question so could you say it again?

Chris Brendler – Stifel, Nicolaus & Co.

Sorry, Dan. Thinking about the issue where delinquent loans can’t be funded by the warehouse line and also the warehouse line increase in the quarter was a little bit less than I was expecting. You didn’t do a securitization. You did $1.3 billion in new loans but the warehouse line was only up…less than I was expecting. Is that due to run off or delinquent loans being pulled off the warehouse line?

Daniel Berce

The delta between origination and the warehouse increase is primarily because of run off of the portfolio which simply didn’t securitize during the quarter and it was a fairly sizeable amount of receivables in the line. The run off was fairly significant.

The delinquent receivables that need to be pulled from the line weren’t significantly different during the quarter because we have during the first quarter of course a fair amount of delinquency cure rate. So it is fair to say as many receivables became eligible and ineligible in that quarter.

Chris Brendler – Stifel, Nicolaus & Co.

Okay thank you. Just a quick follow-up…how do most of the loans in the warehouse with the newer originations, how do those run off so quickly if at all if they are fresh originations?

Daniel Berce

Every one of our loans is a monthly pay so from the first month the loan is made there are payments being made. Of which a large amount…

Chris Brendler – Stifel, Nicolaus & Co.

Got ya. It is on prepayment in full it is on amortization.

Daniel Berce

Yeah. There is some full payments but it is mainly just normal amortization.

Chris Brendler – Stifel, Nicolaus & Co.

Thanks.

Operator

We’ll take our next question from Carl Drake of SunTrust Robinson Humphrey.

Carl Drake – SunTrust Robinson Humphrey

Good afternoon. Thank you for the funding plan update. Dan and Chris maybe you could talk about the fact that if you do not actualize the securitization market…I think your plan was $2 billion of securitization transactions by the end of the year but if you do not access the market you still have warehouse line capacity under the new $3 billion reduced origination prime rate?

Chris Choate

Carl we have warehouse capacity that even without accessing the securitization market would carry us several months, perhaps even carry us late into calendar 2008. But with the commitment we have from Deutsche it really gives us a high degree of confidence that we will be able to do at least $2 billion of total securitization notes through the end of the calendar year. As I mentioned in my comments because we believe there will be investor demand at least in the shorter dated [trenches] we think we will be able to issue quite a bit more than that, frankly maybe $3-4 billion which will give us warehouse capacity much deeper into 2009.

Daniel Berce

Carl remember we do have a couple of renewals in the fall, August and September which if they were reduced or even eliminated that would reduce the amount of capacity available on the line. So we really do need to do at least that couple billion of securitizations to make the model work.

Carl Drake – SunTrust Robinson Humphrey

Okay. That is helpful. So it is possible then, I guess depending on the securitization, you may actually eliminate both of those lines?

Daniel Berce

We are working with our lender. That is just something that has to be negotiated.

Carl Drake – SunTrust Robinson Humphrey

What are the balances…do you disclose the balances on those two lines?

Daniel Berce

No. That will be in the Q in the next few weeks.

Carl Drake – SunTrust Robinson Humphrey

Okay. In terms of charge off guidance I believe you said 6-7% for the balance of calendar 2008. Is that a nine month average or a range?

Daniel Berce

That would be more of a range. In other words the June quarter is typically our best in terms of charge offs. It would be at the low end of the range and possibly with a 5 handle. Then the December quarter is the worst and particularly with the seasoning of the portfolio that is going to take place, that could take a low 7 handle very easily. It is not meant to be an average, it is just to give you an idea of where it might fluctuate.

Carl Drake – SunTrust Robinson Humphrey

Okay. Alright. That is helpful. Thank you.

Operator

We’ll take our next question from Robert Napoli of Piper Jaffray & Co.

Robert Napoli – Piper Jaffray & Co.

Good afternoon. Do you expect that through the balance of 2008 with the liquidating the portfolio, I know you are not giving guidance, but do you expect to remain profitable?

Daniel Berce

Yes.

Robert Napoli – Piper Jaffray & Co.

Okay. And I guess is that…does that include the amortization tied to the Deutsche Bank deal?

Daniel Berce

Yeah. We…keep in mind we still have $10 billion plus securitized portfolio that has a pretty decent spread embedded in it which gives us a good annuity of earnings despite the fact that on the securitizations going forward the cost of funds is going to be quite a bit higher.

Robert Napoli – Piper Jaffray & Co.

The funding rate…the origination rate I guess, you said $3 billion annualized rate for the year? So it sounds like from what you originated your originations are going to drop down to about $750 billion in the quarter through the balance of 2008? A kind of rough estimate?

Chris Choate

Exactly. Of course we did $1.3 billion in the first quarter but we have moved to that run rate you just referenced and we will continue on that run rate for the foreseeable future.

Robert Napoli – Piper Jaffray & Co.

Essentially if you get that securitization done, credit kind of hangs in there and you are liquidating portfolio you can kind of get a run rate on the funding side if you get $2-3 billion of securitizations done…how far into 2009?

Daniel Berce

I mean…in Chris’ remarks he referenced the fact that the Deutsche commitment could be leveraged to really issue quite a bit more securitization notes than just the $2 billion. Because if we market a transaction we believe we can sell much of the shorter dated paper. The three-year paper is the most problematic. We believe we can do several billion of securitization and if we do that and even with some reductions of our credit lines that does get us well into 2009.

Robert Napoli – Piper Jaffray & Co.

Okay. What are you guys seeing on the economic front? What…you’ve seen a number of economic cycles through AmeriCredit. How difficult do you think the economy is? Do you see it getting…you know the payment habits of your customers…is it getting worse? Is it the economy? Is it the aggressive underwriting in the industry that is causing the problems? When you gave your outlook of 6-7% and you say no expectations of worsening in the economy is that because you don’t see it? Or because you just can only work with you saw in this quarter?

Daniel Berce

First of all I don’t believe the industry or AmeriCredit got more aggressive in underwriting in any way, shape or form? Certainly loan terms got a little bit longer, loan to value got a little bit higher. But by no means would I characterize that as aggressive as that term is used in other lending sectors. That being said we experienced a pretty poor December quarter which we pointed to regional economic downturns. I mean Florida was a very poor performer in December. There was some seasonal improvement but it still stands out as being a very weak regional performer in our portfolio. If you look at any statistic in Florida their unemployment rates are going way up. In the Florida MSA’s the rate of increase in unemployment in those MSA’s exceed by far anything in the country. There are other parts of the country which are performing decent. Parts of the mid-west. Even Texas. And performing really not that much different than we might expect. So we really point to the economy and economic conditions as causing a lot of pressure on our portfolio and in specific areas even worse.

Now where things are headed? The poor trends we saw in December didn’t extend into the March quarter. Of course we have seasonality but we are also guardedly optimistic that the rebates that consumers will be receiving in May, June and into the fall will cause a smaller, but important seasonal improvement as well.

Robert Napoli – Piper Jaffray & Co.

Thank you, Dan.

Operator

We’ll take our next question from Sameer Gokhale of KBW.

Sameer Gokhale – Keefe, Bruyette & Woods

Hi thank you. I think most of my questions have been answered at this point. Just a couple of things…quick things. In terms of the provisioning it looks like the dollar amount of provisioning was less than the amount of the actual charge offs in the quarter. I know you are giving commentary in the originations being weaker partly because of the weaker credit environment. Was that dynamic really just because the portfolio shrank a little bit and the reserve ratio actually I think increased? Is that what is going on? Did you guys have some portfolio sales? Is that why the provisioning was slightly below charge offs? Just some color there might help.

Chris Choate

No portfolio sales or dispositions. Really you have to look I think at the provisioning we took in the December quarter as well. We took some fairly significant provisions anticipating that we would have weaker credit performance into 2008 which as we talked about we didn’t see as much seasonal improvement in March as we historically have had. So, the methodology is you get in front of that stuff from a provisioning and reserving perspective which we did in the December quarter. Our allowance at 3/31 is what we expect to be necessary to capture losses inherent in the portfolio over the next several quarters.

Sameer Gokhale – Keefe, Bruyette & Woods

Okay. That is helpful. Another question I have is historically when you looked at recovery rates during periods of economic weakness the thesis was kind of that when the economy weakens used car prices should benefit and maybe last time during the prior recession there was a bit of an anomaly…you had a lot of off-lease cars coming into the market so recovery rates decreased. But this time around we are seeing clear economic weakness and again recovery rates have decreased. Demand [inaudible] falls because demand for used cars has fallen. So is that really not a valid thesis any more? I’m just curious to get your comments on that.

Daniel Berce

I’m not sure there is a thesis on it anymore. Maybe prior to the 2001 and 2003 period you could have said that used car prices strengthened during the downturn. I’m not sure that is the case anymore. There are so many other factors that are involved in used car pricing anymore that every cycle is going to act different. That being said I think we will see softer pricing through the remainder of the year. We’re not looking for a recovery in any way, shape or form. Probably the one thing that is positive though is that the older, higher mileage repo-type car has performed a bit better than the overall market. That is the type of vehicle we sell.

Sameer Gokhale – Keefe, Bruyette & Woods

Okay. Then my last question was you referenced I think credit scores and now you have sort of a unified credit scoring model. But in terms of the mix of originations…is it safe to say you are still doing mostly…emphasizing the sub-prime as your traditional business because that is larger and you just tightened up scores there? Or on a relative basis are you trying to do more of the Bayview Long Beach?

Daniel Berce

We tightened up scores and parameters everywhere. I would say that we would be doing a greater portion of core business in 2008 than we did in the second half of 2007.

Sameer Gokhale – Keefe, Bruyette & Woods

Okay. That is helpful. Thank you very much.

Operator

As a reminder it is *1 if you would like to ask a question.

We’ll take our next question from Scott Valentin of FBR Capital Markets.

Scott Valentin – Friedman, Billings, Ramsey & Co.

Thanks for taking my question and thanks for the funding update. That was really helpful. Regarding the economy you mentioned no deterioration. Is that I guess…assuming unemployment goes up or unemployment stays where it is? I’m just trying to get an idea on what impact unemployment has on credit performance?

Daniel Berce

Again, areas like Florida have experienced very large increases in unemployment so far which has caused portfolio trends to be weak. We are extending trend performance out as we do our forecast. I guess when we talk about things not getting significantly worse the economy could just overall; unemployment, GDP, everything…get a lot worse at which point we would have to reassess our models completely.

Scott Valentin – Friedman, Billings, Ramsey & Co.

Okay. I was just trying to gauge relative to expectations or expectations other people have…relative to what you are experiencing. It sounds like you are kind of the consensus that unemployment will continue to increase throughout the year?

Chris Choate

We’re looking for certainly softer payments period for our consumer base.

Scott Valentin – Friedman, Billings, Ramsey & Co.

Okay. Regarding the stimulus package, your comments are pretty consistent with other peoples as far to quantify what the impact may be. One hopes to have some type of positive impact. Your call, I think 2003 was the last stimulus package. Do you have any idea that would support maybe performance wise the impact on credit?

Daniel Berce

No, we don’t have that with us right now. We could certainly go back. I think it was prior to 2003 but we could certainly look at it.

Scott Valentin – Friedman, Billings, Ramsey & Co.

Okay. Then final question…with regard to [allowance] loan losses, given the portfolio shrinking and origination volumes coming down we are trying to forecast origination levels is there a target level of reserves to loans? Is that one way to think of it?

Chris Choate

No. Again, it is going to depend every quarter based on what our outlook is over the next several quarters for losses. Dan, we have provided the next several quarters worth of our expectations on losses and the allowance we have had this quarter we consider in connection with the allowance we had in December, Scott, to be appropriate to reserve. So, I would expect reserve levels to stay fairly consistent with where they are now. If you give or take 10, 15 or 20 basis points.

Scott Valentin – Friedman, Billings, Ramsey & Co.

Okay. That is helpful. Thank you very much.

Operator

We’ll take our next question from Dan Furtado from Jeffries.

Daniel Furtado – Jeffries & Co.

Hey guys good afternoon. I just have a quick question on the master warehouse facility in regards to covenants [inaudible]. Are there any that you are concerned are going to bump into? Any at all that you are concerned? What I’m really looking for is some comfort that Deutsche doesn’t roll the receivables off of this line into a term structure and then point to some fine print of the documents of the warehouse facility and then try to back out of that facility.

Daniel Berce

Yeah. First of all, maybe to clear up a misconception. The master warehouse is a total $2.5 billion. Deutsche’s total commitment is 10-15% of that. So they are not rolling their receivables they have already financed into another commitment. It is a brand new commitment for Deutsche to a large extent.

Daniel Furtado – Jeffries & Co.

Got ya. So I guess in terms of the covenant then there is really nothing that exists right now that you are overly concerned with on that line?

Daniel Berce

We’re not overly concerned with any particular covenant. If we went into a loss position, a net loss position that was sustained for a couple of quarters. If we lost money in June and September then I’d be concerned.

Daniel Furtado – Jeffries & Co.

Okay. I understand. Thank you for the clarity. I appreciate it.

Operator

And there are no more questions. I will now turn the call over to Caitlin DeYoung for closing remarks.

Caitlin DeYoung

Thank you. This concludes AmeriCredit’s third quarter fiscal 2008 earnings conference call.

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