Arcadia Removed from RatingAlert Negative; Sr Debt Lowered.NEW YORK--(BUSINESS WIRE)--Sept. 14, 1999-- The senior debt rating of Arcadia Financial Ltd. has been lowered to `B' from `B+' and removed from RatingAlert negative where it was originally placed on July 23, 1998 by Fitch IBCA IBCA International Braille Chess Association IBCA Institute of Burial and Cremation Administration IBCA Integrated Business Communications Alliance IBCA International Barbeque Cookers Association IBCA Department of Interior Board of Contract Appeals . Approximately $367 million in outstanding senior debt is affected. The rating downgrade reflects the company's: low risk-adjusted capital; reliance on warehouse lines, securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. , and other secured funding vehicles; negative, albeit improving, cash flow position; and a relatively narrow business mix focused on financing for subprime automobile customers. These weaknesses are offset by an improvement in Arcadia's operating performance, which has been enhanced by centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. risk management systems and the implementation of a risk-based credit scoring Credit scoring A statistical technique that combines several financial characteristics to form a single score to represent a customer's creditworthiness. model, lower static pool delinquency and loss rates, and slower receivable growth. To fund its ongoing operations, Arcadia pursues capital raising initiatives from time to time. The completion of any such initiative, if significant, would be viewed positively from a ratings perspective, since a potential infusion would help bolster Arcadia's risk-adjusted capital. There is no guarantee at this time that the company will be successful in any such activity. Fitch IBCA assigns a significant capital charge to Arcadia's residual assets Residual assets Assets that remain after sufficient assets are dedicated to meet all senior debtholders' claims in full. related to its securitizations. The company's residual assets totaled $637 million or 2.79 times total equity at June 30, 1999. As with many others in their industry, Arcadia relies on securitization and other secured funding vehicles which hampers financial flexibility particularly as it relates to cash flow. This concern is likely to continue over the intermediate term. This concern is tempered by Arcadia's demonstrable improvements in operations due to slower growth, higher risk-adjusted returns Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. and lower loss experience. These positive trends are expected to continue and lead to better performance in the company's securitization trusts and increased levels of operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. in the future. Notwithstanding, financing requirements will remain important over the near term. Arcadia is a Minneapolis-based subprime automobile consumer finance company, that purchases, sells, and services retail installment contracts for new and used automobiles originated in 45 states. The company had managed receivables of $5.2 billion at June 30, 1999. |
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