Mel's new adventure.

Farr ventures into the asset-backed securities arena

Hope is now in the driver's seat, thanks to some Wall Street capital, a not-so-subtle push by the Rev. Jesse Jackson and the business acumen of Mel Farr.

Last September, Triple M Financing Co., the lending arm of the Mel Farr Automotive Group, blazed a trail in the asset-backed securities market. The company sold $36.5 million in asset-backed bonds through co-managers Banc of America Securities and Union Bank of California. In addition to lead investor Bank of America, other investors included Ford Motor Credit, Bank One, TIAA-CREF, Citibank and Goldman Sachs. The deal was rated BBB by Chicago-based rating company Duff & Phelps.

Though asset-backed securities are familiar turf to African American banks and savings and loans, Farr is one of the first African Americans with his own finance company in the auto receivables portion of the market.

In part, the funds from this deal will enable the Oak Park Michigan, domestic and import auto dealer to bridge a "transportation gap" by enabling inner-city residents to travel to suburban jobs. Employing a computerized on-board device and software that disables an automobile's starter if weekly payments aren't logged on time, Farr will sell used cars to urbanites immobilized by poor credit.

Farr is unique in that few African Americans have tapped into the securitization market, much less own a finance company to originate investment-grade assets. Triple M, in business 13 years, boasts $50 million in loans outstanding. Farr's auto dealership, ranked No. 1 on the BE AUTO DEALER 100 LIST, reported $596.6 million in sales in 1998.

Low-end securitizations start above $30 million. Finance companies sell institutional investors their "paper," loans backed by tangible assets of similar type, such as automobiles, houses or office equipment. Investors scrutinize the soundness of the expected stream of future cash flow to determine if it will continue after they purchase it.

"To qualify for this market, Mr. Farr has produced an asset that has a predictable cash flow and credit characteristics that the market will purchase and believe in," says Frederick O. Terrell, managing partner and CEO of Provender Capital Group L.L.C., a private equity investment firm focusing on financial institutions and consumer-related industries. "He's enhanced the credit perspective by the innovative approach he's taken with technology. That's what really separates him from others. He has addressed credits that may be more prone to be delinquent and created a way to mitigate losses."

"There are a lot of positions on a company's balance sheet, and there are many ways that a company can receive financing that may have a very different set of realities, as opposed to the old traditional bank loan," says Henry Givens, Bank of America (BOA) senior vice president and national director for commercial business development within BOA's Professional African American Banking Group. "I would hope more minority-owned companies would start to put in a call to folks like myself to see if those kinds of alternatives are, in fact, for them and their companies."

The deal couldn't have been done, Farr says, without help from Jackson. Besides challenging bankers for access to capital at last January's Wall Street Project conference, Jackson and Farr met directly with the presidents of the institutions that eventually invested.

"If my portfolio performs the way we think it will perform," says Farr, "it would give me access to that capital to grow my finance company, which would enable me to grow the dealerships in the urban marketplace to provide basic transportation to the urban dweller."

Expansion in Detroit will precede used-car superstores in the nation's top 20 markets. Survival of these new businesses will challenge even Farr's ingenuity. Serving used-car buyers with marginal credit, he pays double the interest for capital, as do competitors such as GMAC, asserts Jackson, so customers bear higher dealer charges and pay triple the mainstream auto insurance rate. Jackie Robinson desegregated baseball, and Farr may integrate capital access.

"This can be duplicated," says Jackson, president of the Rainbow/PUSH Coalition and the Wall Street Project. "We will keep pushing doors open to the vaults." Capital is like oxygen, and while helping make welfare-to-work a reality, Mel Farr could make plenty of money resuscitating an urban market suffocated by lack of credit.