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Subprime Auto Dealer America’s Car-Mart Seeks Rescue Funds
Company Also Began Laying Groundwork for a Potential Chapter 11 Filing
Key Takeaways:
- America’s Car-Mart sought at least $500 million in rescue financing as it faced a cash crunch and potential default, people familiar with the matter said.
- The subprime auto lender is under pressure from high inflation, rising interest rates and about 6% delinquency rates among lower credit borrowers, according to Fitch Ratings.
- The company is evaluating options including a Chapter 11 filing as it operates under forbearance through June 12 while negotiations with lenders continue.
America’s Car-Mart Inc., a used car seller and subprime lender, is working on an eleventh-hour capital raise to stave off a potential bankruptcy filing after a cash crunch put the company on the verge of default, according to people familiar with the matter.
The company’s banker, Houlihan Lokey Inc., has been reaching out to investors to gauge interest in providing at least $500 million of fresh capital, said one of the people, asking not to be identified discussing a private matter. The new money would be used to help the troubled borrower plug a liquidity gap and repay existing lenders, the people said.
Separately, the company began laying the groundwork for a potential Chapter 11 filing, the people said, as it operates under an extended forbearance through June 12 with lenders. The reprieve is tied to anticipated covenant breaches under the company’s debt documents, a regulatory filing shows.
In October, the company obtained a $300 million term loan from Silver Point Capital LP to repay its asset-backed line of credit. In a filing last week it said it was close to defaulting because it lacks sufficient liquidity and collateral.
Discussions around the rescue loan are ongoing, the company is looking at a number of options and no final decision has been made, the people familiar with the matter said.
Representatives for America’s Car-Mart, Houlihan Lokey and Silver Point declined to comment.
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America’s Car-Mart’s stock plunged 68% on June 10 to $1.67, the lowest since it went public in 1992. Stock reached a peak at around $152 shortly after the pandemic.
Lenders in the subprime auto finance market have been facing tough market conditions. High inflation and interest rates have eaten into the savings of lower credit consumers, undercutting their ability to repay debts. Delinquency rates on car loans to subprime customers are near the highest on record, hovering around 6%, according to Fitch Ratings.
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America’s Car-Mart is one of the best known in the “buy here, pay here“ segment of auto finance, where companies operate their own dealerships and also provide financing to customers in house. The sector caters to “deep” subprime borrowers who often can’t obtain financing elsewhere.
“Buy here, pay here” has also experienced a series of blow-ups in recent years. Two lenders abruptly shut down in 2023 while another — Tricolor Auto Group — filed for liquidation last year after an alleged massive fraud came to light.
