DriveTime Sale to Investor Group Screeches to a Halt

DriveTime called off its recently announced sale to a group of investors last week citing “certain unsatisfied conditions” to closing the deal.

In a regulatory filing, the Phoenix-based lender to consumers with low subprime credit scores said that talks to save the sale ended without a concrete outcome. DriveTime and the proposed purchasers, it said in the filing, could continue alternative discussions on the transaction.

This DriveTime deal was one of a handful in the subprime space the past two years. Private-equity firms and asset-backed-securities investors have increased demand for subprime loans following the Federal Reserve’s interest rate policy cutting yields across bond markets. Though subprime loan delinquencies are starting to rise following a low period, they’ve been good investments because of their high rates.

According to DriveTime’s September SEC filing, its sale was subjected to the closing of an offer to repurchase $200 million of senior debt. Under the initial terms, investors would have assumed the debt and pay about $700 million to DriveTime shareholders and a unit. Twice — in October and November — the company extended the expiration date of a bond tender offer, which was dismissed with the scheduled sale.

The DriveTime deal would have included the sale of its loan portfolio to Santander Consumer USA.