Santander Consumer USA Files for IPO
Santander Consumer USA filed an S-1 with the Securities and Exchange Commission on July 3, in advance of an initial public offering. While the filing does not specify a timeframe for the IPO, the underwriters, or the number of shares to be sold, it discloses net tangible book value as $18.58 per share, as of March 31.
According to a Wall Street Journal article, the offering is planned for the fourth quarter and will seek an $8 billion valuation for the business.
An IPO for Santander Consumer USA, which is majority-owned by Spanish bank Banco Santander, had been rumored to be in the works since late last year.
In February, Santander Consumer USA inked a 10-year deal to become the preferred provider for Chrysler’s retail and commercial financing. In May, SCUSA originated $900 million of Chrysler Capital retail installment contracts, $200 million of Chrysler Capital vehicle leases, and $9 million of Chrysler Capital dealer loans. In all, SCUSA had $16.6 billion of retail installment contracts on its books as of March 31.
SCUSA plans to use proceeds from the IPO to expand its vehicle finance franchise and grow its unsecured consumer lending platform. Here are some specifics, from the S-1:
Organic Growth in Indirect Auto Finance. We have a deep knowledge of consumer behavior across the full credit spectrum and are a key player in the U.S. vehicle finance market. We have the ability to continue to increase our market penetration in the vehicle finance market, subject to attractive market conditions, via the number and depth of our relationships. We plan to achieve this in part through rolling out alliance programs with national vehicle dealer groups and financial institutions, including banks, credit unions, and other lenders, in both the prime and nonprime vehicle finance markets. Our technology-based platform enables us to integrate seamlessly with other originators and thereby benefit from their channels and brands.
Strategic Alliances with OEMs. We plan to expand our existing OEM relationships and develop future relationships with other OEMs to drive incremental origination volume. The loans and leases originated through Chrysler Capital should provide us with the majority of our near-term expected growth. In addition, the experience gained in lease and dealer financing can be applied to improve origination volume through the rest of our dealer base. Our relationship with Chrysler has accelerated our transformation into a full-service vehicle finance company that provides financial products and services to consumers and automotive dealers.
Growth in Direct-to-Consumer Exposure. We are working to further diversify our vehicle finance product offerings by expanding our web-based, direct-to-consumer offerings. Our RoadLoans.com program is a preferred finance resource for many major vehicle shopping websites, including Cars.com, AutoTrader.com, Kelley Blue Book, and eBay Motors. In addition, we are working to integrate our direct-to-consumer offerings with many of the major vehicle brands in the United States, including Chrysler, Jeep, Dodge, Ram, and Fiat. We will continue to focus on securing relationships with additional vehicle-related websites.
Also, in recent months, SCUSA has entered into a number of new relationships. Here’s a sampling, culled from the S-1:
On June 28, 2013, we entered into a flow agreement with Sovereign pursuant to which we will provide Sovereign with the right to review and assess Chrysler dealer lending opportunities and, if Sovereign elects, Sovereign will provide the proposed financing and we will provide the servicing for a fee.
On June 13, 2013, we entered into a committed forward flow agreement with Bank of America, pursuant to which we have the option to sell up to $3 billion of the prime loans that Chrysler Capital originates in 2013, up to $6 billion in 2014, and up to $8 billion in 2015. For loans sold, we will retain the servicing rights at contractually agreed upon rates. We also will receive or pay a servicer performance payment if net credit losses on the sold loans are lower or higher, respectively, than expected net credit losses at the time of sale. These servicer performance payments are not expected to be significant to our total servicing compensation from the forward flow agreement.
In March 2013, we entered into and began purchasing receivables under certain agreements with LendingClub, a peer-to-peer unsecured lending technology company. The agreements allow us to purchase up to 25% of LendingClub’s total originations for a term of three years. LendingClub continues to service the receivables we purchase.
In April 2013, we entered into and began purchasing loans under certain agreements with Bluestem, a retailer that provides unsecured revolving financing to its customers. The terms of the agreements include a commitment by us to purchase certain new advances originated by Bluestem, along with existing balances on accounts with new advances, for an initial term ending in April 2020. Bluestem continues to service the loans we purchase. We also are required to make a profit-sharing payment to Bluestem each month.
In December 2012, we entered into an agreement with a point-of-sale lending technology company that will enable us to review credit applications of certain retail store customers. We expect to begin originating unsecured consumer loans under this agreement during 2013.
Banco Santander owns 65% of Dallas-based SCUSA. Funds managed by Centerbridge Partners LP, KKR & Co., and Warburg Pincus LLC own a 25% stake in the lender, and CEO Thomas Dundon owns the remaining 10%, according to the filing. As of May 31, SCUSA had 3,600 employees. It does business with 14,000 mostly franchise dealers.
