2 fronts where $100M facility helps Pelican Auto Finance

To hear Pelican Auto Finance chief executive officer Troy Cavallaro explain the impact, the $100 million warehouse funding facility with Wells Fargo Securities the company announced on Wednesday will help the deep subprime auto finance provider in two places.

The facility represents Pelican’s chance to advance both on Wall Street as well as dealerships that often gather along major thoroughfares in the markets within the 30 states the company is licensed.

In a conversation with SubPrime Auto Finance News, Cavallaro indicated how Pelican has been working on this deal with Wells Fargo “for a few months” as a way to enhance a previous senior debt facility.

“With the growth that’s underway, we were looking at the next step,” he said. “I think Wells Fargo certainly is that. We’re looking at it from a rising interest rate environment. The potential access to the securitization market becomes more attractive.

“The Fed is obviously on course to raise rates at some point, whether it be in September or later this year. I think locking in and having the potential to securitize is very important,” Cavallaro continued.

“With that, Wells Fargo and their group of professionals have enormous experience with bringing deals to market and providing these warehouse facilities as a major force in the industry,” he went on to say. “That’s really why we chose them because they have the great reputation and what they can do for us in the long term with securitization and advisement can go a long way.”

Furthermore, with the funding injection, Cavallaro highlighted Pelican now can offer another way to reduce the number of times this scenario unfolds, especially at franchised dealerships. Imagine a customer who is eager to buy a vehicle or really needs upgraded transportation but their credit score is in the 500s so the store can’t get the deal bought by its collection of financing sources.

Now Pelican has the capacity to fund originations at 60 months and 66 months depending on the quality of the vehicle collateral.

“For franchised dealers, we’re going to allow them the opportunity to finance customers who are probably walking off their dealership lots today,” Cavallaro said.

About 90 percent of Pelican’s volume resides in indirect auto financing at both franchised and independent stores. But the development with Wells Fargo also is giving Pelican a lever to pull within a smaller part of its business, too, working with buy-here, pay-here dealers.

“We continue to work selectively with the buy-here, pay-here dealers,” Cavallaro said. “We’re looking for something different than being a traditional bulk purchase buyer. What we really seek out in the industry is buy-here, pay-here partners that want to build a relationship and sell seasoned paper from their portfolios on a monthly basis to replenish their credit lines. Our current book of business from buy-here, pay-here partner dealers is unique in terms that the performance allows us flexibility to structure and be creative with them.

“It’s not a traditional bulk purchase platform. It’s more of a partner platform, and hence, that’s why we call it that,” he went on to say.

The upward trajectory for all segments of Pelican’s business as well as the relationship with Wells Fargo also delighted the leadership of Flexpoint Ford, a private equity investment firm with offices in Chicago and New York that pushed its resources behind Pelican two years ago.

“Pelican is building a best-in-class subprime auto finance platform through a focus on high customer service standards. We remain extremely excited about our partnership with Troy and his team,” Flexpoint Ford managing director Chuck Glew said.

“The new Wells Fargo credit facility will allow the company to offer a more complete lending solution to dealers and will support further geographic expansion,” Glew continued.

Now with this warehouse funding milestone achieved, Cavallaro is eager to watch what happens as Pelican strives to be “a major, long-term player in the deep subprime auto finance space.”

He added, “We really have the runway in terms of financial backing that we need for the disciplined growth that’s in front of us.”