Tuesday, Jul. 09, 2013, 01:56 AM UPDATED 2:09 AMBy Auto Remarketing Staff
Santander Consumer USA is going public.
According to documents filed with the Securities and Exchange Commission last week, Santander Consumer USA intends to use the net proceeds received through the $50 million initial public offering for general corporate purposes.
The SEC documents show the majority owner of Santander Consumer USA is Banco Santander, the bank based in Madrid, Spain. Funds managed by Centerbridge Partners, KKR & Co. and Warburg Pincus, own a 25-percent stake in the finance company, while the remaining 10 percent is owned by chief executive officer Thomas Dundon.
Last Wednesday's filing continues a pattern of noteworthy developments associated with Santander Consumer USA during the past 12 months.
Documents posted with the SEC last September showed Santander Consumer USA entered into an agreement to purchase DriveTime Automotive Group through a $700 million transaction, a deal that would have given the finance company a total of 91 dealerships and DriveTime's related finance company, DT Acceptance.
However, two months later, the deal dissolved. DriveTime officials sent notice to the SEC and indicated they made the decision about the selling agreement first reached on Sept. 11 "due to certain unsatisfied conditions to the closings of the transactions contemplated."
Then in January, reports first surfaced that Chrysler Group was going to choose Santander Consumer USA to be its in-house finance company. The relationship eventually did come to be as Chrysler Capital — an entity designed to provide Chrysler, Jeep, Dodge, Ram Truck, SRT and Fiat customers with competitive retail purchase and lease financing and provide wholesale financing and related services to Chrysler Group and Fiat dealers — officially started operating on May 1.
The SEC filing connected with the IPO shed more light on what Santander Consumer USA had to do to get Chrysler Capital up and running and what it needs to accomplish for the domestic OEM.
"In accordance with the terms of the Chrysler agreement, in May 2013 we paid Chrysler a $150 million upfront, nonrefundable payment, which will be amortized over 10 years but would be recognized as expense immediately if the Chrysler agreement is terminated in accordance with its terms," Santander Consumer USA officials said.
"As part of the Chrysler agreement, we received limited exclusivity rights to participate in specified minimum percentages of certain of Chrysler's financing incentive programs, which include loan rate subvention and automotive lease residual support subvention," they continued.
"We have committed to certain revenue sharing arrangements, as well as to considering future revenue sharing opportunities," officials went on to say. "We will bear the risk of loss on loans originated pursuant to the Chrysler Agreement, but Chrysler will share in any residual gains and losses in respect of automotive leases, subject to specific provisions in the Chrysler agreement, including limitations on our participation in gains and losses.
In addition under the Chrysler agreement, Santander Consumer USA indicated that Chrysler has the option to acquire, for fair market value, an equity participation (which may exceed 50 percent) in an operating entity through which the financial services contemplated by the Chrysler agreement are offered and provided, through either an equity interest in the new entity or participation in a joint venture or other similar business relationship or structure.
Furthermore, Santander Consumer USA said it agreed to specific transition milestones for its work for Chrysler Capital, including market penetration rates, approval rates and staffing and service milestones for the initial year following launch.
"If the transition milestones are not met in the first year, the agreement will terminate and we will lose the ability to operate as Chrysler Capital," Santander Consumer USA officials said. "If the transition milestones are met, the Chrysler agreement will have a 10-year term, subject to early termination in certain circumstances, including the failure by either party to comply with certain of their ongoing obligations under the Chrysler agreement."
Santander Consumer USA also mentioned in the IPO filing other conditions that could allow Chrysler to pull the plug on Chrysler Capital, including:
—Failing to meet certain performance metrics, including certain penetration and approval rate targets during the term of the agreement.
—A person other than SHUSA and its affiliates owning 20 percent or more of our common stock and SHUSA owning fewer shares of common stock than such person.
—Become, control, or become controlled by, an OEM that competes with Chrysler.
"The loans and leases originated through Chrysler Capital are expected to provide us with the majority of our projected growth over the next several years," Santander Consumer USA officials said.
"If we are unable to realize the expected benefits of our relationship with Chrysler, or if the Chrysler agreement were to terminate, our ability to generate or grow revenues could be reduced, and we may not be able to implement our business strategy, which would negatively impact our future growth," they continued.
Also of note, Santander Consumer USA indicated that it currently has relationships with more than 14,000 dealerships nationwide, 95 percent of which are franchised stores. The finance company reiterated in the IPO how critical it is to maintain those bonds with dealers in order to stay successful.
"Our ability to acquire loans and automotive leases is reliant on our relationships with automotive dealers. In particular, our automotive finance operations depend in large part upon our ability to establish and maintain relationships with reputable automotive dealers that direct customers to our offices or originate loans at the point-of-sale, which we subsequently purchase," Santander Consumer USA officials said.
"Although we have relationships with certain automotive dealers, none of our relationships are exclusive and some of them are newly established and they may be terminated at any time," officials continued.
"As a result of the recent economic downturn and contraction of credit to both dealers and their customers, there was an increase in dealership closures and our existing dealer base experienced decreased sales and loan volume in the past and may experience decreased sales and loan volume in the future, which may have an adverse effect on our business, results of operations, and financial condition," Santander Consumer USA officials went on to say.