S&L; Seeks U.S. OK for Bond Issue : Western Financial Plans to Restructure Loan Portfolio
Western Financial Savings Bank of Costa Mesa is seeking federal approval for an unusual bond issue that will help it finance a loan portfolio restructuring to meet federal guidelines by the end of the year.
If the $110-million bond issue is approved by the Securities and Exchange Commission, Western Financial plans to use automobile loans to form a pool of collateral, according to Andrey Kosovych, vice president of Drexel Burnham & Lambert Inc., the New York investment banking firm underwriting the issue.
Both principal and interest on the short-term bonds would be paid from the car loan proceeds themselves, said Stephen W. Prough, Western’s president.
The program is similar to more familiar bond or security issues that use home mortgages as collateral.
The announcement came Wednesday as Western Financial reported record profits for the third quarter ended Sept. 30. The S&L; earned $2.77 million for the quarter, more than double last year’s profits of $1.27 million. Western began operating eight years ago as a thrift and loan and converted its offices to state-chartered savings and loans in 1983 and 1984. For the first nine months of the current year, it posted profits of $6.2 million, a 56% increase over $3.97 million in earnings during the same period last year.
Prough said increased lending activity improved interest rates and a generally better economy accounted for the big jump in profits.
The bond issue, Prough said, would be used to finance more real estate lending by Western Financial, which now has a large portion of its assets in auto loans.
The auto loans used for collateral will have an annual yield of about 16 1/2% and will pay investors at a rate slightly above that paid by U.S. Treasury securities, or about 9% to 9 1/2% at current rates.
Prough said he expects approval from the Securities and Exchange Commission sometime in December.
Western Financial plans to sell the bonds in denominations of $10,000, primarily to institutional investors such as pension funds and government agencies.
The first time a pool of automobile loans was used as collateral was in August, when Home Federal Savings & Loan Assn. in San Diego sold an issue of securities, said Home Federal President Robert F. Adelizzi. Home Federal’s securities, however, conveyed ownership interests in the pool, while Western’s bonds do not convey any ownership, Prough said.
When it was a thrift and loan and could invest its assets almost any way it saw fit, Western Financial found its “bread and butter” in automobile loans, Prough said.
But as a savings and loan, he said, “we need to have 60% of our assets in residential loans. We gave ourselves until December to do this.”
Most of the remaining 40% of Western’s assets will remain in auto loans, he said. Currently, he said, about 60% of Western’s $586.3 million in assets are tied up in auto loans.