| ECC Capital Corporation Completes $1.03 Billion Asset-Backed On-Balance Sheet Securitization |
IRVINE, Calif., Aug. 31 /PRNewswire-FirstCall/ -- ECC Capital Corporation (NYSE: ECR), a mortgage finance real estate investment trust (REIT) that originates and invests in residential mortgage loans, announced today the successful completion of a securitization and related offering by Encore Credit Receivables Trust 2005-3. The offering includes approximately $1.03 billion of notes backed by a pool of fixed and adjustable rate, subprime mortgage loans secured by first liens on one-to-four family residential properties transferred to the trust in the securitization. The securitization joint lead managers were Wachovia Capital Markets, LLC and Countrywide Securities Corporation and the co-manager was Credit Suisse First Boston LLC. The notes are offered pursuant to a Prospectus dated July 21, 2005 and Prospectus Supplement dated August 19, 2005. The notes, which will be characterized as debt for both tax and financial reporting purposes by ECC Capital, will represent obligations of Encore Credit Receivables Trust 2005-3, a Delaware statutory trust. ECC Capital intends to use the proceeds from the securitization to provide long-term financing of the mortgage loans and for general corporate purposes. "We are pleased with this latest securitization," said Shabi Asghar, President & Co-CEO of ECC Capital. "This helps build up our total REIT loan portfolio to roughly $3.8 billion."
"When we select the loans that we want to retain in our REIT portfolio
versus the ones we sell into the whole loan market, we evaluate the amount of
net spread we expect to earn on those assets over their life, net of losses
and prepays," said John Kohler, Executive Vice President of ECC Capital. "We
believe this loan pool will exhibit a good combination of credit and
prepayment performance. When we select assets to retain, we also take into
account the overall composition of the REIT's loan portfolio. This most
recent securitization brings the REIT loan portfolio to approximately $3.8
billion of first-lien loans, with an overall WAC of 7.28%, an LTV of 79% and a
FICO of 620."
Class CUSIP Expected Rating Original Spread Coupon
S&P / Moody's Principal
Balance
1-A 29256PAA2 AAA / Aaa 400,000,000.00 24.5 3.91438%
2-A-1 29256PAB0 AAA / Aaa 224,789,000.00 12 3.78938%
2-A-2 29256PAC8 AAA / Aaa 174,088,000.00 27 3.93938%
2-A-3 29256PAD6 AAA / Aaa 14,813,000.00 39 4.05938%
M-1 29256PAE4 AA+ / Aa1 38,600,000.00 47 4.13938%
M-2 29256PAF1 AA+ / Aa2 33,968,000.00 49 4.15938%
M-3 29256PAG9 AA / Aa3 23,160,000.00 51 4.17938%
M-4 29256PAH7 AA- / A1 16,984,000.00 60 4.26938%
M-5 29256PAG3 A+ / A2 17,499,000.00 64 4.30938%
M-6 29256PAK0 A / A3 16,469,000.00 69 4.35938%
M-7 29256PAL8 A- / Baa1 15,955,000.00 117 4.83938%
M-8 29256PAM6 BBB+ / Baa2 12,352,000.00 135 5.01938%
B 29256PAN4 BBB / Baa3 11,323,000.00 180 5.46938%
N 29256PAP9 A- / --- 34,450,000.00 NA 4.94900%
Total 1,034,450,000.00 4.01441%
Collateral Characteristics
UPB: $1,029,339,679
WAC: 7.20%
LTV: 79%
FICO: 621
Fixed Rate: 17%
First Liens: 100%
ECC Capital used an innovative structure in order to maximize the value of the loans to ECC Capital by reducing the cost of funding its interest in the portfolio and generating up-front cash proceeds. "As part of this transaction, we issued what ABS investors would consider the equivalent of an A- rated net interest margin security, but we did it in the context of an on-balance sheet owner trust securitization," said Mr. Kohler. "With the Class N Notes, we were able to monetize approximately $34.5 million of residual cash flow at a 5% yield, which is lower than the implied cost of funding those cash flows with our equity. And in a traditional structure, we would not have received residual cash flow until the required over-collateralization was built up." To hedge against rising interest rates, ECC Capital purchased and deposited into the deal a 54-month amortizing interest rate cap. The initial notional amount of the cap is equal to approximately 80% of the principal balance of the mortgage loans and the cap is struck at 3.67%. "When we evaluate which derivatives to use to hedge our securitization cost of funds, we look both at the individual deal we're working on and our loan portfolio as a whole," Mr. Kohler said. "Both interest rate swaps and interest rate caps provide protection against rising LIBOR. But hedging the portfolio with a combination of swaps and caps gives us some potential for upside if the forward curve 'over-predicts' rates. The primary downside to using interest rate caps has been the upfront premium we have to pay. But by issuing the Class N Notes, we generated sufficient upfront cash proceeds to, among other things, pay that premium and still receive 99.06% cash execution against the mortgage pool principal balance. In addition, by depositing the cap into the securitization trust, we were able to improve the overall economics of the transaction." Copies of the Prospectus and Prospectus Supplement relating to the securitization may be obtained from ECC Capital. About ECC Capital Corporation ECC Capital Corporation, headquartered in Irvine, Calif., is a mortgage finance real estate investment trust (REIT) that originates and invests in residential mortgage loans. Through its wholesale and retail subsidiaries, ECC Capital offers a series of mortgage products to borrowers, with a particular emphasis on "nonconforming" borrowers who generally do not satisfy the credit, collateral, documentation or other standards required by conventional mortgage lenders and loan buyers. ECC Capital is structured to qualify as a REIT by managing a portfolio of nonconforming loans it originates or acquires. As a REIT, ECC Capital's principal business objective is to generate net income for distribution to stockholders from the spread between the interest income on its assets in its portfolio and the costs of capital to finance its acquisition of these assets. Safe Harbor Regarding Forward-Looking Statement Certain statements contained in this press release, including statements relating to the use of funds from the securitization and Mr. Kohler's statements regarding the use of derivatives to hedge the securitization, may be deemed to be forward-looking statements under federal securities laws and ECC Capital intends that those forward-looking statements be subject to the safe-harbor created thereby. Words such as we "believe," "intend," "expect" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties, which could affect ECC Capital's future plans. ECC Capital cautions that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements. These factors include, but are not limited to: (i) the condition of the U.S. economy and financial system, (ii) the interest rate environment, (iii) the stability of residential property values, (iv) the potential effect of new state or federal laws or regulations, (v) the effect of increasing competition, (vi) ECC Capital's ability to implement successfully its growth strategy, (vii) continued availability of credit facilities and access to the securitization markets or other sources of capital, (viii) ECC Capital's ability and the ability of its subsidiaries to operate effectively within the limitations imposed on REITs by federal tax rules, and (ix) other factors and risks discussed in ECC Capital's Form 10-K for the year ended December 31, 2004, which has been filed with the Securities and Exchange Commission on April 8, 2005. You should also be aware that, except as otherwise specified, all information in this news release is as of August 31, 2005. ECC Capital undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in ECC Capital's expectations.
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SOURCE ECC Capital Corporation |