First Investors sold as private equity snaps up another subprime lender

Private-equity group Aquiline Capital Partners in New York has agreed to acquire Houston-based First Investors Financial Services, an independent, subprime auto lender, in a $100 million deal.

The buyout is part of a trend in which private-equity firms are investing in subprime auto lending.

Dealers shouldn’t notice any disruption because the lender’s management team will remain intact, Bennie Duck, CFO of First Investors, wrote in an e-mail last week. That includes CEO Tommy Moore Jr., who co-founded First Investors in 1988, Duck said.

Aquiline agreed to acquire all First Investors shares for $100 million, the companies said in a Sept. 26 statement. Duck said the agreement is subject to shareholder and regulatory approval.

First Investors has been in growth mode. The lender is active in 36 states, up from only 10 in 2008, the company said in its annual report for the fiscal year ended April 30. It had 1,117 active dealership agreements, nearly double what it had in the previous fiscal year.

Most of First Investors’ auto loan originations are from the South and Midwest, Duck said last spring. He said First Investors’ indirect loans are all via franchised, new-car dealerships.

Analysts have said that private-equity funds and other investors have poured money into subprime auto lending because subprime auto loans performed well through the latest recession and because delinquencies and losses for bad loans remain at or near historic lows.

In a much bigger example of private-equity investment, funds affiliated with Warburg Pincus, Kohlberg Kravis Roberts & Co. and Centerbridge Partners bought 25 percent of Dallas-based Santander Consumer USA last year for $1 billion.