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S&P Rates Ugly Duckling $200M Shelf B-/CCC; Outlook Stable

2 December 1997

S&P Rates Ugly Duckling $200M Shelf B-/CCC; Outlook Stable

    NEW YORK, Dec. 2 -- Standard & Poor's today assigned its
preliminary single-'B'-minus/triple-'C' ratings to Ugly Duckling Corp.'s
$200 million Rule 415 senior/subordinated shelf registration for debt
securities.
    Standard & Poor's also assigned its single-'B'-minus/single-'B'
counterparty credit ratings to the company.
    The ratings reflect the significant risks associated with the company's
core business, including:
    -- High growth,
    -- Aggressive acquisition strategy,
    -- High loan-to-value loans extended to riskier single-'C' and 'D' rated
       borrowers with troubled credit histories,
    -- Overreliance on securitization as a funding vehicle, and
    -- The need to formalize more extensive underwriting and auditing
       policies and procedures.

    The company took a $6 million after-tax write-down at Sept. 30, 1997,
associated with the decreased effectiveness of collection efforts resulting
from the conversion to a new loan servicing system earlier this year.  Ugly
Duckling is still in need of developing its collections infrastructure and
moving to a more unified servicing platform to support its rapid growth.
    Phoenix, Ariz.-based Ugly Duckling, with $272.3 million in total assets
at Sept. 30, 1997, provides financing to the sub-prime auto market, namely
single-'C' and 'D' borrowers who have limited credit histories, low incomes,
or past credit problems.  Through its fully integrated used car sales and
finance company, Ugly Duckling operates the largest publicly held chain of
"buy here-pay here" used car dealerships in the U.S. providing financing to
'D' credit quality customers who have a blemished credit history.
    Through the Champion Financial Services subsidiary, the company also
provides financing on an indirect basis by purchasing 'C' quality sub-prime
installment contracts from third-party used car dealers through a network of
branch offices in the U.S.  Cygnet Finance provides financing to "buy here-pay
here" third-party dealers who cannot access other forms of credit.

    OUTLOOK: STABLE
    Standard & Poor's believes ratings are unlikely to change in the near
term given the company's short operating history, rapid growth, and recent
equity infusion beginning with its 1996 initial public offering.  Ugly
Duckling is continuing efforts to move to a unified servicing and collections
platform and develop the necessary infrastructure to support growth.  A more
consistent profitable track record and demonstrated resilience through an
economic downturn in addition to more favorable competitive dynamics would be
required before an upgrade would be warranted, Standard & Poor's said.
-- CreditWire

SOURCE  Standard & Poor's CreditWire