National Auto Credit Announcement
27 January 1998
National Auto Credit Announcement
SOLON, Ohio, Jan. 27 -- National Auto Credit, Inc.,
announced that it had reached an agreement with its banks to defer
until February 5, 1998 a $7.5 million principal payment due under its credit
agreement on January 21, 1998. In connection with that agreement the Company
agreed not to borrow additional funds under the revolving line of credit
portion of the credit agreement until February 5, 1998 and such time as it
engages a new independent auditor. The Company is in the process of
soliciting proposals from several auditing firms but is not yet able to
estimate when new independent auditors might be engaged. The Company's former
auditors, Deloitte & Touche, LLP, resigned last week based on its assertion
that it could no longer rely on management's representations. In addition, a
separate loan to the Company in the amount of $2.3 million was reduced to
$800,000 when a creditor applied funds on deposit, with the balance due on
February 5, 1998. The Company will operate on internally generated funds
until the Company's use of its line of credit is restored or alternative
sources of capital are secured.
The Company also announced the engagement of Winthrop, Stimson, Putnam &
Roberts, a law firm, and Zolfo Cooper, LLC, a financial advisory consulting
firm. Winthrop, Stimson, Putnam & Roberts and Zolfo Cooper, LLC were engaged
by the Special Committee of the Board of Directors of the Company to
investigate information provided to the Company by Deloitte & Touche, LLP, its
former auditors, concerning potentially improper activities that might affect
the Company's financial accounting records. The information, which allegedly
came from current and former employees of the Company, was not investigated by
the Company's former auditors. During the pendency of the investigation, the
executive responsibilities of the Company's chairman and president and chief
executive officer have been delegated to the Special Committee. Zolfo Cooper,
LLC has also been advising and assisting the Special Committee in assessing
the Company's current financial condition and negotiating with the Company's
lenders. The investigation, which began last week, is focusing on the
Company's fiscal year ending January 31, 1998, and particularly the Company's
reserve for loan losses and the reserve for insurance claims against
discontinued operations of the Company.
Although year end results are not available, the Company currently expects
to substantially increase the size of its loan loss reserve for fiscal 1998.
The amount of any increase cannot be determined at this time, but the Company
believes that an increase in the reserve could place the Company in default of
its loan covenants when it reports fiscal year-end results. The Company has
not yet had discussions with its lenders about this potential default and
cannot predict the outcome of those discussions. The Company was in default
of certain financial covenants at the end of its third fiscal quarter.
Waivers for those defaults for the third quarter were received from lenders.
The statements contained in this release that are not purely historical
are forward looking statements within the meaning of the Securities and
Exchange Act of l934. Among the factors that could cause actual results to
differ materially from the forward looking statements are the potential for
greater than anticipated non-performing contracts, the potential for lower
than anticipated recoverability of amounts advanced to the Company's member
dealers, availability of funds under the Company's financing arrangements, and
other factors as discussed in the Company's reports filed with the Securities
and Exchange Commission.
SOURCE National Auto Credit, Inc.