Tumwater-based Westar seeks buyer

CHRIS CLOUGH, THE OLYMPIAN

TUMWATER -- The Sept. 11 attacks that rocked the nation and shook consumer confidence now have Westar Financial Services teetering.

The publicly traded e-commerce company has ceased originating automobile leases and is actively seeking a buyer, Chief Executive Officer Bob Christensen said Wednesday.

Its stock plummeted to $2.20 a share, down 66 percent for the day.

The downturn comes on the heels of four straight quarters of profitability, revenues of $146 million in the third fiscal quarter and an all-time high stock price of $22.75 as recently as Oct. 1.

But a deteriorating capital market has left the Tumwater-based company unable to sell a bundle of leases that was expected to fetch $150 million through the end of the year.

"We've been accelerating for the past year, reached cruising speed, then hit a brick wall," Christensen said. "If you had asked me before if a firm in Tumwater, Wash., would have been so harshly affected by the Sept. 11 attacks, I would have said no."

Christensen said none of Westar's 100 or so employees had been laid off.

"I'd like to keep that intact as long as possible because we've always regarded our team members as our most valuable asset," he said.

About half of the employees work in servicing leases, which is unaffected by the downturn, he said.

As a high-tech corporate employer in a traditionally government town, Westar brings an important mix to the economic climate, Tumwater Mayor Ralph Osgood said.

"They are a good family-wage job business," he said. "Any time you look at 100-plus jobs possibly in jeopardy, that is huge."

About the company

Westar calls itself "the leading publicly traded automobile-oriented e-commerce financial portal" and completed the first entirely electronic auto purchase on the Internet.

Founded in 1996, Westar uses a system named LASIRpro to handle all aspects of lease transactions.

Westar makes lease decisions through direct contact with auto dealers in 16 Western states. Agreements with USAA Federal Savings, Mellon Bank and AmSouth Bancorporation -- three of the nation's 25 largest financial institutions -- give them access to Westar's lease-approval technology.

Once approved, Westar gathers the leases in bundles and auctions them off to larger financial institutions, a practice widely used with mortgages and credit card accounts.

The bundles are sold for less than what Westar would likely make over the full life of the leases, but by auctioning them off at a discount, Westar gets an earlier infusion of money to finance more leases.

A securitization sale expected to close Nov. 12 fell through in the past few days, leaving Westar short on cash to pay short-term debt and bringing origination activity to a halt.

Westar's options

Westar has three options and not a lot of time, Christensen said.

"We are pursuing the sale of the leases, sale of the securitization pool to another party or sale of the company," he said from Seattle, where he was meeting with financial institutions. "We're working diligently, all day, every day to make one or more of those happen."

Fallout from the Sept. 11 attacks was a blow to Westar, Christensen said.

"I don't believe one could have planned a worse set of business circumstances than those of the past few weeks," he said. "Investor confidence is down. Institutional confidence is down."

The slowdown runs throughout the investment world.

Lou Feldman of Hoefer & Arnett, a San Francisco-based investment bank, said uncertainty has investors of all sizes playing things close to the vest.

"With certain exceptions, including houses, people have wanted to stay on the sidelines," said Feldman, who works out of the investment bank's Portland office. "When people are uncertain, they tend to not want to invest for the long term."

That adds up to a crimp on capital markets and woes for Westar.

The property and casualty insurance industry plays a major role in securitization, Christensen said. And with ramifications from Sept. 11 and possible future attacks, the entire industry has been downgraded, further hurting Westar's ability to sell its lease bundles.

But Westar's business model remains sound, Christensen said.

"Originations were very strong, even after the attacks," he said, "as were our margins and credit quality."

But without proceeds from the securitization, Westar is in a cash crunch.

"We don't have the liquidity to continue originating leases," he said. "We're taking ourselves out of the market until we have the access to securitization resolved."

That has left its partners in the lurch.

"No one is pleased, but they have been generally supportive of our efforts to solve this as quickly as possible," he said. "We just need to locate a purchaser of the leases that sees the revenue stream as a good investment."

The downturn also has been rough on investors, the majority of whom are insiders, said Christensen, adding that he had not traded any of his Westar stock since summer.

On Oct. 1, the stock closed at $20.47 after quarterly earnings were announced. The stock, which trades over the counter under the symbol WEST, gave up some of its advance recently to settle in the $10-a-share range.

Tuesday, it closed at $6.47 a share on daily trading volume of 83,400 shares -- one of its more active days.

After Westar announced its difficulties Wednesday, it fell to $2.20 a share on a trading volume of 245,600 shares.

The announcement that Westar was seeking a suitor drew much interest, Christensen said.

"We wanted to let the marketplace know Westar has stumbled, but also to let the industry know that an extremely attractive company is interested in discussing strategic alternatives," he said. "We'd be right for any company with a substantial appetite for prime-credit auto financing."

Whether a buyer for Westar can be found, Christensen said he's working to get the company back on track and past the securitization roadblock.

"We are known to be tenacious as hell," he said. "We've overcome other significant difficulties in the past to get where we have gotten, and now our job as a company is to move the brick wall."

Chris Clough is business editor for The Olympian. He can be reached at 360-754-5403.

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