CACC: Recent Events Add to the Short Thesis

Our most recent post on CACC generated many thoughtful comments and questions, and I wanted to provide an update on some recent negative events and address some of the questions. Based upon recent events and capital markets activity, I have increased my conviction in a $7.50 price target, which is 56% below yesterday's (7/30/08) close of $17.16.

Access to debt capital continues to be a massive overhang for Credit Acceptance (CACC), and the current stock price does not adequately discount the risk of deleveraging the balance sheet (or worse). Recent events at Wachovia (WB) are troubling for Credit Acceptance, and by extension, very troubling for CACC investors. By my estimate, which we detailed in our previous submission, Wachovia is currently funding 60% of CACC's required debt capacity. With its capital and credit issues under Wall Street's and the FDIC's microscope, Wachovia is currently in the processes of shrinking and deleveraging its balance sheet.