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It has run to .48 cents in the past when you look at the chart.
TXEGQ, GETTEM BOYS, OUT OF BANKRUPTCY
TXEGQ, GETTEM WHILE YOU CAN, OUT OF BANKRUPTCY.
ANYONE WANT A 50 BAGGER, PM ME RIGHT NOW
Here we go.
Yall ready for this.
Well it should get interesting now.
the HMYRQ ibox will be updated tomorrow.
TCMIQ check out the updated board.
The ibox has been updated with some previous as well as current information, if you would like to check it out let me know what you think, as it looks this company is still in business, phone number works, and so does website.
Introducing MBX IP
MBX IP provides a migration friendly pathway for existing MP-5000, FX-II and XTS IP systems, supporting traditional endpoints, IP endpoints and SIP trunking – all with a single system that is scalable to meet the demands of enterprise customers. MBX IP will support all of the existing XTS-IP, FX/MP digital, and SBX IP endpoints, including the new Edge 8000 phones, as well as, having a compatible feature set. Deploy VoIP immediately or migrate at your own pace. Learn more
Vertical Comdial® MP5000™ Business Phone System:
Enabling Telecommunications to Keep Pace with Growing Enterprises – Economically
The MP5000 is the ideal telecommunications solution for growing organizations with remote sites and road warriors, and with heavy intra-organizational calling and conferencing requirements. It’s easily administered from a single point and supports a broad spectrum of hard and soft endpoint mixes and advanced call handling applications. Add remote sites and users quickly and easily. Deploy advanced next-generation SIP and IP functionality, from peer-to-peer video calling to unified messaging, where it makes sense; preserve your existing telecommunications infrastructure where it doesn’t.
Proven Business Phone System Solution
The MP5000 delivers economical, scalable, enhanced communications and lightning-fast ROI. Whether your organization is growing in a single large campus environment or by launching multiple offices throughout a region or a continent, continued growth will depend increasingly on efficient, economical communication across your entire enterprise. The MP5000 has established its value in a broad spectrum of business environments that depend heavily on both voice and data communications. Examples include law firms, real estate offices, marketing and advertising companies, auto dealerships, service businesses, government agencies and many more. The MP5000 makes sound business sense because it delivers easily administered, economical VoIP telephony and advanced voice applications and also supports existing telecommunications infrastructure including any mix of analog, digital and IP.
Explore the features & benefits as well as the different endpoints this system has to offer:
•Features & Benefits
•Endpoints
Take a tour now! Find out why the FX II™ and MP5000 are the most flexible, expandable, migratable and proven business phone systems in their class!
Learn how the Vertical Comdial MP5000 and Nine One One, Inc. help first responders save lives.
Contact us today to learn how a Vertical solution can enhance your business.
Introducing MBX IP
MBX IP provides a migration friendly pathway for existing MP-5000, FX-II and XTS IP systems, supporting traditional endpoints, IP endpoints and SIP trunking – all with a single system that is scalable to meet the demands of enterprise customers. MBX IP will support all of the existing XTS-IP, FX/MP digital, and SBX IP endpoints, including the new Edge 8000 phones, as well as, having a compatible feature set. Deploy VoIP immediately or migrate at your own pace. Learn more
Vertical Comdial® FX II™ Business Phone System:
Real Business Value for Small and Midsize Enterprises
As your organization grows, both voice and data communications become more challenging –– and more critical to continued success. The Vertical Comdial FX II Business Communications System enables voice communications to be transported and easily managed over data networks. A suite of messaging and call control applications enable unified voicemail and e-mail messaging, flexible call routing and reporting for single-site and multi-site organizations. The FX II is a hard-working business phone system that raises the power of communications to the next level and grows gracefully with your organization.
Growth is Good
You've worked hard to grow your business. Whether your organization has grown within a large campus environment, among multiple offices across a region or a continent, by running multiple shifts or by growing a team of telecommuting workers, continued growth will depend increasingly on efficient, economical communication across your entire enterprise. The FX II system dramatically streamlines your communications by enabling you to make and receive calls over a managed network. The FX II supports both new Voice-over-IP (VoIP) telephony and traditional digital communications within a unified infrastructure. VoIP telephony can eliminate toll calls, slash administrative costs and provide powerful new administrative capabilities. With the FX II you can focus on growing your bottom line, not your communications network!
Explore the features & benefits as well as the different endpoints this system has to offer:
•Features & Benefits
•Endpoints
Take a tour now! Find out why the FX II and MP5000™ are the most flexible, expandable, migratable and proven business phone systems in their class!
Contact us today to learn how a Vertical solution can enhance your business.
Vertical Comdial® DX-120™ Business Phone System:
Sophisticated Telecommunications Solution in a Flexible, Highly Scalable Package
The DX-120 Business Communications System is designed to give growing enterprises all the sophisticated communications features of big-company digital systems in an affordable, easy to use and highly scalable package. The DX-120 system includes desktop and cordless speakerphone endpoints, a reception console and a comprehensive feature set of nearly 200 functions previously available only on high-end PBXs. It supports both T1/ISDN-PRI and analog trunking, conferencing, powerful voicemail and auto-attendant options and remote configuration.
Expands as Your Business Grows
The DX-120 system delivers enterprise-grade productivity without the complexity, cost and management responsibilities of a larger system. Its modular architecture and both analog and digital trunking (T1 and ISDN-PRI) enable small enterprises to get started today with a reliable digital communications solution with the assurance that it can be expanded to grow in step with the business. Administration is fast and easy with the modem options, which enable remote access and configuration of system parameters. Growing your communications system to keep pace with the success of your organization has never been so easy — or so affordable.
View the DX-120 Demo! Find out how growing enterprises are provided with all the big-company digital features in an affordable, easy to use and highly scalable package.
Take a look at a sampling of the many features & benefits the DX-120 system has to offer.
Explore the endpoints that this sophisticated communications system has to offer to your small- or medium-sized business.
Contact us today to learn how a Vertical solution can enhance your business.
CMDZQ, www.comdial.com, extremely LOW AS/OS.
Investor Relations
Vertical Communications was founded in 2004 and includes industry-known leading providers of telephony solutions: Comdial and Vodavi Technologies. With collectively over 100 years of leading-edge experience and with hundreds of thousands of customers, Vertical knows telecommunications. Leveraging this experience, Vertical continues to innovate and invest in new technologies that improve the way companies communicate.
Vertical is strategic partners with LG-Nortel (a joint venture between Nortel and LG Electronics) a global vendor of telecommunications products for carriers and enterprises, involved in developing and manufacturing many of Vertical’s products.
Vertical Communications voluntarily deregistered its common stock in late July, 2008. See related Press Release
Financial Contacts
Investor Relations Contact
Bhavna Desai
Vertical Communications, Inc
3979 Freedom Circle, Suite 400
Santa Clara, CA 95054
bdesai@vertical.com
HMYRQ, moves as easy as GWDCQ
HMYRQ, easy mover, low float moves on air.
HMYRQ, low float mover, moves on air, no doubt.
Already hit the next 10 bagger board, and will continue with the other boards, this is the next big thing, i mean EASY mover.
HMYRQ, is officially the next 10 BAGGER
HMYRQ is begging for pennyland, with this small AS/OS.
HMYRQ, Big hits, rumored to be The Room Store.....
After .002 this will go straight to a penny no doubt.
HELL YEAH, THIS COULD BE HHUUUGGGEEEE!!!!!!
HMYRQ Pennyland here we come, ROOM is at .60 a share.
HMYRQ .002 UP
HMYRQ .002 UP WEEEE
HMYRQ .002 UP WEEEEEE
HMYRQUP 150%
HMYRQCheck this out. Says operates as The Room Store.
http://post.nyssa.org/nyssa-news/2010/07/the-ghost-of-credit-past-the-specter-of-the-heiligmeyers-fiasco-haunts-todays-failed-lenders.html
07/08/2010
The Ghost of Credit Past: The Specter of the Heilig-Meyers Fiasco Haunts Today's Failed Lenders
ShareThis“Heilig-Meyers: From AAA to Junk Bond”
“CDO Ratings Are Whacked by Moody’s—AAA to Junk in a Day Raises More Questions about Credit Agencies”
The first of these headlines appeared from Credit Card Management in 2001, and announced the collapse of what was then one of the largest American furniture retailers. The origins of that collapse lie in the late 1990s, when Heilig-Meyers began to service its own debt. As much as 75% of its sales were made with two-year installment loans.
The second headline appeared in the Wall Street Journal in 2007 (Saha-Bubna and Mollenkamp), in circumstances that will not be soon forgotten. The echo between the screamer announcing Heilig-Meyers’s meltdown and that trumpeting the emerging credit crisis is no coincidence. It may be comforting to call today’s travails unprecedented, but the Heilig-Meyers story is a clear case of a lesson not learned. The furniture chain’s eventual failure on August 16, 2000, and the associated effects on its asset-backed securities are strikingly similar to aspects of the current financial crisis.
THE STRATEGY: LOW-QUALITY LOANS, SECURITIZATION
Heilig-Meyers, like other furniture retailers, relied on financing customers’ furniture purchases with installment loans, usually of a two-year duration. Much like a financial services firm, Heilig-Meyers provided its own debt servicing and realized revenue from the interest and fees collected from servicing the installment loans. That revenue accounted for up to one-third of profit in some years (Gilligan 2000).
Eventually, many of those to whom Heilig-Meyers had provided credit became delinquent when local stores that had serviced their debt closed. By 2000, the credit quality of those who had been issued debt had steadily declined (Credit Card Management 2000), and an estimated one out of every nine bankrupt Americans owed money to Heilig-Meyers (Mollenkamp 2000).
In order to increase liquidity from the installment loans, Heilig-Meyers transferred most of its installment sales to a trust account that issued certificates backed by the collection of the installment loans—asset-backed securities, in other words. Eighty percent of the certificates were sold to third parties. The remaining 20%, which were subordinate to the publicly offered certificates, were held by Heilig-Meyers in a special-purpose entity. The certificates held by Heilig-Meyers were reported on its balance sheet at fair-market value despite the fact that these securities were never traded in a public market.
When CEO and chairman William DeRusha left the company in July of 2000, Richmond Times-Dispatch reporter Gregory Gilligan (2000) summarized Heilig-Meyers’s failing strategy. First, massive expansion failed to produce enough revenue. Secondly, those consumers with better credit quality began using credit cards for purchases rather than Heilig-Meyers installment loan plans. From a credit standpoint, then, the Heilig-Meyers installment loan plans were increasingly issued to consumers with low credit quality.
The similarities to mortgage-backed securities and the mortgage crisis are uncanny. Heilig-Meyers held the riskiest tranche of a structured financial product that was securitized with low-quality loans. Inasmuch as the first 20% of defaults had to be absorbed by this tranche, Heilig-Meyers was awash in toxic waste. Further, Heilig-Meyers was responsible for the loan collection that securitized the less risky (higher tranche) certificates offered by the trust.
Notably, the entity entrusted with insuring payments for the better tranches was also holding the worst tranche with a decentralized collection system. Yet the higher tranche certificates held a AAA rating despite the perilous position of the entity responsible for actually collecting the loans.
Rating agencies missed the crucial collection element of this arrangement, just as they did in the run-up to the bursting of the credit bubble. That became very clear when Heilig-Meyers began closing stores and loan delinquencies skyrocketed to 60%. Of 871 stores, 302 were slated to close initially, when the company filed Chapter 11. But by the summer of 2001, all the Heilig-Meyers namesake stores were closed. Some remaining locations still operate today as the RoomStore chain.
Credit Card Management (2000) details the credit situation: “‘Unlike most retailers, which have centralized collections, nearly 67% of Heilig-Meyers customers make payments at their local Heilig-Meyers stores,’ says William Black, a Moody’s analyst. That means it will be more difficult for the retailer to transfer debt collections and servicing to a centralized entity. ‘You’re not just changing the address on the payment slip,’ Black says. ‘You’re dealing with getting hold of these [customers] as well as basically trying to change their payment behavior.’”
The comment offered by Dow Jones Business News (2000) might as well have been aimed at the real estate and mortgage markets today: “The retailer, founded in 1913, targets customers who often borrow from the company to buy sofas, dining-room tables, air conditioners, and televisions. Its troubles developed in the past two years as an acquisition spree failed to generate expected revenue. At the same time, its credit unit got caught in the same crunch as other so-called subprime lenders: too much competition led to a lowering of credit standards, and more consumers defaulted on their loans.”
The risks associated with the collapse of Heilig-Meyers did not go unnoticed in the investment community (Gregory 2004), but did little to change how ratings on asset-backed securities were assessed. Rating agencies’ failure to adapt became particularly regrettable when, just a few years later, Freddie Mac and Fannie Mae stepped into the role of Heilig-Meyers.
A LAWSUIT WITH SOME FAMILIAR NAMES
How the credit crisis will eventually be resolved is unclear, but it doesn’t tax the imagination to envision some court cases stemming from the way in which securitized structures were sold to the public. The time that two banks spent in the dock over their relationship with Heilig-Meyers may foreshadow what’s still to come.
In 2003, First Union Bank and Bank of America were accused of misrepresenting the credit quality of Heilig-Meyers asset-backed securities (New York Law Journal 2003). First Union is part of Wachovia, now owned by Wells Fargo. NationsBank, which acquired BankAmerica in 1998 and became Bank of America, was involved with issuing Heilig-Meyers securities.
The plaintiffs included AIG, Allstate, Société Générale, Travelers, and a number of other institutional investors. Their original investments in Heilig-Meyers securities totaled $300 million in 1998 and were virtually valueless after the bankruptcy (Browning 2008).
In 2004, First Union settled out of court for $33 million, leaving Bank of America the lone defendant. The initial case was dismissed, but the complaint was amended. In late 2008, a trial commenced, in the course of which it came to light that Bank of America was aware of the fact that Heilig-Meyers kept two sets of books on its debt collection: “According to court documents, one of the surviving accusations is that Bank of America knew Heilig-Meyers kept ‘two sets of books related to its loss and delinquency experiences,’ and that the bank knew but didn’t disclose that comparisons between Heilig’s and similar retailers’ loss and delinquency rates were based on a liberal ‘recency method’ of accountings that artificially bolstered results, rather than a traditional ‘contractual method’” (Engel 2008).
On December 4, 2008, the plaintiffs were awarded $141 million in damages. Bank of America is still considering an appeal (Heintz 2009).
SECOND TIME’S THE CHARM?
The Heilig-Meyers bankruptcy should have made abundantly clear that ratings for a structured financial product cannot simply be based on historical default rates for an asset class. The actual collection arrangement of the securitized loan must be fully understood—particularly when the collector holds the riskiest portion of the underlying loan portfolio. But this blind spot still persists in current rating models.
It’s not as if Heilig-Meyers did not receive any cash for selling the certificates from the trust to the public. Unlike as with a bond, however, no covenant structure such as a sinking fund or dividend limit existed to protect the security holder. This critical element is missing from structured financial products, too. It could be the best improvement we can make going forward.
The process of creating asset-backed securities and similar structured products can benefit from an improved rating system in which contractual relationships, from collection to security-holder payment, are well defined, and from the covenant-like arrangements that exist for bonds. From a regulatory perspective, disclosure is the key element, but as Heilig-Meyers demonstrates, disclosure doesn’t really matter if the collection arrangement is not understood.
Bad luck comes in threes, three’s a crowd, and three strikes and you’re out. Two run-ins with the disastrous lending and collection arrangements common to both Heilig-Meyers and current-day mortgage providers should be more than enough to get the point across to rating agencies, regulators, and lenders themselves. Let’s not go to round three. If we want to have two pennies left to rub together.
HMYRQ check this out
Check this out. Says operates as The Room Store.
http://post.nyssa.org/nyssa-news/2010/07/the-ghost-of-credit-past-the-specter-of-the-heiligmeyers-fiasco-haunts-todays-failed-lenders.html
07/08/2010
The Ghost of Credit Past: The Specter of the Heilig-Meyers Fiasco Haunts Today's Failed Lenders
ShareThis“Heilig-Meyers: From AAA to Junk Bond”
“CDO Ratings Are Whacked by Moody’s—AAA to Junk in a Day Raises More Questions about Credit Agencies”
The first of these headlines appeared from Credit Card Management in 2001, and announced the collapse of what was then one of the largest American furniture retailers. The origins of that collapse lie in the late 1990s, when Heilig-Meyers began to service its own debt. As much as 75% of its sales were made with two-year installment loans.
The second headline appeared in the Wall Street Journal in 2007 (Saha-Bubna and Mollenkamp), in circumstances that will not be soon forgotten. The echo between the screamer announcing Heilig-Meyers’s meltdown and that trumpeting the emerging credit crisis is no coincidence. It may be comforting to call today’s travails unprecedented, but the Heilig-Meyers story is a clear case of a lesson not learned. The furniture chain’s eventual failure on August 16, 2000, and the associated effects on its asset-backed securities are strikingly similar to aspects of the current financial crisis.
THE STRATEGY: LOW-QUALITY LOANS, SECURITIZATION
Heilig-Meyers, like other furniture retailers, relied on financing customers’ furniture purchases with installment loans, usually of a two-year duration. Much like a financial services firm, Heilig-Meyers provided its own debt servicing and realized revenue from the interest and fees collected from servicing the installment loans. That revenue accounted for up to one-third of profit in some years (Gilligan 2000).
Eventually, many of those to whom Heilig-Meyers had provided credit became delinquent when local stores that had serviced their debt closed. By 2000, the credit quality of those who had been issued debt had steadily declined (Credit Card Management 2000), and an estimated one out of every nine bankrupt Americans owed money to Heilig-Meyers (Mollenkamp 2000).
In order to increase liquidity from the installment loans, Heilig-Meyers transferred most of its installment sales to a trust account that issued certificates backed by the collection of the installment loans—asset-backed securities, in other words. Eighty percent of the certificates were sold to third parties. The remaining 20%, which were subordinate to the publicly offered certificates, were held by Heilig-Meyers in a special-purpose entity. The certificates held by Heilig-Meyers were reported on its balance sheet at fair-market value despite the fact that these securities were never traded in a public market.
When CEO and chairman William DeRusha left the company in July of 2000, Richmond Times-Dispatch reporter Gregory Gilligan (2000) summarized Heilig-Meyers’s failing strategy. First, massive expansion failed to produce enough revenue. Secondly, those consumers with better credit quality began using credit cards for purchases rather than Heilig-Meyers installment loan plans. From a credit standpoint, then, the Heilig-Meyers installment loan plans were increasingly issued to consumers with low credit quality.
The similarities to mortgage-backed securities and the mortgage crisis are uncanny. Heilig-Meyers held the riskiest tranche of a structured financial product that was securitized with low-quality loans. Inasmuch as the first 20% of defaults had to be absorbed by this tranche, Heilig-Meyers was awash in toxic waste. Further, Heilig-Meyers was responsible for the loan collection that securitized the less risky (higher tranche) certificates offered by the trust.
Notably, the entity entrusted with insuring payments for the better tranches was also holding the worst tranche with a decentralized collection system. Yet the higher tranche certificates held a AAA rating despite the perilous position of the entity responsible for actually collecting the loans.
Rating agencies missed the crucial collection element of this arrangement, just as they did in the run-up to the bursting of the credit bubble. That became very clear when Heilig-Meyers began closing stores and loan delinquencies skyrocketed to 60%. Of 871 stores, 302 were slated to close initially, when the company filed Chapter 11. But by the summer of 2001, all the Heilig-Meyers namesake stores were closed. Some remaining locations still operate today as the RoomStore chain.
Credit Card Management (2000) details the credit situation: “‘Unlike most retailers, which have centralized collections, nearly 67% of Heilig-Meyers customers make payments at their local Heilig-Meyers stores,’ says William Black, a Moody’s analyst. That means it will be more difficult for the retailer to transfer debt collections and servicing to a centralized entity. ‘You’re not just changing the address on the payment slip,’ Black says. ‘You’re dealing with getting hold of these [customers] as well as basically trying to change their payment behavior.’”
The comment offered by Dow Jones Business News (2000) might as well have been aimed at the real estate and mortgage markets today: “The retailer, founded in 1913, targets customers who often borrow from the company to buy sofas, dining-room tables, air conditioners, and televisions. Its troubles developed in the past two years as an acquisition spree failed to generate expected revenue. At the same time, its credit unit got caught in the same crunch as other so-called subprime lenders: too much competition led to a lowering of credit standards, and more consumers defaulted on their loans.”
The risks associated with the collapse of Heilig-Meyers did not go unnoticed in the investment community (Gregory 2004), but did little to change how ratings on asset-backed securities were assessed. Rating agencies’ failure to adapt became particularly regrettable when, just a few years later, Freddie Mac and Fannie Mae stepped into the role of Heilig-Meyers.
A LAWSUIT WITH SOME FAMILIAR NAMES
How the credit crisis will eventually be resolved is unclear, but it doesn’t tax the imagination to envision some court cases stemming from the way in which securitized structures were sold to the public. The time that two banks spent in the dock over their relationship with Heilig-Meyers may foreshadow what’s still to come.
In 2003, First Union Bank and Bank of America were accused of misrepresenting the credit quality of Heilig-Meyers asset-backed securities (New York Law Journal 2003). First Union is part of Wachovia, now owned by Wells Fargo. NationsBank, which acquired BankAmerica in 1998 and became Bank of America, was involved with issuing Heilig-Meyers securities.
The plaintiffs included AIG, Allstate, Société Générale, Travelers, and a number of other institutional investors. Their original investments in Heilig-Meyers securities totaled $300 million in 1998 and were virtually valueless after the bankruptcy (Browning 2008).
In 2004, First Union settled out of court for $33 million, leaving Bank of America the lone defendant. The initial case was dismissed, but the complaint was amended. In late 2008, a trial commenced, in the course of which it came to light that Bank of America was aware of the fact that Heilig-Meyers kept two sets of books on its debt collection: “According to court documents, one of the surviving accusations is that Bank of America knew Heilig-Meyers kept ‘two sets of books related to its loss and delinquency experiences,’ and that the bank knew but didn’t disclose that comparisons between Heilig’s and similar retailers’ loss and delinquency rates were based on a liberal ‘recency method’ of accountings that artificially bolstered results, rather than a traditional ‘contractual method’” (Engel 2008).
On December 4, 2008, the plaintiffs were awarded $141 million in damages. Bank of America is still considering an appeal (Heintz 2009).
SECOND TIME’S THE CHARM?
The Heilig-Meyers bankruptcy should have made abundantly clear that ratings for a structured financial product cannot simply be based on historical default rates for an asset class. The actual collection arrangement of the securitized loan must be fully understood—particularly when the collector holds the riskiest portion of the underlying loan portfolio. But this blind spot still persists in current rating models.
It’s not as if Heilig-Meyers did not receive any cash for selling the certificates from the trust to the public. Unlike as with a bond, however, no covenant structure such as a sinking fund or dividend limit existed to protect the security holder. This critical element is missing from structured financial products, too. It could be the best improvement we can make going forward.
The process of creating asset-backed securities and similar structured products can benefit from an improved rating system in which contractual relationships, from collection to security-holder payment, are well defined, and from the covenant-like arrangements that exist for bonds. From a regulatory perspective, disclosure is the key element, but as Heilig-Meyers demonstrates, disclosure doesn’t really matter if the collection arrangement is not understood.
Bad luck comes in threes, three’s a crowd, and three strikes and you’re out. Two run-ins with the disastrous lending and collection arrangements common to both Heilig-Meyers and current-day mortgage providers should be more than enough to get the point across to rating agencies, regulators, and lenders themselves. Let’s not go to round three. If we want to have two pennies left to rub together.
Check this out. Says operates as The Room Store.
http://post.nyssa.org/nyssa-news/2010/07/the-ghost-of-credit-past-the-specter-of-the-heiligmeyers-fiasco-haunts-todays-failed-lenders.html
07/08/2010
The Ghost of Credit Past: The Specter of the Heilig-Meyers Fiasco Haunts Today's Failed Lenders
ShareThis“Heilig-Meyers: From AAA to Junk Bond”
“CDO Ratings Are Whacked by Moody’s—AAA to Junk in a Day Raises More Questions about Credit Agencies”
The first of these headlines appeared from Credit Card Management in 2001, and announced the collapse of what was then one of the largest American furniture retailers. The origins of that collapse lie in the late 1990s, when Heilig-Meyers began to service its own debt. As much as 75% of its sales were made with two-year installment loans.
The second headline appeared in the Wall Street Journal in 2007 (Saha-Bubna and Mollenkamp), in circumstances that will not be soon forgotten. The echo between the screamer announcing Heilig-Meyers’s meltdown and that trumpeting the emerging credit crisis is no coincidence. It may be comforting to call today’s travails unprecedented, but the Heilig-Meyers story is a clear case of a lesson not learned. The furniture chain’s eventual failure on August 16, 2000, and the associated effects on its asset-backed securities are strikingly similar to aspects of the current financial crisis.
THE STRATEGY: LOW-QUALITY LOANS, SECURITIZATION
Heilig-Meyers, like other furniture retailers, relied on financing customers’ furniture purchases with installment loans, usually of a two-year duration. Much like a financial services firm, Heilig-Meyers provided its own debt servicing and realized revenue from the interest and fees collected from servicing the installment loans. That revenue accounted for up to one-third of profit in some years (Gilligan 2000).
Eventually, many of those to whom Heilig-Meyers had provided credit became delinquent when local stores that had serviced their debt closed. By 2000, the credit quality of those who had been issued debt had steadily declined (Credit Card Management 2000), and an estimated one out of every nine bankrupt Americans owed money to Heilig-Meyers (Mollenkamp 2000).
In order to increase liquidity from the installment loans, Heilig-Meyers transferred most of its installment sales to a trust account that issued certificates backed by the collection of the installment loans—asset-backed securities, in other words. Eighty percent of the certificates were sold to third parties. The remaining 20%, which were subordinate to the publicly offered certificates, were held by Heilig-Meyers in a special-purpose entity. The certificates held by Heilig-Meyers were reported on its balance sheet at fair-market value despite the fact that these securities were never traded in a public market.
When CEO and chairman William DeRusha left the company in July of 2000, Richmond Times-Dispatch reporter Gregory Gilligan (2000) summarized Heilig-Meyers’s failing strategy. First, massive expansion failed to produce enough revenue. Secondly, those consumers with better credit quality began using credit cards for purchases rather than Heilig-Meyers installment loan plans. From a credit standpoint, then, the Heilig-Meyers installment loan plans were increasingly issued to consumers with low credit quality.
The similarities to mortgage-backed securities and the mortgage crisis are uncanny. Heilig-Meyers held the riskiest tranche of a structured financial product that was securitized with low-quality loans. Inasmuch as the first 20% of defaults had to be absorbed by this tranche, Heilig-Meyers was awash in toxic waste. Further, Heilig-Meyers was responsible for the loan collection that securitized the less risky (higher tranche) certificates offered by the trust.
Notably, the entity entrusted with insuring payments for the better tranches was also holding the worst tranche with a decentralized collection system. Yet the higher tranche certificates held a AAA rating despite the perilous position of the entity responsible for actually collecting the loans.
Rating agencies missed the crucial collection element of this arrangement, just as they did in the run-up to the bursting of the credit bubble. That became very clear when Heilig-Meyers began closing stores and loan delinquencies skyrocketed to 60%. Of 871 stores, 302 were slated to close initially, when the company filed Chapter 11. But by the summer of 2001, all the Heilig-Meyers namesake stores were closed. Some remaining locations still operate today as the RoomStore chain.
Credit Card Management (2000) details the credit situation: “‘Unlike most retailers, which have centralized collections, nearly 67% of Heilig-Meyers customers make payments at their local Heilig-Meyers stores,’ says William Black, a Moody’s analyst. That means it will be more difficult for the retailer to transfer debt collections and servicing to a centralized entity. ‘You’re not just changing the address on the payment slip,’ Black says. ‘You’re dealing with getting hold of these [customers] as well as basically trying to change their payment behavior.’”
The comment offered by Dow Jones Business News (2000) might as well have been aimed at the real estate and mortgage markets today: “The retailer, founded in 1913, targets customers who often borrow from the company to buy sofas, dining-room tables, air conditioners, and televisions. Its troubles developed in the past two years as an acquisition spree failed to generate expected revenue. At the same time, its credit unit got caught in the same crunch as other so-called subprime lenders: too much competition led to a lowering of credit standards, and more consumers defaulted on their loans.”
The risks associated with the collapse of Heilig-Meyers did not go unnoticed in the investment community (Gregory 2004), but did little to change how ratings on asset-backed securities were assessed. Rating agencies’ failure to adapt became particularly regrettable when, just a few years later, Freddie Mac and Fannie Mae stepped into the role of Heilig-Meyers.
A LAWSUIT WITH SOME FAMILIAR NAMES
How the credit crisis will eventually be resolved is unclear, but it doesn’t tax the imagination to envision some court cases stemming from the way in which securitized structures were sold to the public. The time that two banks spent in the dock over their relationship with Heilig-Meyers may foreshadow what’s still to come.
In 2003, First Union Bank and Bank of America were accused of misrepresenting the credit quality of Heilig-Meyers asset-backed securities (New York Law Journal 2003). First Union is part of Wachovia, now owned by Wells Fargo. NationsBank, which acquired BankAmerica in 1998 and became Bank of America, was involved with issuing Heilig-Meyers securities.
The plaintiffs included AIG, Allstate, Société Générale, Travelers, and a number of other institutional investors. Their original investments in Heilig-Meyers securities totaled $300 million in 1998 and were virtually valueless after the bankruptcy (Browning 2008).
In 2004, First Union settled out of court for $33 million, leaving Bank of America the lone defendant. The initial case was dismissed, but the complaint was amended. In late 2008, a trial commenced, in the course of which it came to light that Bank of America was aware of the fact that Heilig-Meyers kept two sets of books on its debt collection: “According to court documents, one of the surviving accusations is that Bank of America knew Heilig-Meyers kept ‘two sets of books related to its loss and delinquency experiences,’ and that the bank knew but didn’t disclose that comparisons between Heilig’s and similar retailers’ loss and delinquency rates were based on a liberal ‘recency method’ of accountings that artificially bolstered results, rather than a traditional ‘contractual method’” (Engel 2008).
On December 4, 2008, the plaintiffs were awarded $141 million in damages. Bank of America is still considering an appeal (Heintz 2009).
SECOND TIME’S THE CHARM?
The Heilig-Meyers bankruptcy should have made abundantly clear that ratings for a structured financial product cannot simply be based on historical default rates for an asset class. The actual collection arrangement of the securitized loan must be fully understood—particularly when the collector holds the riskiest portion of the underlying loan portfolio. But this blind spot still persists in current rating models.
It’s not as if Heilig-Meyers did not receive any cash for selling the certificates from the trust to the public. Unlike as with a bond, however, no covenant structure such as a sinking fund or dividend limit existed to protect the security holder. This critical element is missing from structured financial products, too. It could be the best improvement we can make going forward.
The process of creating asset-backed securities and similar structured products can benefit from an improved rating system in which contractual relationships, from collection to security-holder payment, are well defined, and from the covenant-like arrangements that exist for bonds. From a regulatory perspective, disclosure is the key element, but as Heilig-Meyers demonstrates, disclosure doesn’t really matter if the collection arrangement is not understood.
Bad luck comes in threes, three’s a crowd, and three strikes and you’re out. Two run-ins with the disastrous lending and collection arrangements common to both Heilig-Meyers and current-day mortgage providers should be more than enough to get the point across to rating agencies, regulators, and lenders themselves. Let’s not go to round three. If we want to have two pennies left to rub together.
Schlotzkys has shops open and doing business right here in Texas.
CMDZQ http://www.comdial.com/, has it been merged already.
http://www.comdial.com/, is this true, have they been merged?
Did (The Room Store) buy this company?
Any new information? Looks to be 2 years now since bankruptcy.
TCMIQ .001-.01 1000% last week, is there another one this week?
TXEGQ, has run to as high as .04
There is definitely something going on with this company or shell, whatever it is, because its been accumulated here and there for the past year or so.