UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 25, 1999
DYNEX CAPITAL, INC.
(Exact Name of Registrant as Specified in Charter)
Virginia 1-9819 52-1549373
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
10900 Nuckols Road, 3rd Floor, Glen Allen, Virginia 23060
(Address of Principal Executive Offices) (Zip Code)
(804) 217-5800
(Registrant's telephone number, including area code)
Item 5. Other Events.
As disclosed in previous filings, on June 10, 1998, Dynex Capital, Inc.
(the "Company" or "Dynex") entered into various agreements (the "Agreements")
with AutoBond Acceptance Corporation ("AutoBond") (Amex: ABD) and AutoBond
Master Funding Corporation V ("Funding"), a wholly-owned subsidiary of AutoBond,
whereby the Company would provide Funding with limited funding over a one year
period to finance its purchase of retail installment contracts from AutoBond up
to $20 million per month. These Agreements were subsequently amended to increase
the funding amount to $25 million per month and to extend the term through
November 30, 1999. AutoBond is a specialty consumer finance company that
underwrites, acquires, services and securitizes retail installment contracts
originated by automobile dealers to borrowers that are credit impaired. In
exchange, the Company, through an affiliate, received an option to purchase
5.5 million shares of common stock of AutoBond held by the three principal
shareholders of AutoBond, for a price of $6.00 per share. The Company also
purchased from AutoBond a $3.0 million senior note convertible into 500,000
shares of AutoBond's common stock. To date, the Company has funded $169 million
of funding notes related to auto contracts with a principal balance of $163
million. As of February 15, 1999, the outstanding balance of the collateral is
$145 million and the outstanding balance of the funding notes is $149 million.
The funding notes had a weighted average coupon of 7.7% and the collateral has a
weighted average coupon of 19.8%. The funding notes receive all the cash (less
servicing fees) received on the auto loans until paid in full. The Company
finances these funding notes with a $100 million committed credit facility
through Daiwa Finance Corp.
In anticipation of exercising the stock option and also to perform
compliance review procedures as allowed for under the Agreements, Dynex notified
AutoBond in late December that the Company would be performing due diligence and
compliance procedures beginning January, 1999. Dynex hired outside consultants,
experienced in subprime auto lending, to assist in designing and performing the
various tests and procedures. These tests and procedures included, among others,
the testing of compliance with AutoBond's underwriting criteria using a
statistically significant sample of loans. In late January, Dynex received the
results from the underwriting compliance tests which showed that a significant
number of loans contained material deviations from AutoBond's underwriting
criteria. Also during the due diligence process, AutoBond failed to provide
Dynex and its consultants with a significant amount of requested information.
Based on these findings and results, the Company notified AutoBond of these
breaches to the Agreements, and discontinued funding. Subsequent to giving
AutoBond notice of the breaches, Dynex personnel and one of the consultants met
with AutoBond personnel over a three day period to review the results of the
underwriting compliance tests. As Dynex maintained its position that the
underwriting criteria were those attached to the Agreements, the parties were
unable to agree on the underwriting criteria under which the loan files should
be tested. Since February 8, 1999, AutoBond has refused access for Dynex
personnel, its advisors and consultants to the loan files and related records,
creating an additional breach under the Agreements.
As a consequence of the breaches by AutoBond, Dynex has filed suit against
AutoBond in the Federal district court of the Eastern District of Virginia
seeking declaratory relief with respect to its rights and obligations under
these Agreements. AutoBond has filed suit against Dynex in the district court of
Travis County, Texas alleging breach of contract and other claims.
The outside consultants also performed various tests and procedures to
determine AutoBond's compliance with its servicing procedures and guidelines. In
early February, Dynex received the results from the servicing compliance tests,
which highlighted certain irregularities. Based upon such report, Dynex analyzed
the loan data information that it has received monthly from AutoBond. Based upon
such analysis, Dynex determined that the delinquency ratio reported and
certified by AutoBond was understated, and that the delinquency ratio was such
that a "Triggering Event" had occurred as specified in the Agreements. Such
Triggering Event allowed Dynex to immediately terminate AutoBond as servicer. On
February 22, 1999, Dynex notified AutoBond that it was terminating its servicing
arrangement due to the Triggering Event, and named Systems & Services
Technologies as successor servicer.
To this date AutoBond has still denied Dynex access to the loan files and
related information, and has not cooperated on the servicing transfer.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit
Number Exhibit
99.1 Dynex Capital, Inc. Press Release, dated February 25, 1999
(filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 25, 1999 DYNEX CAPITAL, INC.
By: /s/ Lynn K. Geurin
Lynn K. Geurin
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
Dynex Capital, Inc. Press Release, dated February 25, 1999. I