S&L; Seeks OK for Bonds Based on Auto Loans

Western Financial Savings Bank in Orange is seeking federal approval for a $200-million bond issue--one backed by automobile loans instead of real estate loans and guaranteeing interest payments and the return of principal.

It would be the second time in the last year that the savings and loan company has used its huge portfolio of auto loans as collateral in issuing securities. Like the $110-million offering sold last December, the current proposed offering is intended to help restructure Western Financial’s loan portfolio to meet federal guidelines by the end of the year.

Western Financial was born in 1983 out of a merger between a savings and loan firm in Northern California and an Orange County thrift and loan, which had its primary assets tied to automobile loans.

Today, about half of Western Financial’s assets--$800 million as of the end of August--are in car loans. Federal regulators like to see 60% of an S&L;’s loans in real estate, so Western Financial decided to use the unusual offering again. By using the auto loans as collateral, Western Financial no longer accounts for them as loans but as securities.

“It’s an excellent way to match assets and liabilities,” said Stephen W. Prough, the S&L;’s president. “The bonds are paid off as the loans are paid off, so the portfolio is protected no matter what happens to interest rates.”

Proceeds from the sale will be funneled into the S&L;’s capital base, said Regan Kelly, a senior vice president at the S&L.; He said the institution hopes to get approval for the offering from the Securities and Exchange Commission in 30 to 60 days.

Drexel Burnham & Lambert Inc., a New York investment banking firm, is underwriting the issue.