Thaxton Class Action

Financial Discussion

We have been asked for specific financial details by some noteholders. This discussion is very general and designed to give noteholders an overall view of what is going on. Because the company continues to negotiate with potential purchasers, we have provided the following analysis without any discussion with Thaxton management, and the views expressed below are entirely our own based on publicly available information. We are not privy to managment's analysis and strategy as to any potential sales.

Following the settlement, Finova released all claims it had against Thaxton, so that money on hand was distributed and the noteholders, in effect, own the company. The plan was, and continues to be, to sell the company and distribute the proceeds of the sale to noteholders. A purchaser initially made a pre-emptive bid that would have resulted in noteholders receiving about 95 cents on the dollar. That bid tied up the sale process, and we believe the bidder handled it in a way so as to allow the deal to fall apart, hoping to purchase part of the company at a discount. Thaxton properly rejected the deal.

After that, because of the value of the company, Thaxton obtained a line of credit and borrowed money to make an interim distribution. It has also distributed some of its profits. As a result, noteholders have received about 63 cents on the dollar. We hope to make that 100 cents or, if the process drags on, even more.

Thaxton's value is based on its profitability and its outstanding loans. It has been earning about $11 million per year, and that number continues to go up. The loans it makes vary seasonally, but are now around $85 million gross, and a little less than $70 million net. Based on these numbers, a motivated buyer might well consider paying in the $90 million range, and hopefully much more. (These numbers are our estimates only.)

The line of credit is for about $55 million, but right now Thaxton has only drawn down about $43 million. It may draw down a little more in December as it makes holiday loans and continues to grow.

When the company sells, it would have to pay off the line of credit, and also pay various other obligations, fees, and bonuses. These could be in the range of $12-15 million. Thus, for example, if the company sold for $95 million today, net proceeds to go to the noteholders might be in the range of $46 million. The total obligation to noteholders was originally about $125 million, and about $79 million has been paid back. Thus, if the company sold at what we believe to be a fair price today, noteholders could be paid back in full (79+46=125). Unfortunately, purchasers today seem to want to pay discount prices.

The company continues to grow and to remain profitable. To take an extreme example, if the company did not sell for four more years, the company would probably pay out $46 million in distributions -- and noteholders would still stand to get the full remaining value of the company when it finally sold.

For these reasons, we urge noteholders to support Thaxton management and Bob Dunn's team at the Finley Group. The longer we hold out, it seems the more value the company will build. We all hope for an early sale, but beleive it would be bad to push for a sale at a discount price that would not bring noteholders much more money that they would receive anyway through periodic interim distributions.