Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of Sameer Gokhale - KBW
Sameer Gokhale - KBW
I just had a question about the charge-off rate, you said you anticipate reaching that 8.5% trigger in this month and I was wondering if you could tell us how much lower the charge-off rate would have to be in order for you to not hit that trigger since we don’t have the monthly charge-off rate numbers.
Daniel Berce
The six month average through December 31 is 8.3 and just because of seasonality we’re going to be dropping off a lower number for the month of July. I can’t give you specifics but it clearly has to be less then 8.5.
Sameer Gokhale - KBW
I was just hoping to get that monthly numbers. The interest expense—
Daniel Berce
The trust data doesn’t come out until February 11 and if we, our 10-Q filing is expected February 6, 7, 8, something like that so you will know if we breach that covenant before the posting of January results.
Sameer Gokhale - KBW
As far as your interest expense there was an increase was that because of the expensing of the acceleration of the expensing of the warrants that flowed in through that line item?
Chris Choate
In addition to the $12 million charge associated with the derivative that I mentioned, that’s correct.
Sameer Gokhale - KBW
And then that 8.5% I just want to clarify, if that applies to your managed portfolio charge-off rate not the subprime only, right, based on the overall managed charge-off rate metric.
Chris Choate
That is correct.
Sameer Gokhale - KBW
You talked about what happens in a worst case the lenders declare an event of default but essentially do they get to seize any equity that you put into the warehouse or do you get that back over time once the warehouse lines are fully paid off.
Chris Choate
It’s the latter. In the worst case scenario which I described could involve the loss of servicing of that portfolio, it doesn’t mean that we lose the ownership of the receivables at the end of the day which the equity piece that could come back.
Operator
Your next question comes from the line of John Hecht – JMP Securities
John Hecht – JMP Securities
It sounds like you anticipate having to address some of the warehouse covenants, maybe could you give us more expectations for what you would have to address and where you are in terms of capacity in the warehouse and where you think that might go just to give us a sense where originations might go.
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