CPS Announces $280.9 Million Senior Subordinate Asset-Backed Securitization

Rhea-AI Summary

Consumer Portfolio Services, Inc. (CPSS) closed its 50th senior subordinate securitization since 2011, marking the 100th securitization in the company’s history. The transaction involved the sale of $280.9 million of asset-backed notes secured by $300.6 million in automobile receivables originated by CPS. The notes received high ratings from Standard & Poor’s and DBRS Morningstar, with a weighted average coupon of approximately 6.51%.

Insights

Financial Analyst

The closing of Consumer Portfolio Services, Inc.'s first term securitization of 2024 represents a significant financial event for the company and its investors. The transaction's impressive milestone of being the 50th senior subordinate securitization since 2011 and the 33rd to receive a triple 'A' rating, highlights the company's consistent performance and the high quality of its receivables. The triple 'A' rating, the highest possible, suggests strong creditworthiness and may lower the cost of borrowing for CPS, which can improve profit margins.

The weighted average coupon rate of approximately 6.51% is a critical figure as it indicates the average interest rate that investors will receive. This rate should be compared against current market conditions and alternative investment opportunities to assess the attractiveness of the notes. The initial credit enhancement measures, including the cash deposit and overcollateralization, provide additional security to investors and may contribute to the high ratings received. These enhancements are particularly important as they protect against potential losses arising from defaults on the automobile receivables that secure the notes.

Credit Risk Analyst

The structure of the asset-backed securities (ABS) issued by CPS Auto Receivables Trust 2024-A is indicative of a robust risk management strategy. The tiered note classes, each with different interest rates and maturities, cater to a diverse investor base with varying risk appetites. The senior notes, rated 'AAA', are the most secure with the lowest interest rates, while the subordinate notes carry higher yields to compensate for greater risk. The presence of a non-rated class (Class E) suggests that there is a tranche designed for investors seeking higher returns at the expense of higher risk.

The transaction's requirement for accelerated principal payments to reach a certain level of overcollateralization is a mechanism to protect senior note holders. It ensures that the value of the collateral exceeds the outstanding notes by a significant margin, which could mitigate the impact of any potential downturn in the performance of the automobile receivables. This is a prudent measure that reflects CPS's commitment to maintaining the integrity of its securitization program and the interests of its investors.

Market Research Analyst

The success of CPS's 100th securitization is not only a testament to the company's expertise in the field but also serves as a barometer for the health of the auto loan ABS market. The demand from qualified institutional buyers for this issuance and the receipt of high ratings from reputable agencies such as Standard & Poor’s and DBRS Morningstar indicate a robust appetite for asset-backed securities tied to automobile receivables. This could signal confidence in the auto finance sector and the broader economy, as a willingness to invest in such securities often correlates with positive consumer repayment behaviors and a stable financial environment.

However, it's important to monitor the performance of similar receivables and the broader auto loan market for signs of stress, which could affect future securitizations. Factors such as rising interest rates, economic downturns, or increased default rates could alter the risk profile of these securities and impact investor sentiment. Continuous monitoring and analysis of market trends and consumer credit behavior are essential for stakeholders to make informed decisions.

LAS VEGAS, Nevada, Jan. 24, 2024 (GLOBE NEWSWIRE) -- Consumer Portfolio Services, Inc. (Nasdaq: CPSS) (“CPS” or the “Company”) announced the closing of its first term securitization in 2024 on Wednesday, January 24, 2024. The transaction is CPS's 50th senior subordinate securitization since the beginning of 2011 and the 33^rd consecutive securitization to receive a triple “A” rating from at least two rating agencies on the senior class of notes. The transaction also marks the 100^th securitization in the company’s history.

In the transaction, qualified institutional buyers purchased $280.9 million of asset-backed notes secured by $300.6 million in automobile receivables originated by CPS.   The sold notes, issued by CPS Auto Receivables Trust 2024-A, consist of five classes. Ratings of the notes were provided by Standard & Poor’s and DBRS Morningstar, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.

Note Class	Amount (in millions)		Interest Rate	Average Life (years)	Price	S&P’s Rating	DBRS Rating
A	$128.512		5.71%	0.66	99.99921%	AAA	AAA
B	$37.870		5.65%	1.69	99.98914%	AA	AA
C	$48.557		5.74%	2.35	99.98115%	A	A
D	$33.218		6.13%	3.24	99.97406%	BBB	BBB
E	$32.767		8.42%	4.00	99.97137%	NR	BB

The weighted average coupon on the notes is approximately 6.51%.  

The 2024-A transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 6.55%. The transaction agreements require accelerated payment of principal on the notes to reach overcollateralization of the lesser of 9.55% of the original receivable pool balance, or 26.55% of the then outstanding pool balance.        

The transaction was a private offering of securities, not registered under the Securities Act of 1933, or any state securities law. All such securities having been sold, this announcement of their sale appears as a matter of record only.

About Consumer Portfolio Services, Inc.

Consumer Portfolio Services, Inc. is an independent specialty finance company that provides indirect automobile financing to individuals with past credit problems or limited credit histories. We purchase retail installment sales contracts primarily from franchised automobile dealerships secured by late model used vehicles and, to a lesser extent, new vehicles. We fund these contract purchases on a long-term basis through the securitization markets and service the loans over their entire contract terms.

Investor Relations Contact

Danny Bharwani, Chief Financial Officer
949-753-6811

FAQ

What is the significance of the recent transaction for Consumer Portfolio Services, Inc. (CPSS)?

The recent transaction marks the 50th senior subordinate securitization and the 100th securitization in the company’s history, demonstrating a strong track record in this area.

How much were the asset-backed notes sold for in the recent transaction?

Qualified institutional buyers purchased $280.9 million of asset-backed notes secured by $300.6 million in automobile receivables originated by CPS.

What were the ratings of the notes in the recent transaction?

The notes received ratings from Standard & Poor’s and DBRS Morningstar, with the senior class of notes receiving a triple “A” rating from at least two rating agencies.

What is the weighted average coupon on the notes from the recent transaction?

The weighted average coupon on the notes is approximately 6.51%.

What is the initial credit enhancement in the recent transaction?

The 2024-A transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 6.55%.