CPS Announces $436.31 Million Senior Subordinate Asset-Backed Securitization

Rhea-AI Summary

Consumer Portfolio Services (CPS) announced the closing of a $436.31 million senior subordinate asset-backed securitization on June 26, 2024. This marks CPS's third term securitization in 2024 and its 52nd since 2011. The transaction involves asset-backed notes secured by $460 million in automobile receivables.

The notes, issued by CPS Auto Receivables Trust 2024-C, include five classes with a weighted average coupon of 6.56%. The transaction received a triple “A” rating on the senior class from Standard & Poor's and DBRS Morningstar.

Initial credit enhancement includes a 1% cash deposit and 5.15% overcollateralization. The securitization uses a pre-funding structure, with $319.85 million in receivables sold initially and an additional $140.15 million to be sold in July 2024.

Positive

• CPS closed its third term securitization in 2024, raising $436.31 million.
• This is the 52nd securitization since 2011 and the 35th consecutive to receive a triple 'A' rating on the senior class from at least two rating agencies.
• The transaction involved asset-backed notes secured by $460 million in automobile receivables.
• The weighted average coupon on the notes is approximately 6.56%, potentially increasing investor returns.

Negative

• The securities offering was private and not registered under the Securities Act of 1933, which may limit liquidity and investor access.
• The transaction requires overcollateralization of up to 8.40% of the original receivable pool balance, which could strain CPS's financial resources.

Insights

Financial Analyst

The announcement of Consumer Portfolio Services, Inc. (CPS) closing its $436.31 million senior subordinate asset-backed securitization is noteworthy for investors due to its implications on the company's financial stability and growth potential.

The issuance of asset-backed notes with a weighted average coupon of 6.56% reflects favorable borrowing costs amidst current market conditions. A significant point is the triple “A” rating received on the senior class of notes from two rating agencies, which underscores the high creditworthiness of the underlying asset pool. This high rating is beneficial as it may reduce future financing costs and attract more investors.

From a financial perspective, the transaction structure includes initial credit enhancement measures such as a cash deposit and overcollateralization, which are safeguards for the investors and enhance the reliability of the investment. Moreover, the accelerated principal payment feature to reach overcollateralization targets denotes a strong commitment to maintaining the credit quality of the securitization.

Investors should consider CPS's historical performance in managing such securitizations, noting this marks the 35th consecutive securitization to achieve high ratings. This track record signifies effective risk management and a robust servicing capability, which are critical factors for the stability of returns from such investments.

The transaction's use of a pre-funding structure, with plans to sell additional receivables in July, indicates proactive financial planning to secure ongoing liquidity. This strategic move assists in maintaining operational cash flow and sustaining growth by funding new receivables, particularly in a tight credit market environment.

Market Research Analyst

For retail investors, this securitization highlights several key market dynamics. First, the consistent ability of CPS to secure high credit ratings for its securitizations points to strong demand for its asset-backed securities (ABS). This is indicative of investor confidence in the underlying asset quality and the company's ability to service these assets.

The market for ABS, particularly those backed by automobile receivables, has shown robust performance. CPS tapping into this market effectively reflects its strategic positioning. The relatively low interest rates on the notes—ranging from 5.68% to 8.04%—suggest that the company can still secure financing at competitive rates, which is especially important given the interest rate volatility.

Moreover, the retained overcollateralization and cash deposit as part of the credit enhancement strategy signal a conservative approach to risk management. This could be appealing for risk-averse investors looking for stable returns in the fixed income space. The structured and diversified nature of the notes across different classes also spreads risk and potentially enhances the predictability of returns.

For those interested in the broader market impacts, this transaction is a positive signal for the overall health of the asset-backed securities market. It reflects the strong appetite for securitized products, which in turn supports liquidity in the credit markets. This could lead to more investment opportunities and possibly more favorable terms for future issuances.

LAS VEGAS, Nevada, June 26, 2024 (GLOBE NEWSWIRE) -- Consumer Portfolio Services, Inc. (Nasdaq: CPSS) (“CPS” or the “Company”) announced the closing of its third term securitization in 2024 on Wednesday June 26, 2024. The transaction is CPS's 52nd senior subordinate securitization since the beginning of 2011 and the 35th consecutive securitization to receive a triple “A” rating from at least two rating agencies on the senior class of notes.

In the transaction, qualified institutional buyers purchased $436.31 million of asset-backed notes secured by $460.00 million in automobile receivables originated by CPS.   The sold notes, issued by CPS Auto Receivables Trust 2024-C, 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	$197.340		5.88%	0.67	99.99551%	AAA	AAA
B	$58.420		5.68%	1.69	99.98558%	AA	AA
C	$74.980		5.76%	2.39	99.97978%	A	A
D	$44.390		6.22%	3.23	99.98085%	BBB	BBB
E	$61.180		8.04%	4.03	99.99348%	NR	BB

The weighted average coupon on the notes is approximately 6.56%.  

The 2024-C transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 5.15%. The transaction agreements require accelerated payment of principal on the notes to reach overcollateralization of the lesser of 8.40% of the original receivable pool balance, or 23.15% of the then outstanding pool balance.        

The transaction utilizes a pre-funding structure, in which CPS sold approximately $319.85 million of receivables at inception and plans to sell approximately $140.15 million of additional receivables in July 2024. This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of June.

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 primarily through the securitization markets and service the contracts over their lives.

Investor Relations Contact

Danny Bharwani, Chief Financial Officer
949-753-6811

FAQ

What is the recent securitization announced by CPS?

On June 26, 2024, CPS announced a $436.31 million senior subordinate asset-backed securitization.

How many securitizations has CPS completed in 2024?

CPS has completed three term securitizations in 2024.

What is the total value of automobile receivables backing CPS's recent securitization?

The securitization is backed by $460 million in automobile receivables.

What rating did CPS's recent securitization receive?

The senior class of notes in CPS's recent securitization received a triple 'A' rating from Standard & Poor's and DBRS Morningstar.

What is the weighted average coupon on the notes issued by CPS Auto Receivables Trust 2024-C?

The weighted average coupon on the notes is approximately 6.56%.

What is the overcollateralization requirement for CPS's recent securitization?

The overcollateralization requirement is the lesser of 8.40% of the original receivable pool balance or 23.15% of the then outstanding pool balance.

Will CPS sell additional receivables under the 2024-C transaction?

Yes, CPS plans to sell approximately $140.15 million of additional receivables in July 2024.

Was CPS's recent securitization offering registered under the Securities Act of 1933?

No, the offering was a private sale and not registered under the Securities Act of 1933.