CPS Announces Renewal of $200 Million Credit Facility
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Insights
The renewal of Consumer Portfolio Services' revolving credit agreement with Ares Agent Services is a strategic financial move, indicating the company's ongoing need for flexible capital to fund its operations. The use of automobile receivables as collateral is a common practice in the industry, which typically allows a company to secure lower interest rates on borrowed funds due to the reduced risk for lenders.
From a liquidity standpoint, this revolving credit facility provides CPS with the ability to manage cash flow more effectively, ensuring that it has the necessary funds to support its business activities, such as purchasing new receivables from dealers. The option to either repay the loans in full or allow them to amortize over an additional two-year period after the initial term ends gives CPS a degree of financial flexibility that can be advantageous in managing its debt obligations in response to market conditions.
Investors should note that the terms of such agreements are important indicators of a company's creditworthiness and the confidence of financial institutions in its business model. It's also indicative of the company's projected cash flows and its ability to service debt. However, it's important to monitor the company's leverage ratios and interest coverage to ensure that the debt remains at manageable levels.
In the context of the auto finance industry, CPS's renewed credit agreement is reflective of the company's position in the market and its operational strategy. By securing a credit line backed by automobile receivables, CPS is aligning its financing strategy with its core business of lending to automobile purchasers.
This move may signal to the market that CPS is anticipating growth or at least maintaining its current volume of business. The ability to borrow on a revolving basis through 2026 provides CPS with the agility to respond to market demands and opportunities as they arise, such as shifts in consumer borrowing behavior or changes in the automotive market.
For stakeholders, the implications of this credit agreement extend beyond mere financial flexibility. It suggests that CPS is actively managing its risk profile and has a strategic plan for its receivables. The agreement's structure, which includes the option for amortization, also provides CPS with a mechanism to smooth out financial obligations over time, which could be beneficial in periods of economic uncertainty or fluctuating interest rates.
LAS VEGAS, Nevada, April 01, 2024 (GLOBE NEWSWIRE) -- Consumer Portfolio Services, Inc. (Nasdaq: CPSS) (“CPS” or the “Company”) today announced that on March 29, 2024, it renewed its two-year revolving credit agreement with Ares Agent Services, L.P.
Loans under the renewed credit agreement will be secured by automobile receivables that CPS now holds, will originate directly, or will purchase from dealers in the future. CPS may borrow on a revolving basis through March 31, 2026, after which CPS will have the option to repay the outstanding loans in full or to allow them to amortize through March 31, 2028.
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 contracts over their lives.
Forward-looking statements in this news release include the Company's expectation that the revolving period will extend for two years, and that an amortization period may follow. The revolving credit agreement renewed on March 29, 2024, provides for both a revolving period and an amortization period to follow, but it is possible that the Company may suffer certain defaults or events of default that would terminate the revolving period or result in acceleration of maturity of the credit extended. In general, such defaults or events of default would result from losses that the Company might incur in the future. In turn, such losses might result from poor performance of receivables acquired or to be acquired by the Company, from increases in the rate of consumer bankruptcy filings, which could adversely affect the Company’s rights to collect payments from its portfolio; from changes in government regulations affecting consumer credit; or from adverse economic conditions, either generally or in geographic areas in which the Company's business is concentrated.
Investor Relations Contact
Danny Bharwani, EVP/ Chief Financial Officer
949-753-6811
FAQ
What was announced by Consumer Portfolio Services, Inc. (CPSS) on April 1, 2024?
Who is the lender in the renewed credit agreement for CPSS?
What will secure the loans under the renewed credit agreement for CPSS?
Until when can CPS borrow on a revolving basis under the renewed credit agreement?
What options does CPS have after March 31, 2026, regarding the outstanding loans?
