Moody’s Investors Service said it raised ratings on the senior notes of Consumer Portfolio Services latest deal, by one notch as a result of increased credit enhancement.
The senior notes on the issuer’s fourth transaction of the year, CPSART 2014-D, will achieve an Aa2’ ratings from Moody’s; DBRS expects to rate the notes AAA’. The notes have credit enhancement at 33.25%.
On its 2013-C transaction, the issuer achieved a AAA’ rating on the senior notes from DBRS and Moody’s raised its ratings by one notch to 'Aa3', as a result of the strength of the sequential pay structure and available enhancement.
The 2014-D deal will offer a total of $268 million of securities backed by subprime loans. The class B notes will be rated A’/ A1’, the class C notes will be rated BBB’/ Baa2’, the class D notes will be rated BB’/ Ba3’ and the class E notes will be rated B’/ B2’.
The transaction includes about 31.9% prefunding; CPS has two months following the close to acquire additional collateral. As a result, the final collateral pool will be different from the initial pool of approximately $182 million.
CPS has been a regular ABS issuer since 1994 but monoline insurers have wrapped the majority of the 60 transactions it has completed. The company has completed 15 senior/subordinate transactions since 2010.
Citigroup is the lead underwriter and Wells Fargo Bank is the backup servicer, custodian and the deposit bank for the Lockbox Account.
The custodial arrangement prohibits CPS from delivering the loans to a third party that could take priority over the lien held by bondholders, according to the Moody’s presale report.
The lockbox arrangement with Wells Fargo safeguards the assets once the loans have converted to cash. “The lockbox arrangement mitigates the risk that funds belonging to bondholders could be deemed a part of CPS’s bankruptcy estate and used to satisfy other creditors,” stated Moody’s.
The deal will bring CPS’ year-to-date issuance to $923 million, according to S&P. Retail auto-loan ABS issuance, year-to-date, is $67 billion with subprime accounting for $20 billion.