First Subprime Auto ABS of 2017 Comes from CPS

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Consumer Portfolio Services got the jump on rival subprime lenders this week with the first securitization of non-prime auto loan receivables of the year.

CPS Auto Receivables Trust 2017-A is $206.32 million asset-backed offering, the 24th overall for the primarily indirect lender to troubled-credit borrowers whose FICO scores average 567 (from a range generally between 400 and 650).

 The transaction includes five series of notes, led by a Class A series of $99.12 million in bonds due Aug. 17, 2020, with 53.8% initial credit enhancement. The senior notes carry preliminary ‘AAA’ structured finance ratings from Kroll Bond Rating Agency, DBRS and Standard & Poor's. The transaction is the first CPS portfolio ever rated by KBRA.

The capital stack also include $29.92 million in Class B notes with a 39.55% CE and a d due date of May 2021 (rated ‘AA’ by Kroll and S&P; ‘AA (high)’ by DBRS); $32.66 million in Class C notes, rated ‘A’ by all agencies; $24.57 million in triple-B rated Class D notes, and a subordinate Class E tranche totaling $20.05 million carrying a ‘BB’ from DBRS and a ‘BB-’ from Kroll and S&P.

The deal will have an initial overcollateralization of 1.75%, building to a target of 5.15% of the outstanding pool balance.

KBRA and DBRS estimate the cumulative net loss of the portfolio might range between 15-19%. That is in line with DBRS’ estimates for CPS’ previous securitization in October; it is slightly higher than a comparative transaction from Westlake Automobile Receivables Trust 2016-3 from last October, according to KBRA.

CPS’ income declined year-over-year during its quarterly finance reports in 2016, including $21.8 million through the third quarter, compared to $25.7 million in the first nine months of 2015. The company increased the provision for credit losses last year, assigning $134.8 million to that reserve through Sept. 30, compared to just $106 million in the same period in 2015.

The collateral consists of auto loan contracts totaling $131.53 million in receivables, with collateral of $210 million, secured by used autos, light-duty trucks, vans and mini-vans. 76% of the contracts were purchased from franchised dealerships.

The average loan size of $16,175 is the largest since the first of four CPS loan securitization deals in 2016. The weighted average APR of 19.49% is in line with previous deals, but the average original term of 67.99 months is down slightly from CPS’ 2016-C and 2016-D deals last year.

Like most of its previous transactions, CPS quickly turns loans over into its securitization portfolio with loans averaging less than one month of seasoning (it is able to consistently fund new originations from more than $300 million in available warehouse lines through Citigroup, Fortress Credit, Credit Suisse and Ares Capital Corp.  

Over 75% of the vehicles are used, with an average LTV of 114.77%.

As of September, the 26-year-old CPS had a managed portfolio of $2.3 billion from 167,000 active vehicle loan contracts and over $179.1 million in equity. Borrowers generally have credit bureau scores ranging from 400 to 650. Nearly 9% of the loans are to borrowers with no FICO score. 35.17% have FICO scores less than or equal to 550.

Most of the loans (40-65%) are from its mid-tier “Alpha” loan program. The 2017-A transaction does not include any loans originated under CPS’ lowest-score origination platform, nicknamed Bravo.

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