Prefunding in securitization transaction structures is credit negative because it introduces a risk to ABS investors, according to Moody's Investors Service.

Prefunding was prevalent in the subprime auto ABS market until the 2007 credit crunch. The recent Consumer Portfolio Services (CPS) subprime auto loan securitization includes a prefunding feature. This means that at issuance, the deal holds cash in a prefunding account for the subsequent purchase of auto loans.

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