New CPS Subprime Auto ABS Gains in Credit Quality

Consumer Portfolio Services is planning a third securitization of its subprime auto loan portfolio this year, amidst slightly improved underwriting conditions but growing levels of delinquencies on receivables.  

The $318.5 million CPS Auto Receivables Trust 2016-C is an offering with five tranches of notes, led by a senior Class A stack sized at $159.25 million and graded at ‘AAA’ in preliminary structured finance ratings from both Standard & Poor’s and DBRS.

The 2016-C transaction follows CPS’ last deal issued in April, a similarly structured $332.69 million transaction with five note classes. The latest CPS transaction, which is the 40^th overall for the Las Vegas-based company, has a slightly lower credit enhancement on the Class A notes stack (52% vs. 53.3%) and also includes more collateral from the top four credit tiers of contracts (74.25%, up from 69.3%) in its $2.14 billion portfolio of loans that in March had grown 24% from the year prior.

The other notes are split between a Class B tranche totaling $38.18 million, rated ‘AA’ by both agencies; a $50.38 million Class C tranche (rated ‘A’), a $39.81 million Class D tranche rated ‘BBB-’ by S&P and ‘BBB (low’) by DBRS; and a $30.88 million subordinate Class E tranche. The Class E notes are rated ‘BB-’ by S&P, and are unrated by DBRS.

The Class A notes are supported by a lower overcollateralization of 2% from the 2015-B transaction’s 2.15% level, and also has a lower target OC range of between 2.5-5.5%. The previous deal’s OC target reached up to 5.65%.

With the improved credit levels, the CPS trust included more 60-plus month loans (75.81% compared to 69.39%), and a slightly increased loan-to-value ratio of 114.9%, vs. 114.5% earlier this year. The weighted average APR declined to 19.56% from 19.75%.

However, total delinquencies have accelerated to 8.97% as of March 2016, compared to 6.92% last year. S&P notes that management has cited the regulatory environment contributing to higher delinquency levels.

Most of the loans continue to be issued for used cars (75.56% of the collateral pool).

The deal, underwritten by Citigroup, is expected to close on July 27.

Consumer Portfolio Services indirectly purchases auto loan contracts from its network over 16,350 dealers who originate the loans approved by CPS. Most (72%) of its contracts are purchased from factory-franchised dealers.