Higher Credit Quality Offsets Reduced Seasoning in CPS Securitization
Despite less loan seasoning in Consumer Portfolio Services’ first securitization of the year, the transaction’s expected loss rate is unchanged from the lender’s previous ABS deal, according to an S&P Global Ratings presale report.
An emphasis on higher-tiered borrowers positively impacted the transaction, according to S&P. Specifically, the percentage of borrowers in CPS’s top three loan programs — called Preferred, Super Alpha, and Alpha Plus — increased to 45%, compared with 42.4% in the October 2018 securitization.
The current transaction also put less emphasis on CPS’s two lowest financing programs, Delta and First-Time Buyer. The Delta program dropped to 4.0% of the credit mix — from 4.9% previously — and the First-Time Buyer program fell to 1.71% from 1.78%.
The expected loss rate for the $254.4 million securitization is in the 17.75% to 18.75% range, according to S&P.
The current securitization excludes “called collateral,” which refers to loans plucked from previous transactions, S&P Lead Credit Analyst Peter Chang told AFN. Typically, called collateral is comprised of seasoned loans, or those that have a history of performance.
Without called collateral, the CPS securitization has average seasoning of 0.63 months, compared with 3.6 months in the October 2018 transaction.
CPS will prefund $98.9 million, or 37%, of the total collateral pool. Prefunding refers to a 45-day period after closing in which the company can purchase additional receivables for the transaction. The prefunding period has stricter requirements than the initial receivables pool, including a 72-month cap on loan terms. Also, loans originated in the top four credit tiers must account for at least 82% of the aggregate principle balance of the receivables.
“All of these limits, compared to the previous transaction, leads us to believe that this one is slightly better,” Chang said.
The loan-to-value ratio for the securitization increased to 114.5%, compared with 113.8% in CPS’s October 2018 transaction.
The current transaction — CPS’s 35th — is slated to close Jan. 23.
