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.
