As Consumer Portfolio Services closed its second term securitization of the year, General Motors cheered Fitch Ratings’ decision this week to raise the credit ratings of both GM and GM Financial to investment grade with the finance company’s diminishing presence in the subprime space being an element impacting the decision.

With this upgrade, the corporate credit ratings for GM are now investment grade with all major rating agencies.

Fitch’s news today confirms that we are delivering on our commitment to generate strong operating results and implement our customer-focused strategy,” GM chief executive officer Mary Barra said. “But, as much as we like this recognition, we are focused on achieving even stronger performance and enhancing long-term shareholder value in the years to come.”

The new GM corporate and GM Financial credit ratings assigned by Fitch are BBB- with a “stable” outlook. Each credit rating is one level higher than the previous GM and GM Financial ratings of BB+, which were assigned by Fitch in August 2012 and August 2013, respectively.

In explaining its decision regarding the upgrade, Fitch referenced GM Financial’s move away from taking on a vast amount of subprime paper and shifting toward more prime contracts as well as new-vehicle leases.

“Operating performance remains solid driven by growth in earning assets, but margins and return ratios are gradually declining reflecting the run-off of higher-yielding pre-acquisition receivables and the continued shift in the originations from higher-return, higher-risk subprime loans to lower-return, lower-risk prime and commercial loans,” said Fitch analysts. They also pointed out that GM Financial’s subprime vehicle installment contract penetration declined to 26 percent of total earning assets as of March 31, down from more than 80 percent at the end of 2012.

“Earning assets are expected to continue to grow as GM Financial continues to transition to a full-service captive,” Fitch analysts continued. “Fitch will monitor the company’s growth and expansion into these products paying particular attention to underwriting standards, credit quality, profitability and leverage metrics.

“Further, as the portfolio continue to grow, Fitch will pay particular attention to the GM’s ability to support GM Financial as outlined under the support agreement and how the potential liability could impact GM,” they went on to say.

Details of CPS’ $250 Million Securitization

CPS highlighted this transaction is the company’s 17th senior subordinate securitization since the beginning of 2011 and the fifth consecutive securitization to receive a triple-A rating on the senior class of notes. 

In the transaction, CPS indicated qualified institutional buyers purchased $250 million of asset-backed notes secured by automobile receivables purchased by the company.

The sold notes, issued by CPS Auto Receivables Trust 2015-B, consist of five classes. Ratings of the notes were provided by Standard & Poor’s and DBRS and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.

Officials mentioned the weighted average effective coupon on the notes is approximately 3.15 percent.

The 2015-B transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance. The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 4.00 percent of the then-outstanding receivable pool balance.

The company pointed out the transaction utilizes a pre-funding structure, in which CPS sold approximately $155.1 million of receivables this week and plans to sell approximately $94.9 million of additional receivables during July.

“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of June,” officials said.

“The transaction was a private offering of securities, not registered under the Securities Act of 1933, or any state securities law,” CPS went on to say. “All of such securities having been sold, this announcement of their sale appears as a matter of record only.”