Subprime notes: CPS securitization & Credit Acceptance financing, credit facility
Two long-standing subprime auto finance companies each made moves last week to give themselves the financial horsepower they need to continue originations and other business activities.
After Consumer Portfolio Services launched its first securitization of 2021, Credit Acceptance announced the completion of a $100 million asset-backed non-recourse secured financing.
Pursuant to this transaction, Credit Acceptance said it contributed approximately $125.1 million of installment contracts to a wholly-owned special purpose entity that will pledge the contracts to an institutional lender under a loan and security agreement.
Credit Acceptance explained in a news release that the financing will accomplish three objectives, including:
—Bear interest at one-month LIBOR plus 200 basis points;
—Revolve for 24 months after which it will amortize based upon the cash flows on the contributed loans
—Be used by the company to repay outstanding indebtedness and for general corporate purposes
Credit Acceptance said it will receive 6.0% of the cash flows related to the underlying consumer loans to cover servicing expenses. The remaining 94.0%, less amounts due to dealers for payments of dealer holdback, will be used to pay principal and interest to the institutional lender as well as the ongoing costs of the financing.
“The financing is structured so as not to affect our contractual relationships with our dealers and to preserve the dealers’ rights to future payments of dealer holdback,” Credit Acceptance said.
Additionally, the company announced that it extended the date on which its $300 million revolving secured warehouse facility will cease to revolve. The date moved from July 26, 2022 to Nov. 17, 2023.
Credit Acceptance noted the interest rate on borrowings under the facility has been increased from LIBOR plus 200 basis points to LIBOR plus 210 basis points.
“There were no other material changes to the terms of the facility,” the company said, while adding that it did not have a balance outstanding under the revolving secured warehouse facility as of Friday.
CPS closes its first securitization of year
In other industry news, Consumer Portfolio Services (CPS) announced the closing of its first term securitization in 2021.
According to a news release, the transaction is CPS’ 38th senior subordinate securitization since the beginning of 2011 and the 21st consecutive securitization to receive a triple-A rating from at least two rating agencies on the senior class of notes.
In the transaction, the company highlighted qualified institutional buyers purchased $230.5 million of asset-backed notes secured by $245.0 million in automobile receivables originated by CPS.
The sold notes, issued by CPS Auto Receivables Trust 2021-A, consist of five classes. Ratings of the notes were provided by Standard & Poor’s and DBRS Morningstar, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.
|Price||S&P's Rating||DBRS Rating|
The company said the weighted average coupon on the notes is approximately 1.11%.
CPS mentioned the 2021-A transaction has initial credit enhancement consisting of a cash deposit equal to 1.00% of the original receivable pool balance and overcollateralization of 5.90%.
The company added that the transaction agreements require accelerated payment of principal on the notes to reach overcollateralization of the lesser of 9.30% of the original receivable pool balance, or 32.05% of the then outstanding pool balance.
The company went on to mention the transaction utilizes a pre-funding structure, in which CPS sold approximately $184.4 million of receivables at inception and plans to sell approximately $60.6 million of additional receivables in February.
“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of January,” officials said.
“The transaction was a private offering of securities, not registered under the Securities Act of 1933, or any state securities law. All of such securities having been sold, this announcement of their sale appears as a matter of record only,” they continued.