Morningstar DBRS Finalizes Provisional Ratings on CPS Auto Receivables Trust 2024-A

DBRS, Inc. (Morningstar DBRS) finalized its provisional ratings on the classes of notes issued by CPS Auto Receivables Trust 2024-A (the Issuer) as follows:

-- $128,512,000 Class A Notes at AAA (sf)
-- $37,870,000 Class B Notes at AA (sf)
-- $48,557,000 Class C Notes at A (sf)
-- $33,218,000 Class D Notes at BBB (sf)
-- $32,767,000 Class E Notes at BB (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The ratings are based on Morningstar DBRS’ review of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the Morningstar DBRS-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- Unlike prior CPS transactions, the series 2024-A does not include an CNL trigger.

-- The transaction assumptions consider Morningstar DBRS’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2023 Update,” published on December 19, 2023. These baseline macroeconomic scenarios replace Morningstar DBRS’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.
-- The Morningstar DBRS CNL assumption is 17.00% based on the expected pool composition.

(2) The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and the payment of principal by the legal final maturity date.

(3) The consistent operational history of Consumer Portfolio Services, Inc. (CPS or the Company) and the strength of the overall Company and its management team.
-- The CPS senior management team has considerable experience and a successful track record within the auto finance industry.

(4) The capabilities of CPS with regard to originations, underwriting, and servicing.
-- Morningstar DBRS performed an operational review of CPS and considers the Company to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

(5) Morningstar DBRS exclusively used the static pool approach because CPS has enough data to generate a sufficient amount of static pool projected losses.
-- Morningstar DBRS was conservative in the loss forecast analysis that it performed on the static pool data.

(6) The Company indicated that there is no material pending or threatened litigation.

(7) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with CPS, that the trust has a valid first-priority security interest in the assets, and the consistency with Morningstar DBRS’s “Legal Criteria for U.S. Structured Finance.”

CPS is an independent full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The rating on the Class A Notes reflects 58.25% of initial hard credit enhancement provided by the subordinated notes in the pool (50.70%), the reserve account (1.00%), and OC (6.55%). The ratings on the Class B, C, D, and E Notes reflect 45.65%, 29.50%, 18.45%, and 7.55% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

Morningstar DBRS’s credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Noteholders’ Monthly Interest Distributable Amount and the related Note Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the associated contractual payment obligation that is not a financial obligation is interest on unpaid interest for each of the rated notes.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://www.dbrsmorningstar.com/research/413731).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (October 30, 2023) https://dbrs.morningstar.com/research/422592/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023) https://www.dbrsmorningstar.com/research/417415/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023) https://www.dbrsmorningstar.com/research/417416/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2023) https://dbrs.morningstar.com/research/425081/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].