Fitch Downgrades Consumer Portfolio Services, Inc.

    CHICAGO--Dec. 21, 2001--Fitch downgrades the subordinated debt rating of Consumer Portfolio Services Inc (CPS) to 'CCC-' from 'CCC'. The Rating Outlook remains Negative.
    The rating action follows Fitch's review of management's plan for financing and integrating the pending acquisition of MFN Financial Corporation (MFN) in a transaction valued at approximately $100 million. The acquisition, which is expected to close in the first quarter of 2002, will be funded entirely with debt.
    The rating downgrade for CPS is based on Fitch's concern of the company's weak capitalization position especially in relation to the current economic environment, the acquired risk profile of MFN's balance sheet, and the dependence on secured financing to fund its operation.
    In Fitch's assessment, CPS' capitalization profile is weak. Securitization-based residual assets totaled $123 million or 199% of total equity at Sept. 30, 2001. The value of these securitization-based residual assets is based on assumptions related to asset quality and prepayment speeds. Fitch assesses a significant risk-weight to these assets in its internal capitalization model. Injection of common equity into the capital structure is not likely. In addition, internal capital formation is poor due to a lack of profitability.
    As a subprime automobile lender, CPS maintains a high-risk loan portfolio. With the acquisition of the higher risk MFN portfolio, the risk profile of CPS will move up noticeably. To date, asset quality has performed within initial expectations, but Fitch expects losses to accelerate in a weakening economic environment.
    CPS' funding profile has improved but remains volatile. In September 2001, CPS completed a $68.5 million securitization with a financial guaranty insurance policy issued by Financial Security Assurance Inc. CPS currently has a $75 million secured revolving note purchase facility with a one- year expiration. The company remains heavily reliant on secured financing and securitization for funding, and it depends on cash flow from previously executed securitizations to fund its day-to-day operations.
    Based in Irvine, CA, CPS is an independent subprime automobile finance company. As of Sept. 30, 2001, CPS maintained $318 million in managed automobile finance receivables.

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