Consumer Portfolio Services Inc. Makes Announcement
1 September 1998
Consumer Portfolio Services Inc. Makes Announcement
IRVINE, Calif.--Sept. 1, 1998--CPS Inc. Tuesday released certain data pertaining to the credit quality of its portfolio.
The information is released to clarify certain issues raised by recent analyst reports and by heavy trading of the company's stock.
Securitized Portfolio Performance Triggers: As of June 30, 1998, eight of the company's 19 securitized pools that had issued AAA-rated insured securities ("wrapped pools") had reached cumulative loss levels resulting in "Level 1" triggers. Those triggers in turn result in a requirement that the related spread accounts be maintained at higher levels; such higher levels to be achieved through the accumulation of cash that would otherwise be released to the company. In July 1998, four additional pools hit Level 1 triggers, again resulting in the trapping of cash until such pools attain higher spread account levels.
The breach of a Level 1 trigger by one of the company's "AAA" rated pools is not uncommon. The four most recent pools to enter into the Level 1 trigger are, as of July 31, 1998, between 15 and 23 months of age, which is the age at which losses historically have tended to increase most significantly. The company continues to receive its base servicing fee of 2% per annum even from pools that have reached Level 1 triggers.
Credit Quality:
Delinquencies: The company has achieved a material improvement in the overall delinquency ratio of its portfolio in 1998:
Dec. 31, 1997 June 30, 1998
% of Total % of Total
Outstanding Number of Accounts 83,414 118,846
Due 31 to 60 Days 3,092 3.7% 2,540 2.1%
Due 61 to 90 Days 1,243 1.5% 1,103 0.9%
Due 91 Days or More 1,393 1.7% 1,097 0.9%
Total Due 31 Days or More 5,728 4,740
Past Due as % of Outstandings 6.9% 4.0%
Repossessed Inventory 1,977 2,646
Repossessed Inventory
as % of Outstandings 2.4% 2.2%
Combined Past Due and Repossessed
Inventory as a % of Outstandings 9.2% 6.2%
The preceding table shows not only that overall delinquency ratios have improved substantially from Dec. 31, 1997, to June 30, 1998, but also that the actual numbers of accounts in each aging category have been reduced. That reduction was accomplished even though the portfolio has grown by approximately 43%, or more than 35,000 accounts, over that same period.
During July 1998, the company continued to pursue its goal of reducing the number of accounts in the Repossessed Inventory category by speeding the sale of repossessed vehicles. Moreover, the company accelerated its recognition of losses on certain accounts, so that losses would be recognized even prior to receipt of proceeds from the sale of the repossessed vehicle.
As a result, the company reduced the number of items in its Repossessed Inventory at July 31, 1998, to 2,321, or 1.9% of the outstanding portfolio, the lowest percentage since September 1997.
Cumulative Losses: Accelerated recognition of losses and reduction in the Repossessed Inventory has had a negative effect on recognized cumulative losses. The company believes that much of the losses recognized in July 1998 represent a difference in the timing of the losses, as compared with the company's prior practice, and should not be looked upon as entirely incremental losses for purposes of estimating cumulative losses for existing pools.
Moreover, although certain pools, and in particular, pools originated in 1996 and the first two quarters of 1997, are at somewhat higher cumulative loss levels than earlier pools were when similarly aged, pools originated in the fourth quarter of 1997 and the first and second quarters of 1998 appear to have similar or better early performance than earlier pools had at the same age.
Portfolio credit performance is affected by a number of factors including, but not limited to, the demographic makeup of the portfolio, the relative mix of the company's various credit programs in the portfolio, and the effectiveness of the servicing and collection effort applied to the portfolio.
The company believes that the credit quality of the contracts sold to the 1996 and 1997 pools was adversely affected by the industry's competitive environment at the time, resulting in somewhat lower overall credit quality compared with the current environment.
Moreover the company's generally rising delinquencies during 1997 (such delinquencies having generally improved since Dec. 31, 1997), may have been affected by certain difficulties in the company's integration of an entirely new collection facility to complement its resources at its headquarters in Irvine.
The company attributes much of the improvement in its delinquency ratios during 1998 to the improved effectiveness of its two collection facilities.
The company does not believe that cumulative losses for its 1996 and 1997 pools will reach 16%.
Reserves: As of June 30, 1998, the company's Net Interest Receivable (NIR) on its securitized portfolio was $57.6 million, or 5.5% of the outstanding securitized portfolio. As of June 30, 1998, estimated credit losses assumed in the valuation of the NIR were $115.4 million, or 11.0% of the outstanding securitized portfolio. As of June 30, 1998, the weighted average age of the outstanding securitized portfolio was approximately 14 months.
Company data show that the average cumulative losses of all wrapped pools at 14 months is approximately 5.6%. Consequently, if the portfolio were viewed as a single pool with 14 months of seasoning and 5.6% cumulative losses, cumulative losses on all pools would need to exceed levels of approximately 16.6% in order for the NIR to be impaired. As a result, and because the company does not expect cumulative losses to reach 16%, the company believes it is adequately reserved and does not expect a write down in its NIR.
Consumer Portfolio Services purchases, sells and services retail installment sales contracts originated predominantly by franchised dealers for new and late-model used cars. The company has approximately 4,000 dealers under contract across the United States.
Statements made in this news release regarding the company's expectations as to portfolio performance are forward-looking statements. In addition to risks relating to the economy generally, the fulfillment of such expectations may be adversely affected by various factors, including the following: possible increased delinquencies, foreclosures and losses on retail installment contracts; possible unavailability of qualified personnel, especially collections personnel; adverse economic conditions in geographic areas in which the company's business is concentrated; and reduction in the number and amount of acceptable contracts submitted to the company by its automobile dealer network.