DBRS Morningstar Finalizes Provisional Ratings on CPS Auto Receivables Trust 2021-B

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by CPS Auto Receivables Trust 2021-B:

-- $125,640,000 Class A Notes at AAA (sf)
-- $30,000,000 Class B Notes at AA (sf)
-- $36,360,000 Class C Notes at A (sf)
-- $18,000,000 Class D Notes at BBB (sf)
-- $30,000,000 Class E Notes at BB (sf)

The ratings are based on DBRS Morningstar’s 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 DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- DBRS Morningstar's projected losses include the assessment of the impact of the Coronavirus Disease (COVID-19). While considerable uncertainty remains with respect to the intensity and duration of the shock, the DBRS Morningstar-projected CNL includes an assessment of the expected impact on consumer behavior. The DBRS Morningstar CNL assumption is 18.00%, based on the expected cut-off date pool composition.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on March 17, 2021, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008–09 financial crisis and the possible impact of stimulus. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

(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.
-- DBRS Morningstar performed an operational review of CPS and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

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

(6) The Company indicated that it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against CPS could take the form of class-action complaints by consumers; however, 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 the DBRS Morningstar “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 48.65% of initial hard credit enhancement provided by subordinated notes in the pool (47.65%) and the reserve account (1.00%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 36.15%, 21.00%, 13.50%, and 1.00% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 13, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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