DBRS Morningstar Finalizes Provisional Ratings on CPS Auto Receivables Trust 2023-A

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the classes of notes to be issued by CPS Auto Receivables Trust 2023-A (the Issuer) as follows:

-- $154,582,000 Class A Notes at AAA (sf)
-- $44,080,000 Class B Notes at AA (high) (sf)
-- $57,161,000 Class C Notes at A (high) (sf)
-- $39,553,000 Class D Notes at BBB (sf)
-- $29,392,000 Class E Notes at BB (high) (sf)

DBRS Morningstar upgraded its rating on Class C to A (high) (sf) from its provisional rating of A (sf) and also upgraded its rating on Class E to BB (high) (sf) from its provisional rating of BB (sf) because of the additional credit enhancement from lower final pricing coupons compared with the estimated provisional coupons provided for its assignment of provisional ratings.

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.
-- The DBRS Morningstar CNL assumption is 15.80% based on the expected pool composition.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update,” published on December 21, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(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 Company 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 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 DBRS Morningstar’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 58.40% of initial hard credit enhancement provided by the subordinated notes in the pool (46.90%), the reserve account (1.00%), and OC (10.50%). The ratings on the Class B, C, D, and E Notes reflect 46.25%, 30.50%, 19.60%, and 11.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ENVIRONMENTAL, SOCIAL, 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 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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology applicable to the ratings is Rating U.S. Retail Auto Loan Securitizations (May 10, 2022; https://www.dbrsmorningstar.com/research/396623).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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

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

Rating U.S. Structured Finance Transactions (November 8, 2022) https://www.dbrsmorningstar.com/research/405084/rating-us-structured-finance-transactions.

Operational Risk Assessment for U.S. ABS Servicers (November 8, 2022) https://www.dbrsmorningstar.com/research/405083/operational-risk-assessment-for-us-abs-servicers.

Operational Risk Assessment for U.S. ABS Originators (November 8, 2022) https://www.dbrsmorningstar.com/research/405082/operational-risk-assessment-for-us-abs-originators.

Legal Criteria for U.S. Structured Finance (December 7, 2022) https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance.

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