CPS Auto Receivables Trust 2017-B.

Transcription

1 Presale: CPS Auto Receivables Trust 2017-B This presale report is based on information as of April 7, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings Class Preliminary rating(i) Type Interest rate(ii) Preliminary amount (mil. $) Legal final maturity date A AAA (sf) Senior Fixed July 15, 2020 B AA (sf) Subordinate Fixed May 17, 2021 C A (sf) Subordinate Fixed Feb. 15, 2022 D BBB (sf) Subordinate Fixed March 15, 2017 E BB- (sf) Subordinate Fixed Dec. 15, 2023 (i)the rating on each class of securities is preliminary and subject to change at any time. (ii)the actual coupons of these tranches will be determined on the pricing date. Profile Expected closing date April 20, Collateral Originator and servicer Issuer Grantor trust Seller Indenture trustee, custodian, backup servicer, lockbox processor, and collateral agent Owner trustee Underwriter Subprime auto loan receivables. Consumer Portfolio Services Inc. CPS Auto Receivables Trust 2017-B. CPS Auto Receivables Grantor Trust 2017-B. CPS Receivables Five LLC. Wells Fargo Bank N.A. Wilmington Trust. Credit Suisse Securities (USA) LLC. Primary Credit Analyst: Ines A Beato, New York (1) ; ines.beato@spglobal.com Secondary Contact: Elizabeth T Fitzpatrick, New York (1) ; elizabeth.fitzpatrick@spglobal.com See complete contact list on last page(s) APRIL 7,

2 Credit Enhancement Summary (%) CPSART 2017-B CPSART 2017-A 'AAA'/'AAA' enhancement Initial Target(ii) Floor(i) Initial Target(ii) Floor(i) Subordination(i) O/C(ii) Reserve account(i) Total 'AA'/'AA' enhancement Subordination(i) O/C(ii) Reserve account(i) Total 'A'/'A' enhancement Subordination(i) O/C(ii) Reserve account(i) Total 'BBB'/'BBB' enhancement Subordination(i) O/C(ii) Reserve account(i) Total 'BB-'/'BB-' enhancement Subordination(i) O/C(ii) Reserve account(i) Total Estimated annual excess spread(iii) (i)percentage of the initial collateral balance. (ii)the O/C target is a percentage of the current collateral balance. (iii)calculated using the minimum WAAPR according to the transaction's prefunding terms. CPSART--CPS Auto Receivables Trust. O/C--Overcollateralization. WAAPR--Weighted average annual percentage rate. Rationale The preliminary ratings assigned to CPS Auto Receivables Trust 2017-B's (CPSART 2017-B's) $ million asset-backed notes reflect: The availability of approximately 57.40%, 48.87%, 40.24%, 31.24%, and 25.53%, of credit support for the class A, B, C, D, and E notes, respectively, based on stressed cash flow scenarios (including excess spread). These credit support levels provide coverage of approximately 3.10x, 2.60x, 2.10x, 1.60x, and 1.23x our % expected cumulative net loss (CNL) range for the class A, B, C, D, and E notes, respectively (see the Expected Loss section below). Additionally, credit enhancement including excess spread for classes A, B, C, D, and E covers breakeven APRIL 7,

3 cumulative gross losses of approximately 96%, 81%, 67%, 52%, and 43% respectively. Our expectation that, under a moderate stress scenario of 1.60x our expected net loss level and all else equal, the preliminary ratings on the class A notes would not be lowered over the life of the deal. The preliminary ratings on the class B and C notes would remain within one rating category while they are outstanding, and the preliminary rating on the class D notes would not decline by more than two rating categories within its life. The preliminary rating on the class E notes would remain within two rating categories during the first year, but the class would eventually default under the 'BBB' stress scenario after receiving 28%-55% of its principal. These rating migrations are consistent with our credit stability criteria (see the Cash Flow Modeling Assumptions And Results section below and "Methodology: Credit Stability Criteria," published May 3, 2010). The preliminary rated notes' underlying credit enhancement in the form of subordination, overcollateralization (O/C), a reserve account, and excess spread for the class A, B, C, D, and E notes (see the Credit Enhancement Summary table above). The timely interest and principal payments made to the preliminary rated notes under our stressed cash flow modeling scenarios, which we believe are appropriate for the assigned preliminary ratings. The transaction's payment and credit enhancement structure, which includes a noncurable performance trigger. Significant Changes From CPSART 2017-A We view the collateral composition in this cut-off pool (the nonprefunded portion as of the March 31, 2017, initial cut-off date) to be weaker than that of the series 2017-A pool (the nonprefunded portion as of the Dec. 31, 2016, cut-off date). Significant collateral changes include: The percentage of loans originated in CPS' top four credit tiers (Preferred, Super Alpha, Alpha Plus, and Alpha) decreased to 71.40% from 75.14%. The percentage of loans originated under CPS' lower credit tiers (Standard, Delta, and First-Time Buyer) increased to 28.80% from 24.87%. Prefunded collateral will represent approximately 36.6% of the collateral pool, or $84.3, compared with $78.5 million (37.36%) for series 2017-A. The percentage of loans with original terms of months is higher at 76.58% compared with 74.43% in the prior transaction. The weighted average loan-to-value (LTV) ratio decreased to approximately % from %, the lower LTV is a result of the lower-credit-tier programs growing as a percentage of the pool. The weighted average annual percentage rate (WAAPR) decreased to 19.10% from 19.49%. As a result of rising losses on CPS' more recent outstanding transactions (see table 4), we increased our ECNL range on this transaction to 18%-19% from 17%-18% for series 2017-A. Key credit enhancement changes from the CPSART 2017-A transaction include: Initial hard credit enhancement at closing has increased 300 basis points, 30 basis points, 100 basis points, 65 basis points, and 35 basis points for classes A, B, C, D, and E respectively. Subordination increased for the class A, C, and D notes to 53.70% from 51.05%, 21.90% from 21.25%, and 9.85% from 9.55%, respectively. The initial O/C increased to 2.10% of the initial pool balance from 1.75%. The target O/C increased to 7.45% as a percentage of the current pool balance from 5.15% and the floor O/C has APRIL 7,

4 increased to 7.45% of the initial pool balance from 2.50%. The definition of required O/C is the greater of the target and the floor. Because the target is based off of the current pool balance and the floor is calculated off of the initial pool balance, the floor (7.45% of the initial pool balance) will always be greater than the target unless the trigger is breached. Estimated per year excess spread decreased slightly to approximately 12.57% from 13.08%. Key Rating Considerations Based on our review of CPS' operations and performance history, we considered the following strengths in rating this transaction: CPS has remained profitable since fourth-quarter It reported net income of $29.3 million ($49.7 million, pretax) in 2016, down approximately 18% from $34.7 million in CPS' liquidity has improved in recent years, helped by its multiyear credit lines from three lending sources, including the more recent $100 million two-year facility with Credit Suisse AG and Ares Agent Service, which grew total warehouse capacity to $300 million. CPS is increasing its origination volume in a controlled manner, in our view. As of Dec. 31, 2016, CPS' total managed portfolio was approximately $2.308 billion compared with $2.031 billion one year earlier and above its $2.1 billion pre-credit crisis peak in CPS has operated since 1991 and has weathered three economic downturns. Since its inception, the company has largely maintained the same business model of indirectly originating retail auto loans to subprime customers. CPS is led by a seasoned management team, most of whom have worked together at the company for at least 10 years. The management team has demonstrated discipline in reducing and increasing originations when necessary, in response to economic cycles. CPS has extensive securitization experience. Since 2001, S&P Global Ratings has rated more than 40 CPS transactions, which have had relatively consistent performance. CPS has used a proprietary scorecard model (fourth generation) for many years, and we believe this has contributed to its disciplined underwriting approach. CPS' transactions and credit facilities benefit from the inclusion of Wells Fargo Bank N.A., the backup servicer, indenture trustee, custodian of the loan files, lockbox processor, and collateral agent. It has significant experience in the subprime sector. Our cash flow scenarios account for a possible servicing transfer and include the backup servicer's dollar-per-contract servicing fee. The transaction includes a noncurable monthly CNL trigger that requires credit enhancement to increase by trapping excess spread if losses exceed approximately 1.05x our expected CNL (terminal point). Despite these strengths, we note the following concerns, which had previously contributed to a rating cap being applied to CPSART transactions: The U.S. Federal Trade Commission (FTC) initiated a lawsuit against CPS in July 2013 for alleged unfair trading practices, which was subsequently settled on May 29, The settlement required CPS to change its business practices, pay an agreed penalty of $3.5 million, and make restitution payments to certain past and present customers. CPS had recorded a provision for contingent liability in the second quarter of As part of the settlement, CPS was required to implement procedural changes to comply with fair debt collection practices and credit reporting, retain an independent third party to monitor its compliance, and provide the FTC with periodic reports for 10 years. CPS received its first assessment from the third-party monitoring firm and, per the monitoring firm, is making significant progress in the required areas. APRIL 7,

5 Although CPS has reduced its outstanding long-term debt, the company remains highly leveraged relative to its peers. However, it has been at this high level for over 10 years, during which time the company has weathered the recession, increased competition, and significant regulatory change. Transaction Overview CPSART 2017-B is CPS' second securitization of 2017 and its 27th since September 2010 when it issued series 2010-A, its first senior-subordinate transaction without a bond insurer. The issuer will issue five classes of notes with interest and principal scheduled to be paid on the 15th of each month, or the next business day, beginning May 15, The issuer expects each class to have a fixed interest rate. Similar to CPS' previous securitizations, Wells Fargo Bank N.A. will be the backup servicer, indenture trustee, lockbox processor, custodian, and collateral agent. It will also be the grantor trust trustee. CPSART 2017-B is structured as a true sale of the receivables from CPS to CPS Receivables Five LLC, a multiuse, special-purpose Delaware limited-liability company and a wholly owned, limited-purpose subsidiary of CPS (see chart 1). CPS Receivables Five LLC, in turn, will transfer the receivables to CPSART 2017-B, the issuer and newly formed special-purpose Delaware statutory trust. The issuer will contribute such receivables and related assets to CPS Auto Receivables Grantor Trust 2017-B, a newly formed special-purpose subsidiary of CPSART 2017-B, in exchange for a grantor trust certificate representing a 100% beneficial ownership interest in the receivables. The issuer will pledge the grantor trust certificate to the indenture trustee on behalf of the noteholders. In rating this transaction, S&P Global Ratings will review the legal matters that it believes are relevant to its analysis, as outlined in its criteria. APRIL 7,

6 Transaction Structure CPSART 2017-B incorporates the following structural features: A sequential payment structure in which the subordinate classes will provide nonamortizing credit enhancement to the senior classes. O/C that will be 2.10% of the initial pool balance and build to a target of 7.45% of the current pool balance, subject to a floor of 7.45% of the initial pool balance. A noncurable CNL trigger that will increase the O/C target to 15.0% of the current pool balance if collateral performance deteriorates and the CNL exceeds the trigger threshold (see the Cash Flow Modeling Assumptions And Results section below). A nonamortizing spread account amount that will equal 1.0% of the initial collateral balance. APRIL 7,

7 Prefunding CPS will prefund approximately $84.3 million, which will account for approximately 36.6% of the total collateral pool, during a 45-day prefunding period. The prefunding period will begin on the closing date and will end on the earliest of the following: June 4, 2017; When the prefunding account is reduced to less than $100,000; An event of default or servicer termination event occurs; or A seller-related insolvency event occurs. In addition to meeting the selection and eligibility criteria similar to those established for the initial receivables pool, the transaction requires that the subsequent receivables be subject to the following collateral concentration criteria (computed based on the initial receivables' and subsequent receivables' characteristics): The WAAPR cannot be less than 19.17%. The weighted average LTV cannot be greater than %. No loans have an original term longer than 72 months. Loans with original terms greater than 60 months cannot be more than 77.00% of the aggregate principal balance of such receivables. Loans for used vehicles cannot be greater than 78.00% of the aggregate principal balance of such receivables. Loans originated under the top four credit tiers cannot be less than 68.00% of the aggregate principal balance of such receivables. In deriving our expected loss level for the aggregate pool, we consider a pool composition reflective of these proposed concentration limits. Payment Structure Unless an event of default occurs, on each payment date, the trustee will make distributions from available funds according to the priority shown in table 1. Table 1 Payment Waterfall Priority Payment 1 The backup servicing fee to the backup servicer, provided it is not the servicer. 2 An annual 2.5% servicing fee to the servicer if CPS is the servicer. Otherwise, the servicing fee will be the greater of 2.5% per year and the product of the number of receivables serviced by the successor servicer during the related collection period and $15(i). 3 Any transition expenses incurred to the successor servicer only if one is assigned and if not already paid by the predecessor servicer, subject to a $150,000 maximum. 4 The trustee, grantor trust trustee, custodian, owner trustee, grantor trust Delaware trustee fees, and any reasonable out-of-pocket expenses to the trustee and owner trustee, pro rata, subject to a $100,000 annual limit; however, the maximum limit will not apply if a payment default (as defined in the transaction's indenture and relating to the notes) or the issuing trust's insolvency has occurred and continues. 5 Class A note interest to the class A noteholders. 6 The class A notes' parity deficit amount to the principal distribution account (if the class A notes' balance exceeds the collateral balance). 7 On the final scheduled payment date, the class A notes' outstanding principal amount to the principal distribution account. 8 Class B note interest to the class B noteholders. APRIL 7,

8 Table 1 Payment Waterfall (cont.) Priority Payment 9 The class B notes' parity deficit amount to the principal distribution account (if the class A and B notes' aggregate balance exceeds the collateral balance). 10 On the final scheduled payment date, the class B notes' outstanding principal amount to the principal distribution account. 11 Class C note interest to the class C noteholders. 12 The class C notes' parity deficit amount to the principal distribution account (if the class A, B, and C notes' aggregate balance exceeds the collateral balance). 13 On the final scheduled payment date, the class C notes' outstanding principal amount to the principal distribution account. 14 Class D note interest to the class D noteholders. 15 The class D notes' parity deficit amount to the principal distribution account (if the class A, B, C, and D notes' aggregate balance exceeds the collateral balance). 16 On the final scheduled payment date, the class D notes' outstanding principal amount to the principal distribtution account. 17 Class E note interest to the class E noteholders. 18 The class E notes' parity deficit amount to the principal distribution account (if the class A, B, C, D, and E notes' aggregate balance exceeds the collateral balance). 19 On the final scheduled payment date, the class E notes' outstanding principal amount to the principal distribution account. 20 The amounts needed to achieve the required spread account amount. 21 The aggregate principal distributable amount to the principal distribution account. 22 Any amounts owed to the backup servicer, trustee, grantor trust trustee, custodian owner trustee, and grantor trust Delaware trustee, if not already paid. 23 Any remaining funds to the residual certificateholders. (i)upon CPS' replacement as the servicer by a successor servicer, the successor servicer will be entitled to a servicing fee that is the greater of 2.5% per year and $15 per loan per month, which we applied in our cash flow scenarios. CPS--Consumer Portfolio Services Inc. On each payment date, the amounts deposited into the principal distribution account will be distributed to the noteholders in the priority outlined in table 2. Table 2 Principal Waterfall Priority Payment 1 Class A note principal to the class A noteholders until paid in full. 2 Class A note principal to the class B noteholders until paid in full. 3 Class C note principal to the class C noteholders until paid in full. 4 Class D note principal to the class D noteholders until paid in full. 5 Class E note principal to the class E noteholders until paid in full. The principal amounts paid in the principal waterfall are designed to use all principal collections and available excess spread to reduce the notes' outstanding principal balance. No subordinate notes will receive any principal payment until the senior class is paid in full. In addition, excess spread will not be released from the transaction unless the requisite O/C target level has been reached and only if the excess spread is not used to cover losses. Events of default Any of the following will constitute an event of default: A default in the interest payment on the senior-most class remains uncured for five days. APRIL 7,

9 A default in the principal payment on any notes on its final scheduled distribution date remains uncured for five days. The issuer, seller, or servicer fails to observe or perform any material covenant or agreement--or any materially incorrect representation or warranty of the issuer, the seller, or the servicer is not cured for 30 days (up to 90 days in certain cases); notice is required by the indenture trustee or the holders of at least 25% of the outstanding amount of each class of notes. The issuer becomes insolvent. Payment distribution after an event of default On each payment date following the acceleration of principal and interest payments to the notes on or after an event of default, the trustee will make distributions from available funds according to the priority shown in table 3. Table 3 Payment Waterfall Following An Event Of Default Priority Payment 1 The backup servicing fee to the backup servicer as long as it's not the servicer. 2 An annual 2.5% servicing fee to the servicer if CPS is the servicer; otherwise, the servicing fee will be the greater of 2.5% per year and the product of the number of receivables serviced by the successor servicer during the related collection period and $15(i). 3 Any transition expenses incurred to the successor servicer only if one is assigned and if not already paid by the predecessor servicer, subject to a $150,000 maximum. 4 The trustee, grantor trust trustee, custodian, owner trustee, grantor trust Delaware trustee fees, and any reasonable out-of-pocket expenses to the trustee and owner trustee, pro rata, subject to a $100,000 annual limit; however, the maximimum limit will not apply if a payment default (as defined in the transaction's indenture and relating to the notes) has occurred and is continuing. 5 Class A note interest to the class A noteholders. 6 Class A note principal to the class A noteholders until paid in full. 7 Class B note interest to the class B noteholders. 8 Class B note principal to the class B noteholders until paid in full. 9 Class C note interest to the class C noteholders. 10 Class C note principal to the class C noteholders until paid in full. 11 Class D note interest to the class D noteholders. 12 Class D note principal to the class D noteholders until paid in full. 13 Class E note interest to the class E noteholders. 14 Class E note principal to the class E noteholders until paid in full. 15 Any fees and expenses not already paid. 16 Any remaining funds to the residual certificateholders. (i)upon CPS' replacement as the servicer by a successor servicer, the successor servicer will be entitled to a servicing fee that is the greater of 2.5% per year and $15 per loan per month, which we applied in our cash flow scenarios. CPS--Consumer Portfolio Services Inc. Securitization Performance/Surveillance Update CPSART 2017-B will be CPS' 27th unwrapped senior-subordinate transaction since the company issued CPSART 2010-A in September Series 2017-B will be its seventh unwrapped senior-subordinate issuance with a 'AAA (sf)' rated class. The CNL by vintage for CPS' paid-off securitizations from ranged from approximately 11.5%-19.0%, while APRIL 7,

10 the more recently paid-off series 2010-A, 2011-A, 2011-B, 2012-A, 2012-B, and 2012-C experienced 12.3%, 9.0%, 13.4%, 12.0%, 17.26%, and 17.37% lifetime CNLs, respectively. All were more seasoned than what we've typically seen in recent transactions, which have been averaging less than one month. Chart 2 We currently maintain ratings on 15 outstanding CPS transactions issued from 2012 through 2017 (see table 4 and chart 2). Each of the 2012 through 2014 transactions have experienced an increased pace of losses and are projecting to perform worse than our initial expectations. As a result, in April 2017 we revised our expected lifetime CNL for each of the transactions. In reviewing our expected CNL ranges, we considered that current performance shows losses trending higher. In addition, the issuer's recently paid-off pools, series 2012-B and 2012-C, appear to be more back-loaded on loss timing than prior paid-off deals. We will continue to monitor the outstanding transactions' performance and take rating actions as we deem appropriate. Table 4 Performance Data For Outstanding CPSART Securitization Transactions (As Of The March 2017 Distribution Date) Series Month Pool factor (%) Current CNL (%) Current CRR (%) 60+ day delinquency (%) Initial lifetime CNL expected (%) Revised CNL expected (%)(i) 2012-D APRIL 7,

11 Table 4 Performance Data For Outstanding CPSART Securitization Transactions (As Of The March 2017 Distribution Date) (cont.) Series Month Pool factor (%) Current CNL (%) Current CRR (%) 60+ day delinquency (%) Initial lifetime CNL expected (%) Revised CNL expected (%)(i) 2013-A B C D A B C B C A N/A 2016-B N/A 2016-C N/A 2016-D N/A 2017-A N/A (i)revisions as of April CPSART--CPS Auto Receivables Trust. CNL--Cumulative net loss. CRR--Cumulative recovery rate. N/A--Not applicable. Managed Portfolio CPS' portfolio increased approximately 14% to $2.31 billion as of Dec. 31, 2016, from $2.03 billion as of Dec. 31, 2015 (see table 5). Net losses as a percentage of the average amount outstanding increased to 7.03% for the year ended Dec. 31, 2016, from 6.44% for the same period ended Dec. 31, Total delinquencies, including repossessed assets, increased to 10.96% as a percentage of the outstanding portfolio as of Dec. 31, 2016, from 9.53% one year earlier. Management has previously cited the regulatory environment as contributing to higher delinquency levels. Table 5 Managed Portfolio Year ended Dec. 31 Delinquency experience(i) Portfolio at end of period (bil. $) Total delinquencies (% of the portfolio, 31 or more days delinquent) Total repossessed assets (% of the portfolio) Total delinquencies including repossessed assets (% of the portfolio) Loan loss experience(i) Average month-end amount outstanding during the period (bil. $) APRIL 7,

12 Table 5 Managed Portfolio (cont.) Year ended Dec Net charge-offs (% of the average amount outstanding) (i)the information represents all of the contracts CPS purchased, including contracts that it sold but continues to service and excluding the contracts that MFN Financial Corp., The Finance Co., Fireside Bank, or SeaWest Financial Corp. had originated or purchased. CPS--Consumer Portfolio Services Inc. Pool Analysis As of the initial March 31, 2017 cut-off date, the series 2017-B collateral pool represented approximately $145.7 million of CPS-originated automobile loans (see table 6). CPS expects the series 2017-B issuing trust to purchase approximately $84.3 million in receivables, or approximately 36.6% of the total pool, before the prefunding period for the subsequent receivables ends on June, We do not expect the subsequent receivables pool to differ materially from the initial cut-off pool. Table 6 Collateral Comparison(i) CPSART 2017-B 2017-A 2016-D 2016-C 2016-B 2016-A Receivables balance (mil. $) No. of receivables 9,119 8,132 7,796 14,857 14,124 15,359 Average loan balance ($) 15,982 16,175 16,386 14,548 15,879 16,664 Weighted average APR (%) Weighted average original term (mos.) Weighted average remaining term (mos.) Weighted average seasoning (mos.) Weighted average FICO Weighted average LTV (%) Original 61-72/75-month term (%)(iii) New vehicles (%) Used vehicles (%) Top state concentrations (%) California Texas Ohio Georgia North Carolina Pennsylvania New Jersey Florida Illinois APRIL 7,

13 Table 6 Collateral Comparison(i) (cont.) CPSART Types of financing programs offered (%) 2017-B 2017-A 2016-D 2016-C 2016-B 2016-A Preferred Super alpha Alpha plus Alpha Standard Delta First-time buyer (i)as of the initial pool cut-off date. (ii)not rated by S&P Global Ratings; data from PPM. (iii)series 2016-A includes 0.56% of 75-month contracts. Series 2016-D includes up to 6.5% of 75-month contracts. CPSART--CPS Auto Receivables Trust. APR--Annual percentage rate. LTV--Loan-to-value. PPM--Private placement memorandum. S&P Global Ratings' Expected Loss: 18.00%-19.00% To derive the base-case expected loss for the transaction, we analyzed CPS' portfolio static pool CNL performance by its financing program and the portfolio in aggregate. We developed a loss timing curve using data from the company's paid-off vintages and used the curves to project losses on the outstanding quarterly pools, which had at least 12 months of performance data. Our average projected losses for more recent vintages in aggregate and weighted by program are approximately 18.00% to 20.00%. We also analyzed the cumulative loss and recovery performance of CPS' paid-off securitized pools and the current outstanding securitizations, which show a rising trend in losses (see table 4). There has been weaker performance within the 2013 through 2015 static pool vintages, which we believe is the result of competition, weaker underwriting, and changes in servicing and collection practices CPS made to comply with fair debt collection practices. As we receive more data for these vintages, we will continue to monitor performance. APRIL 7,

14 Chart 3 We expect CPSART 2017-B's collateral pool to experience a 18.00%-19.00% lifetime CNL based on our analysis of CPS' vintage static pool loss data and trends by financing program, our projected losses on the origination static pool performance, our analysis of the expected loss performance of CPS' outstanding securitizations, the CPSART 2017-B pool's credit quality compared with those of previous CPS pools, our consideration of other issuers' comparable pools, and our expectations for lower recovery rates. Similar to earlier CPSART transactions, our expected lifetime CNL for CPSART 2017-B assumes a worst-case pool composition that reflects the transaction's collateral concentration limits, including prefunding. Cash Flow Modeling Assumptions And Results We modeled CPSART 2017-B to simulate stress scenarios appropriate for the assigned preliminary ratings (see table 7). We assumed last-day origination of the prefunded amount. APRIL 7,

15 Table 7 Cash Flow Assumptions And Results (Input Curve Equals 30/60/83/100) Loss curve Class A Class B Class C Class D Class E Stress scenario (final rating) AAA (sf) AA (sf) A (sf) BBB (sf) BB- (sf) CNL timing by months outstanding (12/24/36/48/60) (%) ABS voluntary prepayments (%) /88/100 29/61/85/100 28/59/83/100 28/59/83/ Recoveries (%) Servicing fee CNL trigger is breached in month (no.) Cumulative gross default taken (% ) Approximate break-even levels (%)(i) Greater of 2.50% per year and $15 per loan per month Greater of 2.50% per year and $15 per loan per month Greater of 2.50% per year and $15 per loan per month Greater of 2.50% per year and $15 per loan per month Greater of 2.50% per year and $15 per loan per month (i)the maximum CNLs on the pool that the transaction can withstand without triggering a payment default on the relevant classes. CNL--Cumulative net loss. ABS--Absolute prepayment speed. We ran cash flow stress scenarios using the assumptions outlined in table 7. We also modeled the transaction's noncurable CNL trigger. The target O/C level will increase to 15% of the outstanding collateral balance from 7.45% of the outstanding collateral balance if the trigger listed in table 8 (below) is breached. In addition, we modeled a slower loss timing curve of to further stress the transaction. This resulted in slightly higher coverage amounts for class B, C, D, and E notes. In our internal cash flow runs, we used an approximate midpoint of our expected CNL range of % and applied the aforementioned stresses. The break-even results show that the class A, B, C, D, and E notes have sufficient credit enhancement to withstand a net loss stress level commensurate with the assigned preliminary ratings. However, if the losses end up being more back-loaded than what we modeled, the deal may end up breaching the trigger later, causing more releases than in our modeled scenario, which would result in lower loss coverage for class E. Table 8 shows the CNL threshold for each payment date. As mentioned previously, this trigger is noncurable and is fairly close to our base case so it is breached in our stress runs. Table 8 Cumulative Net Losses As A Percentage Of The Outstanding Principal Balance Period Trigger event (%) APRIL 7,

16 Table 8 Cumulative Net Losses As A Percentage Of The Outstanding Principal Balance (cont.) Period Trigger event (%) APRIL 7,

17 Table 8 Cumulative Net Losses As A Percentage Of The Outstanding Principal Balance (cont.) Period Trigger event (%) Sensitivity Analysis In addition to running break-even cash flows, we ran a sensitivity analysis to see how the preliminary ratings on the class A, B, C, D, and E notes could be affected by moderately higher losses (i.e., a 'BBB' level stress) than what we currently expect (see table 9). Table 9 Scenario Analysis Summary -'BBB' Stress Scenario (Moderate) Front-loaded curve Loss level (%) Loss timing (month 12/24/36/48/60) (%) Voluntary ABS (%) 0.75 Recoveries (%) 40.0 Servicing fee Haircut to excess spread (%) 10 Remaining loss coverage Class A Class B Class C Greater of 2.50% per year and $15 per loan per month Initially 2.51x, grows to 3.15x by month 12 and continues to grow thereafter. Initially 1.94x, grows to 2.35x by month 12 and continues to grow thereafter. Initially 1.44x, grows slightly to 1.65 by month 12, then grows steadily thereafter. Class D Initially 1.03x, grows slightly to 1.09x by month 12. Class E Back-loaded curve Loss level (%) Loss timing (month 12/24/36/48/60) (%) Voluntary ABS (%) 0.75 Recoveries (%) 40.0 Servicing fee Haircut to excess spread (%) 10 Remaining loss coverage Class A Class B Class C Initially 0.70x, decreases slightly to 0.62x by month 12. Class E notes default at month 71 with a 71.88% note factor. Greater of 2.50% per year and $15 per loan per month Initially 2.59x, grows to 2.89x by month 12 and continues to grow thereafter. Initially 2.02x, grows to 2.22x by month 12 and continues to grow thereafter. Initially 1.52x, grows slightly to 1.64x by month 12, then grows steadily thereafter. Class D Initially 1.11x, grows slightly to 1.17x by month 12. Class E Initially 0.78x, decreases slightly to 0.78x by month 12. Class E notes default at month 71 with a 45.50% note factor. APRIL 7,

18 Table 9 Scenario Analysis Summary -'BBB' Stress Scenario (Moderate) (cont.) ABS--Absolute prepayment speed. CNL--Cumulative net loss. Scenario analysis results In the above scenario, we assumed a moderate stress ('BBB') loss scenario of 29.60%, which is approximately 1.60x of our expected CNL level (see charts 4 and 5). Under the front-loaded loss curve scenario (see chart 4), in month five, the CNL trigger is breached, and the target O/C level increases to 15.00% of the current collateral balance. Under this moderate stress scenario, the transaction never reaches the higher O/C target level. All else equal, the preliminary ratings on the class A note would not be lowered over the life of the deal. The preliminary ratings on the class B and C notes would remain within one rating category while they are outstanding, and the preliminary rating on the class D note would not decline by more than two rating categories within its life. The preliminary rating on the class E notes would remain within two rating categories during the first year, but the class would eventually default under the 'BBB' stress scenario after receiving 28% of its principal. Under the back-loaded loss curve scenario (see chart 5), the CNL trigger is breached in month seven, increasing the target O/C, which is never reached. In this scenario the preliminary ratings on the class A note would not be lowered. The preliminary ratings on the class B and C notes would remain within one rating category while they are outstanding, and the preliminary rating on the class D notes would not decline by more than two rating categories within its life. The preliminary rating on the class E notes would remain within two rating categories during the first year, but the class would eventually default under the 'BBB' stress scenario after receiving 55% of its principal. Chart 4 Chart 5 This is consistent with our credit stability criteria that outline the outer bound of credit deterioration equal to a one-category downgrade within the first year for 'AAA' and 'AA' rated securities and a two-category downgrade within the first year for 'A', 'BBB', and 'BB' rated securities (see the Cash Flow Modeling And Results section above and APRIL 7,

19 "Methodology: Credit Stability Criteria," published May 3, 2010) CPS CPS is a consumer finance company that specializes in purchasing, selling, and servicing subprime automobile installment purchase contracts. CPS began operations in At the beginning of 2015, CPS relocated its executive headquarters to its new branch office in Las Vegas from Irvine, Calif. Currently, the Irvine office is the company's operational headquarters. Most of the company's credit and underwriting functions are centralized at its California headquarters with certain functions also performed at its Florida and Las Vegas offices. CPS' servicing and collections functions are performed at its five regional collection centers in California, Virginia, Florida, Illinois, and Nevada. Related Criteria And Research Related Criteria Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 General Methodology And Assumptions For Rating U.S. Auto Loan Securitizations, Jan. 11, 2011 Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Related Research Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, The analysts wish to thank Gregory Fang and Joe Fang for their analytical contributions to this presale report. Analytical Team APRIL 7,

20 Primary Credit Analyst: Ines A Beato, New York (1) ; ines.beato@spglobal.com Secondary Contact: Elizabeth T Fitzpatrick, New York (1) ; elizabeth.fitzpatrick@spglobal.com APRIL 7,

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