Irvine-based subprime auto lender Consumer Portfolio Services Inc. completed a $68.5 million sale of loans to investors last week, its first securitization since hitting hard times in 1998.
“We have put this (company) back in the securitization market,” said Charles Bradley, chief executive of Consumer Portfolio. “It will allow us to grow again.”
Consumer Portfolio, which deals in auto loans to people with less-than-perfect credit, hasn’t been able to repackage and sell loans since late 1998, after investors grew concerned about the company’s level of bad loans and capital constraints.
The company has survived by originating or acquiring loans from dealers and turning them over to other finance firms for a fee. For the second quarter, Consumer Portfolio’s revenue was up 20% year-to-year, to $16.3 million, while the company reported earnings of $241,000 vs. a net loss of $3.2 million.
Just a few years ago, Consumer Portfolio was a fast-growing auto financier that originated, serviced and repackaged loans as securities for investors. Back in 1998, the company hit a peak of $900 million in securitizations. A year later, that number was zero.
Bradley said his goal is to re-establish Consumer Portfolio as a leader in the subprime lending market. While he’s far from there yet, he has worked to shore up the struggling company.
In early 2000, Consumer Portfolio staved off possible bankruptcy when Levine Leichtmen Capital Partners LP of Beverly Hills provided a $16 million infusion. In November, Consumer Portfolio took the first step toward doing securitizations again by obtaining a $75 million revolving credit line backed by Financial Security Assurance Inc., part of New York-based Financial Security Assurance Holdings.
The credit line allowed the company to buy and hold auto loans again.
The company’s latest securitization was a private placement consisting of two classes. One set of investors will get a 4.37% yield on their investment in the repackaged loans. Those investors bought $44.5 million worth of repackaged loans from Consumer Portfolio. The second group of investors acquired 5.28% notes worth $24 million.
The notes are insured by Financial Security Assurances. Rating agencies gave both the notes a grading of AAA.
“Completing a term securitization is another key milestone in the continued turnaround of the company,” Bradley said.
Consumer Portfolio has made other gains. As of June 30, accounts past due more than 30 days were 3.7% of the company’s servicing portfolio, down from 4.9% a year earlier. For the second quarter, the company’s annualized net charge-off rate, reflecting loans the company doesn’t expect to collect on, was down to 4.5% from 9.6% a year earlier.
“The process of re-establishing Consumer Portfolio Services as a leader in our industry is a challenge and an opportunity,” Bradley said in the company’s second-quarter results statement.
Investors didn’t take much notice of Consumer Portfolio’s securitization news. The company’s stock was trading at about 1.60 late last week, about the level it has been at for the year. Back in late 1997, the company’s shares traded at around 15. n
