Consumer Portfolio Services, Inc. (NASDAQ:CPSS), a California-based finance services company, has amended a key credit agreement, increasing its borrowing capacity to support its auto loan financing business. The amendment, effective as of November 1, 2024, was disclosed in a recent SEC filing.
The company, which specializes in financing for customers with limited credit histories, has been operating under a revolving credit agreement since May 2012. This agreement, recently renewed on July 11, 2024, has been further amended to expand the credit line from $200 million to $225 million. Citibank, N.A. serves as the administrative agent for the lenders.
The financing under this credit agreement is secured by automobile receivables from dealers, which Consumer Portfolio Services then sells or contributes to its wholly-owned subsidiary, Page Eight Funding LLC. The amendment also introduces a subordinate third-party lender, enhancing the advance rate against the pledged receivables.
The terms of the credit facility are contingent on various factors, including the performance of the receivables and future securitization transactions. The facility is set to terminate on July 15, 2026, unless earlier termination events occur or defaults are triggered.
Interest on the loans is based on a margin above the secured overnight financing rate, reflecting a floating interest rate environment. In conjunction with the amendment, Consumer Portfolio Services has paid a closing fee of approximately $250,000.
Citibank, N.A. and its affiliates have historically provided investment banking and advisory services to Consumer Portfolio Services, for which they have received customary fees.
This strategic financial maneuver is designed to bolster Consumer Portfolio Services' ability to finance automobile loans, which is central to their business model. The company has been incurring debt under this credit facility since May 14, 2012, to fund its acquisition of motor vehicle receivables. The company's SEC filing indicates that it does not commit to regular updates on the levels of indebtedness, implying that the debt levels are subject to change.
In other recent news, Consumer Portfolio Services (CPS) reported a solid financial performance for the third quarter of 2024, despite a decrease in pre-tax earnings and net income. The company saw a 9% increase in revenues year-over-year, reaching $100.6 million, and a 38% surge in origination volume, contributing to year-to-date revenues of $288.2 million. However, pre-tax earnings and net income declined to $6.9 million and $4.8 million, respectively.
CPS also highlighted operational improvements such as reduced funding times and increased same-day funding, and the successful integration of AI-driven tools. Despite a slight increase in annualized net charge-offs, the company's fair value portfolio grew to $3.1 billion with an 11.3% yield.
Looking ahead, CPS expressed confidence in its performance for the upcoming year, planning to focus on technology to boost efficiencies and reduce fraud losses. These are recent developments that reflect the company's resilience and strategic focus on operational efficiency and credit performance.
InvestingPro Insights
Consumer Portfolio Services' recent credit agreement amendment aligns with its financial performance and market position. According to InvestingPro data, the company's market capitalization stands at $231.65 million, with a price-to-earnings ratio of 11.05, indicating a relatively modest valuation. This could be attractive to investors considering the company's expansion of its credit line.
InvestingPro Tips highlight that CPSS has been profitable over the last twelve months, with analysts expecting continued profitability this year. This financial health supports the company's decision to increase its borrowing capacity. Additionally, the stock has shown strong returns over various timeframes, including a significant 35.97% return over the last three months, which may reflect market confidence in the company's strategic moves.
It's worth noting that while CPSS has demonstrated strong recent performance, InvestingPro Tips also indicate that the stock's RSI suggests it may be in overbought territory. This could be important for investors to consider in light of the recent credit agreement amendment.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for Consumer Portfolio Services, providing a deeper understanding of the company's financial position and market dynamics.
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