X hits on this document

PDF document

Three and Six Month Renewable Unsecured Subordinated Notes One, Two, Three, Four, Five and Ten Year ... - page 22 / 40





22 / 40

As of June 30, 2011, we were in compliance with all applicable financial covenants, in part by reason of having received waivers of compliance as summarized in the table below. All such waivers relate to securitization trust debt issued by our consolidated subsidiaries.

Financial covenant

Applicable Standard

Status Requiring Waiver (as of or for the quarter ended June 30, 2011)

Adjusted net worth (I)

$87.6 million

$(7.5) million

Leverage (I)

Between 0 and 4.5:1


Adjusted net worth (II)

$95.3 million

$(7.5) million

The adjusted net worth covenants are covenants to maintain minimum levels of adjusted net worth, defined as our consolidated book value under GAAP with the exclusion of intangible assets such as goodwill. There are three separate adjusted net worth covenants because there are two separate note insurers and the lender in our residual interest financing facility that have this covenant in their related securitization agreements. There are two separate leverage covenants because a note insurer and the lender in our residual interest financing facility have this cove- nant. The leverage covenant requires that we not exceed the specified ratio of debt over the defined adjusted net worth. Debt is defined in this covenant to mean consolidated liabilities less warehouse lines of credit and securiti- zation trust debt; using this definition at June 30, 2011, we had debt of $127.9 million.

Without the waivers we have received from the related note insurers, we would have been in violation of cove- nants relating to minimum net worth and maximum leverage levels with respect to four of our 11 currently out- standing securitization transactions. Upon such an event of default, and subject to the right of the related note in- surers to waive such terms, the agreements governing the securitizations call for payment of a default insurance premium, ranging from 25 to 100 basis points per annum on the aggregate outstanding balance of the related in- sured senior notes, and for the diversion of all excess cash generated by the assets of the respective securitization pools into the related spread accounts to increase the credit enhancement associated with those transactions. The cash so diverted into the spread accounts would otherwise be used to make principal payments on the subordinated notes in each related securitization or would be released to us. To the extent that principal payments on the subor- dinated notes are delayed, we will incur greater interest expense on the subordinated notes than we would have without the required increase to the related spread accounts. As of the date of this report, cash is being diverted to the related spread accounts in six transactions. In addition, upon an event of default, the note insurers have the right to terminate us as servicer. Although our termination as servicer has been waived, we are paying default premiums, or their equivalent, with respect to insured notes representing $236.3 million of the $516.3 million of securitization trust debt outstanding at June 30, 2011. It should be noted that the principal amount of such securiti- zation trust debt is not increased, but that the increased insurance premium is reflected as increased interest ex- pense. Furthermore, such waivers are temporary, and there can be no assurance as to their future extension. We do, however, believe that we will obtain such future extensions of our servicing agreements because it is generally not in the interest of any party to the securitization transaction to transfer servicing. Nevertheless, there can be no assurance as to our belief being correct. Were an insurance company in the future to exercise its option to termi- nate such agreements or to pursue other remedies, such remedies could have a material adverse effect on our li- quidity and results of operations, depending on the number and value of the affected transactions. Our note insur- ers continue to extend our term as servicer on a monthly and/or quarterly basis, pursuant to the servicing agree- ments.

See “Risk Factors – Risk Factors Relating To CPS – Risks Related to Our Business – If We Lose Servicing Rights on Our Portfolio of Automobile Contracts, Our Results of Operations Would be Impaired.”

Availability of Funding

Since the fourth quarter of 2007, we have observed unprecedented adverse changes in the market for securitized pools of automobile contracts. These changes include reduced liquidity, and reduced demand for asset-backed se- curities, particularly for securities carrying a financial guaranty and for securities backed by sub-prime receivables. Moreover, many of the firms that previously provided financial guarantees, which were an integral part of our se- curitizations, are no longer offering such guarantees. In November 2008, we lost the ability to draw against avail- able warehouse facilities, causing us to conserve liquidity by reducing our purchases of automobile contracts to nominal levels. However, in September 2009 we entered into a $50 million revolving credit facility that allows


Document info
Document views186
Page views186
Page last viewedWed Jan 25 00:02:17 UTC 2017