Debt and Financing - As of December 31, 2024, the company had approximately 2,594.4 million in securitization trust debt and 535 million, consisting of two credit facilities [121]. - The ability to maintain warehouse or securitization financing on acceptable terms is crucial for the company's operations and could significantly impact its financial health [122]. - Risk retention rules require the company to retain at least 5% of the credit risk for securitizations executed after December 2016, potentially limiting liquidity and increasing capital requirements [154]. Economic and Market Risks - Economic downturns can lead to increased delinquencies, defaults, and losses, adversely impacting the company's financial position and liquidity [131]. - Economic downturns, particularly in regions like California, Texas, Ohio, Illinois, and Florida, could lead to increased delinquencies and adversely affect the company's operations [173]. - Natural disasters in key states could result in job losses or damage to vehicles securing contracts, leading to reduced collections and revenue [176]. - An increase in interest rates could decrease cash flows from excess spread, adversely affecting earnings and cash flows [179]. Performance and Credit Risks - The company relies on cash flows from residual interests in securitization programs and warehouse credit facilities, which are affected by the performance of the underlying automobile contracts [129]. - The performance of automobile contracts significantly impacts the company's results of operations, financial condition, cash flows, and liquidity, with defaults potentially leading to material adverse effects [142]. - The company specializes in sub-prime automobile contracts, which carry higher risks of non-performance and delinquencies compared to contracts with more creditworthy customers [141]. - An allowance for credit losses is maintained for receivables originated prior to January 2018, reflecting estimates of probable credit losses; inadequate allowances could adversely affect results [143]. - Receivables originated since January 2018 are recorded at fair value, and if actual credit losses exceed estimates, it may necessitate fair value adjustments or reduced interest income [144]. - The company cannot borrow against defaulted automobile contracts under warehouse credit facilities, which may reduce cash flows available [145]. - A downward adjustment in the recorded value of receivables could reduce the company's income and book value if actual credit losses exceed estimates [171]. - The fair value of receivables may require adjustment if market conditions indicate a significantly lower value than recorded, impacting income and book value [172]. Operational Risks - Loss of servicing rights on the portfolio of automobile contracts could materially impair results of operations and financial condition [146]. - Key personnel retention is critical; loss of key employees could adversely affect results of operations and financial condition [147]. - The company faces litigation risks that could result in significant financial penalties and adversely affect operations and cash flows [156]. - Non-compliance with regulations could lead to penalties, litigation losses, and damage to reputation, adversely affecting financial condition and stock price [150]. Stock and Dividend Policy - The company's common stock is thinly traded, leading to limited selling opportunities and potential price volatility; as of December 31, 2024, directors and executive officers owned approximately 61% of total shares outstanding [180]. - The company has never declared or paid cash dividends on its common stock and intends to retain future earnings without paying dividends in the foreseeable future [181]. Interest Rate Impact - Increased interest expenses were experienced in 2023 due to multiple interest rate hikes by the Federal Reserve, with uncertainty regarding future rate changes [138]. - The company may need to reduce interest income recognized on receivables if actual results materially deviate from estimates, particularly regarding future credit losses and prepayment rates [170]. - Fair value accounting for receivables acquired since January 1, 2018 introduces risks related to the valuation and potential adjustments impacting financial results [169].
CPS(CPSS) - 2024 Q4 - Annual Report