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February 4, 2005
Mail Stop 0408
By U.S. Mail and Facsimile to (214) 659-4773
Charles Bradley, Jr.
Chief Executive Officer
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, California 92618
Re: Consumer Portfolio Services, Inc.
Form S-2 filed January 7, 2005
File No. 333-121913
Form 10-K for the year ended December 31, 2003 and related
documents
File No. 1-14116
Dear Mr. Bradley:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
The purpose of our review process is to assist you in your
compliance with the applicable disclosure requirements and to
enhance
the overall disclosure in your filing. We look forward to working
with you in these respects. We welcome any questions you may have
about our comments or on any other aspect of our review. Feel
free
to call us at the telephone numbers listed at the end of this
letter.
Form S-2
General
1. Please provide us supplementally with your legal analysis of
how
the rollover feature satisfies the 1933 Securities Act. It
appears
that the notes may be renewed for up to ten additional years, and
that any subsequent request to have the notes redeemed may be
denied
for any reason.
2. We note that the specific terms of the debt securities will be
disclosed in the prospectus supplement. If the terms will be
novel
or unique, we may review the supplement. If you provide the
supplement to us prior to its use, we will review it on an
expedited
basis.
3. Please provide us with copies of all marketing literature for
our
review, as it becomes available. We may have comments.
Cover Page
4. Please disclose the number of days that an investor will have
available after maturity to request that the notes not be renewed.
Prospectus Summary - page 1
5. All references to the company and the notes should be clear
from
the context. Refer to Rule 421 of Regulation C. Shareholders
should
be able to ascertain the meanings of the terms used without the
definitions in the last sentence of the introduction to the
summary.
6. We note the disclosure of the value of motor vehicle contracts
purchased in 2004. Please balance this and other financial
information with disclosure regarding the losses the company
suffered
in 2004.
7. Please disclose any limitations on the ability of the company
to
refuse redemption of the notes if requested prior to maturity.
Risk Factors - page 6
8. Please delete the discussion of additional risk factors in the
first introductory paragraph. While it is appropriate to include
a
discussion of factors that may cause actual results to differ from
those expressed in forward-looking statements, that discussion
should
be separate from the risk factor section. In addition, discussion
of
non-material risks or material risks that are not yet known is
unnecessarily confusing to the investor. Similarly, revise to
clarify what is meant in the second introductory paragraph by
"other
information contained in this prospectus."
9. We note that many of your subheadings merely make a statement
about the company and do not express a clear risk. The
subheadings
to the risk factors should clearly state a risk to the potential
investor. You may find it helpful to express this in terms of
cause
and effect, using a "Because of X, Y follows" model. As an example
only, we note the subheading "The notes will have no sinking fund,
security, insurance or guarantee." Revise the subheadings
throughout
this section accordingly, to make explicit the risk to investor or
company.
The Notes will Automatically Renew... - page 7
10. We note your statement that "any requests for repurchases
after
your notes are renewed will be subject to our approval." Please
explain clearly and prominently that the notes may be renewed
automatically for up to ten additional years unless the investor
requests redemption within 15 days after maturity, and that any
subsequent request to have the notes redeemed prior to maturity
may
be denied for any reason.
Renewal or Redemption on Maturity - page 23
11. It is not clear under what circumstances you would not send
investors a new prospectus, requiring them to request one. Please
revise or advise.
Proxy Statement
12. Please tell us where you discuss the independence of the audit
committee members. Refer to Item 7(d)(2)(ii)(C) of Schedule 14A.
Form 10-K for the year ended December 31, 2003
Item 1: Business- page 1
Delinquency Experience Tables - pages 8-9
13. We note your disclosure on page F-10 that management may
authorize a temporary extension of payment terms if collection
appears to be likely during the next calendar month.
Supplementally
tell us whether receivables receiving these or any other temporary
extensions are re-aged. To the extent that receivables have been
re-
aged, please revise your 2004 10-K to quantify receivables that
have
been re-aged once and those that have been re-aged more than once.
Flow Purchase Program - page 11
14. We note that contracts purchased from dealers in your Flow
Purchase Program were purchased primarily for immediate and
outright
sale to third parties. We also note that these contracts were
sold
at a mark-up above the amount paid to the dealer. Please
supplementally tell us how you were able to sell these contracts
at a
gain immediately after they were purchased at a discount.
Item 7: Management`s Discussion and Analysis - page 19
Results of Operations - page 24
General
15. In your 2004 10-K, where you describe two or more business
reasons that contributed to a material change in a financial
statement line item between periods, please quantify the extent to
which each change contributed to the overall change in that line
item. For example, with respect to the changes in interest income
during 2003, please quantify the extent to which the changes are
attributable to the change in securitization structure, interest
earned on the portfolio of contracts acquired in the TFC Merger,
increase in residual interest income and decline in the balance of
the portfolio of contracts acquired in the MFN Merger. See Item
303(a) of Regulation S-K and SEC Release No. 33-8350.
The Year Ended December 31, 2003 Compared to the Year Ended
December
31, 2002
Revenues
16. You state that the 2003 gain on sale amount is net of a
negative
fair value adjustment of $4.1 million related to the Company`s
analysis and estimate of the expected ultimate performance of the
Company`s previously securitized pools. You also state that the
decrease in gain on sale from 2002 to 2003 is partially offset by
a
negative fair value adjustment of approximately $2.5 million
recorded
during the first quarter of 2002 related to the Company`s residual
interest in securitizations. Clarify whether the fair value
adjustment for 2003 relates to residual interests. If not, tell us
the asset this adjustment relates to. Also, tell us which line
item
on your table in Note 10 includes these adjustments.
Liquidity and Capital Resources - page 29
17. Please revise your 2004 10-K to identify the major covenants
of
your securitization and non-securitization related debt
facilities.
Consider disclosing, in a tabular format, required financial
ratios
and actual financial ratios for each period presented.
18. Please revise your 2004 10-K to identify any cross-default
provisions on your securitization and non-securitization related
debt
and the related consequences. Consider disclosing, in a tabular
format, the carrying amount, due date and interest rate of each
outstanding debt issue, the status of default, whether a waiver
has
been received and the potential dollar amount of accelerated
repayment as of the latest reported date, if any.
19. Please revise your 2004 10-K to disclose how you intend to
repay
material amounts of securitization and non-securitization debt due
within one year.
20. Please revise your 2004 10-K to disclose, in a tabular format,
a
summary of the major terms and conditions of each of your
servicing
and debt arrangements.
Contractual Obligations - page 33
21. Please revise the table in your 2004 10-K to include payments
due
on securitization trust debt.
Item 8: Financial Statements and Supplementary Data - page F-1
Consolidated Statements of Operations - page F-4
22. Please revise your 2004 10-K to quantify income taxes
applicable
to extraordinary items. Refer to paragraph 11 of ABP 30.
Consolidated Statements of Cash Flows - page F-7
23. Please revise your 2004 10-K to separately quantify
liquidations
of contracts held for sale from amortization of contracts held for
sale. Refer to paragraph 21 of SFAS 104.
24. Please supplementally define amortization and liquidation in
the
context of contracts held- for-sale and contracts held-for-
investment. Quantify the major types of activities included in
the
relevant lines on the statement and tell us whether each is a cash
or
non-cash activity.
25. Please revise your 2004 10-K to provide a separate line item
in
the operating section for gain on sale of contracts. Refer to
paragraph 28 of SFAS 95.
Note 1- Summary of Significant Accounting Policies - page F-9
Recent Developments
26. Supplementally clarify whether the changes made to your
securitization structures caused you to re-recognize any finance
receivables previously sold, in accordance with paragraph 55 of
SFAS
140. To the extent that any finance receivables were re-
recognized,
tell us:
* How you considered paragraph 7 of EITF 02-9 in determining
whether
to initially record a provision for loan losses on re-recognized
finance receivables resulting from the changes in your
securitization
structures; and
* How you considered paragraph 9 of EITF 02-9 when accounting for
residual interests initially recorded as a result of
securitizations
structured as sales that are now accounted for as secured
borrowings.
Finance Receivables, Net of Unearned Income
27. Please supplementally tell us how you determine the carrying
value of finance receivables held-for-sale. Refer to paragraph
..08b
of SOP 01-6.
28. Please supplementally quantify the carrying amount of finance
receivables held-for-sale and held-for-investment. Refer to
paragraph 13e of SOP 01-6.
29. We note your disclosure that finance receivables are evaluated
for impairment on a loan-by-loan basis. Please revise your 2004
10-K
to state the criteria you use to determine whether a receivable is
impaired. Also, state your policy for recognizing interest income
on
impaired receivables, including how cash receipts are recorded.
Refer to paragraphs 8 and 20b of SFAS 114.
30. Please refer to paragraph .13 of SOP 01-6 and revise to your
2004
10-K to describe the following accounting policies:
* Determining past due or delinquency status;
* Placing receivables on non-accrual status;
* Recording payments received on non-accrual receivables; and
* Resuming accrual of interest.
31. We note your disclosure on page 5 that you paid premiums to
dealers when purchasing contracts estimated to have low credit
risk
during 2003, 2002, and 2001. Please supplementally tell us
whether
these premiums represent contract acquisition fees paid to
dealers.
If not, revise your 2004 10-K to state the accounting policy for
these premiums.
Contract Acquisition Fees
32. Please supplementally tell us how you considered the
accounting
guidance in paragraphs .13-.18 of AICPA Practice Bulletin 6 in
accounting for these fees at and subsequent to the date of
acquisition for as they relate to your loans held-for-investment.
33. You state that acquisition fees associated with receivables
securitized in pools structured as secured financings are deferred
and revenue is recognized over the life of the contracts using a
method that approximates a level yield. Supplementally quantify
the
difference between the level yield method and the method used with
respect to these fees for each period presented.
Treatment of Securitizations
34. You state that prior term securitizations that are treated as
sales for financial accounting purposes differ from secured
financings in that the Trust to which the SPS sells the contracts
meets the definition of a QSPE under SFAS 140.
* Supplementally tell us how these Trusts were modified so that
they
no longer meet the definition of QSPEs.
* Supplementally explain why your ability to modify your Trusts
did
not prohibit them from being QSPEs.
35. You state that during the quarter ended September 30, 2003 the
warehouse securitizations related to the CPS program were amended
to
cause the transactions to be treated as secured financings for
financial accounting purposes. Supplementally tell us how these
securitizations were amended.
36. Supplementally explain how you have ceded effective control
over
assets transferred to off-balance sheet warehouse facilities.
Refer
to paragraph 9(c) y of SFAS 140.
37. We note your disclosure on page F-11 that the Securitization
Agreements generally grant the Company the option to repurchase
the
sold contracts from the Trust when the aggregate outstanding
principal balance of the contracts has amortized to a specified
percentage of the initial aggregate balance. Supplementally
quantify
the specified percentage.
38. We note that the estimated fair value of residuals is
determined
using the cash-out method, which includes anticipated collections
from charged-off receivables. We also note your disclosure on
page
12 regarding the Trust`s ability to require you to repurchase
securitized receivables if warranties and representations made by
you
initially are later found to be incorrect. Supplementally tell us
why
you considered repurchased receivables when determining the
anticipated collections from charged-off receivables.
39. We note your disclosure on page F-13 that in certain cases,
excess cash collected in a spread account is transferred to
another
spread account that is below its required levels. Supplementally
tell us how you determined the appropriateness of transferring
funds
from one spread account to another and the accounting guidance on
which you relied.
40. Supplementally tell us how and when you assess residual
interests
for impairment. Refer to EITF 99-20.
Servicing
41. Supplementally tell us how you considered the guidance in
paragraph 62 of SFAS 140 in your determination that the servicing
fee
received on your managed portfolio held by non-consolidated
subsidiaries approximates adequate compensation for all periods
presented and does not give rise to a servicing asset.
Other Income
42. Supplementally tell us why you recorded recoveries on
previously
charged off MFN contracts in other income rather than recording
them
in the allowance for credit losses.
Deferral and Amortization of Debt Issuance Costs
43. We note your disclosure that debt issuance costs are amortized
on
a straight-line basis over the shorter of the actual or expected
term
of the related debt. Supplementally quantify the difference
between
the level yield method and the straight-line method for each
period
presented. Refer to paragraph 16 of APB 21.
New Accounting Pronouncements
44. Please revise your 2004 10-K to describe the impact your
adoption
of SOP 03-3 will have on your financial statements when adopted.
Refer to SAB Topic 11M.
Note 4- Finance Receivables - page F-21
45. Please revise your allowance for credit loss roll forward in
your
2004 10-K to distinguish between the provision for credit losses
related to finance receivables on your balance sheet and the
provision for credit losses included in your gain on sale
calculations. Additionally, tell us what the provision for credit
losses included in your gain on sale calculation represents.
46. Please revise your allowance for credit losses roll forward in
your 2004 10-K to quantify both charge-offs and recoveries at
gross
amounts.
Note 7 - Securitization Trust Debt - page F-23
47. Please revise your 2004 10-K to quantify the aggregate amount
of
maturities of your Securitization Trust Debt for each of the next
five years. Refer to paragraph 10b of SFAS 47.
48. Please revise your table at the top of page F-24 in your 2004
10-
K to include the due date for each debt issuance. Refer to
paragraph
..14h of SOP 01-6.
Note 9 - Shareholder`s Equity - page F-27
Options and Warrants
49. Please revise your table at the top of page F-29 in your 2004
10-
K to disclose the weighted-average fair values of options
separately
for each of the following groups:
* Options whose exercise price is equal to the market price of the
stock on the grant date;
* Options whose exercise price exceeds the market price of stock
on
the grant date; and
* Options whose exercise price is less than the market price of
the
stock on the grant date. Refer to paragraph 47b of SFAS 123.
Note 10- Gain on Sale of Contracts - page F-30
50. Supplementally tell us what each of the components of net gain
on
sale represents. Additionally, tell us your rationale for
including
each component in net gain on sale including the accounting
guidance
on which you relied.
Note 16- Fair Value of Financial Instruments - page F-36
51. We note that you have typically recorded large gains on sales
of
finance receivables held-for-sale. Please clarify how you
determined
that the fair value of finance receivables held-for-sale
approximate
the carrying value for each period presented.
* * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
You may contact Sharon Johnson, Staff Accountant, at (202)
942-
2961 or Donald Walker, Senior Assistant Chief Accountant at (202)
942-1799 if you have questions regarding comments on the financial
statements and related matters. Please contact Gregory Dundas at
(202) 942-2932 or me at (202) 942-1760 with any other questions.
Sincerely,
Todd K. Schiffman
Assistant Director
cc: Patrick C. Sargent, Esq.
Andrews Kurth LLP
1717 Main Street, Suite 3700
Dallas, Texas 75201
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Consumer Portfolio Services, Inc.
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