CPS(CPSS) - 2025 Q4 - Annual Report

Financial Position and Debt - The company's current short-term funding capacity is $702.5 million, comprising three credit facilities[114]. - As of December 31, 2025, the company had approximately $3,483.4 million of debt outstanding, including $2,986.6 million of securitization trust debt[117]. - Increased interest expenses were experienced in 2023 due to multiple interest rate hikes by the Federal Reserve, impacting financial position and liquidity[134]. - The company’s ability to maintain financing sources is influenced by market conditions and compliance with covenants under financing agreements[116]. - The company may need to increase credit enhancement requirements if economic conditions worsen, impacting cash resources available for operations[127]. - An increase in interest rates could reduce cash flows from excess spread, adversely affecting earnings and cash flows[179]. Securitization and Financing - The company relies on securitization transactions for permanent financing of automobile contracts, having completed 36 securitizations from 2010 to 2019[120]. - The company is dependent on the performance of its portfolio of securitized and warehoused automobile contracts, with higher delinquency and loss ratios potentially reducing cash flows from residual interests[125]. - Receivables originated since January 2018 are recorded at fair value, and actual credit losses exceeding estimates may lead to fair value adjustments[139]. - The company cannot borrow against defaulted automobile contracts under its warehouse credit facilities, potentially reducing cash flows[141]. - Risk retention rules require the company to retain at least 5% of the credit risk of assets collateralizing asset-backed securities, potentially limiting liquidity[151]. Economic and Market Risks - Economic conditions, including unemployment and inflation, could adversely affect the company's ability to collect payments on receivables, impacting financial results[131]. - Defaults on automobile contracts could materially and adversely affect the company's financial condition, cash flows, and liquidity[138]. - Economic downturns could impair operations, particularly due to the focus on sub-prime customers, leading to increased delinquencies and losses[174]. - The company is geographically concentrated in states prone to natural disasters, which could adversely affect collections on automobile contracts[177]. - The company faces restrictions that may limit its ability to obtain additional capital, potentially impacting earnings generation[167]. Competition and Operational Risks - The company faces competition from various finance companies, which may have greater access to capital markets and resources[135]. - The company specializes in purchasing and servicing automobile contracts for sub-prime customers, which entails higher risks of non-performance and delinquencies[137]. - The company faces intense competition for key personnel, and loss of any key employee could adversely affect its operations[143]. - Non-compliance with regulations could result in penalties, litigation losses, and damage to the company's reputation, adversely affecting financial condition[147]. - The company is subject to various litigations that could result in significant financial liabilities and adversely affect its operations[153]. Technology and Accounting Risks - The use of artificial intelligence in operations may expose the company to operational, regulatory, and reputational risks that could impact financial results[165]. - The company has incurred risks related to fair value accounting for receivables acquired since January 1, 2018, which could affect interest income recognition[170]. - If actual results for receivables deviate from estimates, the company may need to reduce recorded values, impacting income and book value[172]. Stock and Dividend Policy - The company's common stock is thinly traded, leading to limited selling opportunities and potential price volatility[180]. - The company has never declared or paid cash dividends on its common stock and intends to retain future earnings[181].