CarMax Auto Owner Trust is hoping to raise about $1.2 billion from the asset-backed securities market, this time offering notes from a pool of collateral with slightly better credit distribution and fewer original longer term loans than its previous deal.
Lower hard credit enhancement and weakening performance both in CarMax's managed portfolio and its securitizations, due to high interest rates, are among the areas where investors should take caution, according to a pre-sale analysis from Fitch Ratings.
CarMax will repay interest to the notes among the five class A notes first, and on a pro rata basis, and then begin to pay interest on the classes B, C, and D sequentially, according to Fitch. As for principal, the trust will repay the note holders sequentially in order of seniority and starting with A-1.
Should a default event occur, according to Fitch, CarMax will distribute principal to class A-1 notes until paid in full; then pro rata to classes A-2 through A-4 until paid in full; and finally sequentially to classes B, C, and D.
Fitch Ratings did note that CarMax 2023-2 has lower hard credit enhancement levels on each class of notes than its predecessor deal. Consisting of subordination, overcollateralization and the reserve account, hard credit enhancement amounted to 9.6%, 7.0%, 4.2%, and 2.2%, respectively on the classes A, B, C and D notes.
Previously those levels were 10.8%, 8.2%, 5.9% and 2.6%, respectively, notes S&P Global Ratings, which will also assign ratings to the notes.
"CE is lower for all classes relative to 2023-1 and 2022-4, mainly as a result of lower overcollateralization (OC) and subordination," Fitch said.
Still, the notes are secured by prime auto receivables, and pricing guidance on the deal, which is expected to close on April 26, is 38 to 40 basis points over the I-Curve on the A-1 notes, according to the Asset Securitization Report's deal database. That is significantly wider than where the class A-1 notes from the 2023-1 deal closed. Those notes closed at a spread of 28 over the I-Curve, where guidance was 32 to 34 bps over the benchmark.
All classes are expected to issue fixed rate notes, except the A-2a and A-2b, which could issue fixed or floating rate notes pegged to the Secured Overnight Financing Rate, says the database.
Fitch expects to assign ratings of 'F1+' to the A-1 notes; 'AAA' to the A-2 through A-4 notes; 'AA' to the class B notes; 'A' to the class C notes and 'BBB' to the class D notes.
S&P says it expects to assign ratings of 'A-1+' to the class A-1 notes, and follows the same pattern on the A-2 through class C notes. It expects to assign ratings of 'BBB+' on the class D notes.
