CarMax Auto Owner Trust's third 2023 deal set to raise $1.2 billion

CarMax Auto Owner Trust is hoping to raise about $1.2 billion from the asset-backed securities market.

CarMax Auto Owner Trust 2023-3 (CAOT 2023-3) is issuing six classes of notes backed by prime loans for primarily used light-truck/sports utility vehicle loans originated by CarMax Auto Finance. This company is the financing arm of CarMax Business Services, a wholly-owned captive finance subsidiary of CarMax, the largest U.S. used vehicle retailer. 

The transaction is the third asset-backed securitization by CarMax Auto Owner Trust since January 2023, according to the Asset Securitization Report deal database. The notes' final legal maturity dates range from July 2024 to December 2030.

According to Fitch Ratings, CarMax Auto Funding is the seller and CarMax Business Services is sponsor and servicer. J.P. Morgan Securities is the underwriter for the transaction, which closes on July 26.

S&P Global Ratings says the transaction has the potential to be upsized to $1.5 billion.

CAOT 2023-3's underlying loan pool is $1.2 billion, down from 2023-2's $1.5 billion, with an average current balance of $19,875 ($19,294), 61,296 loans (79,331), and a weighted-average APR of 10.38% (9.6%), according to Fitch.

Fitch says CAOT 2023-3's collateral characteristics are generally consistent with prior transactions. Although the 2023-3 pool has a slightly higher weighted-average FICO (717) compared with CAOT 2023-2 (716), it shows a slightly worse FICO tier distribution and higher percentage of ValuMax vehicles, which are older than five years and/or with more than 60,000 miles, compared with 2023-2. 

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FICOs above 750 represent 36.9% of the 2023-3 pool, while FICOs below 650 total 24.7%, compared to 36.5% and 23.7%, respectively, for 2023-2. This is offset slightly by lower exposure to longer-term loans, Fitch says.

2023-3's weighted-average loan-to-value ratio is conservative at 88.9%, with LTVs above 100% accounting for 27.5% of the pool, down from 28.5% in 2023-2, according to Fitch.

S&P says that 2023-3's total initial hard credit enhancement, which comprises subordination, overcollateralization, and the reserve account, increased to 9.75% and 7.15% for classes A and B, respectively, from 9.65% and 7.00% in 2023-2. But initial credit enhancement decreased to 4.15% and 1.75% for classes C and D, respectively, from 4.25% and 2.25%.

S&P has provisionally rated the class A-1 notes as A-1+ and has assigned AAA to the A-2a/A-2b, A-3 and A-4 notes. It has provisionally rated the class B notes as AA, the C notes as A, and the D notes as BBB.

Fitch has provisionally assigned F1+ to the class A-1 notes, and AAA to the A-2a/A-2b, A-3 and A-4 notes. It expects to rate the class B notes as AA, the C notes as A, and the D notes as BBB.