CarMax Auto Finance (CAF) has launched a $1.14 billion securitization of used prime car and truck loans, adding to market momentum behind a quick start to the auto ABS market in 2017.
The CarMax Auto Owner Trust 2017-1 is among six asset-backed transactions so far this year involving both prime and subprime auto loan and lease pools identified through ratings agency presale reports and regulatory filings. Both Ford Motor Credit and Consumer Portfolio Services are set to close on recent deals, and Hyundai Capital America has introduced the year’s initial collection of collateralized leases.
Santander Consumer USA and Flagship Credit Acceptance also have pending deals.
COAT 2017-1, underwritten by lead bookrunner Barclays, is largely consistent with previous transactions involving CAF-originated loans through 169 CarMax superstores in 84 U.S. markets.
The new transaction, the first for CarMax since October, is structured through four classes of notes including four tranches of Class A series bonds that make up the preponderance of the issuance. The capital stack includes a $217 million money-market tranche carrying a preliminary short-term ‘F1+’ structured-finance rating from Fitch Ratings, according to a presale report issued Thursday. A similar ‘P-1’ money-market rating is expected from Moody’s Investors Service, according to a regulatory filing.
CarMax is offering both three- and four-year tranches of Class A notes sized at $373 million apiece, as well as a five-year series of senior notes totaling $101.6 million. All carry preliminary triple-A ratings from Fitch and Moody’s.
The subordinate tranches include $21.5 million in ‘AA’-rated Class B notes due 2022; a series of five-year, $22.7 million in Class C notes carrying an ‘A’ rating; and Class D notes rated ‘BBB’ sized at $26.2 million and maturing in six years.
The 71,281 loans in the pool originated by the CarMax captive finance subsidiary have an average balance of $15,923, a figure that has been steadily declining from prior deals. According to Fitch, the loans in the pool have a weighted average FICO of 706 that is the highest of any deal since 2011, but “generally” the same credit quality as previous CarMax transactions. The bucket of scores under a 650 FICO (29.1%) and over 750 (31%) are both “marginally stronger than any [CAOT] collateral pool in the past five years,” according to Fitch.
The borrowers in the pool have an average APR of 7.3% and LTV of 95.3%, and the mix of loans continues to be heavily focused on used vehicles (99.7%) and for original terms beyond five years (59.6%), which average 65.9 months in the pool. The loans are seasoned an average of 4.9 months.
The $1.14 billion pool balance is the smallest among recent transactions through the Carmax Auto Owner Trust since 2014.
The geographic and vehicle mix of the pool is largely unchanged. Ford vehicles are the largest segment at 11.2% of the pool, and California (16.9%) is the primary borrower base. Just over 50% of the pool is comprised of passenger cars, followed by SUVs and crossover models (37.2%) and trucks/vans (12.6%).
Despite some credit challenges such as the softening of the whole used vehicle market – fed by the increased supply of used off-lease vehicles and trade-ins – Fitch’s expected cumulative net loss on the portfolio of 2.4% is well within the 6.45% initial credit enhancement levels (Fitch’s stress scenarios showed the ‘A’ notes would withstand as much as a 12% CNL).
The initial CE level on the senior notes (with a target of 7.05%) is in the range of five of the six previous CAOT transactions – last year’s final CarMax transaction was only 5.75% CE. The enhancement includes subordination, a 0.25% nondeclining reserve account and 4.12% of excess spread (a level down “significantly” from CAOT’s prior 2016-4 transaction at 4.84%).
No initial overcollaterization is provided, but will target 0.6% of the pool balance.
CarMax’s total loan portfolio was $10.3 billion as of November 2016, up 11% from the same period in 2015. Total delinquencies have increased slightly to 3.2% for the 11-month period prior to last November, but are still down significantly from crisis-era delinquency levels. Total annualized net losses in the portfolio were stable at 0.82% from 2013-2015, but that has increased to 0.97% at year’s end 2016.
