Carvana Auto Receivables Trust has returned to the asset-backed securities (ABS) market with a $1 billion transaction, the fifth under its prime shelf and the fourteenth deal overall.
Citigroup Global Markets is lead underwriter on the transaction, which will employ a senior subordinate capital structure to issue notes, according to S&P Global Ratings, which will assign ratings.
Known as CRVNA 2021-P4, the transaction increased subordination to the class A notes, to 7.7%, form 7.6%. The B and C classes benefited from subordination that increased by 20 basis points.
Total initial hard credit enhancement increased on the A, B and C notes, to 8.2%, from 8.1%; 5.1% from 4.9%; and 2.1% from 1.9%, respectively, S&P said.
The deal is slated to close on December 29.
Fixed-rate automobile loans made mainly to prime borrowers collateralizes the trust, according to Kroll Bond Rating Agency. The trust also includes several changes in the borrower profile. For one, the weighted average (WA) loan-to-value on loan balances is 92.1%, down from 93.7%, KBRA said.
Carvana, which launched its online platform for customers to purchase and finance used cars in 2012, is the sponsor, originator and administrator on the transaction.
As of the cutoff date the loans have an average current principal balance of $23,671, and on a weighted average basis, the obligors have a FICO score of 704, KBRA said.
KBRA plans to assign ratings to the notes ranging from K1+ on the $146.6 million, class A-1 notes to ‘BBB+’ on the $17.4 million class D notes. S&P’s preliminary ratings on the notes range from A-1+ on the class A-1 notes to ‘BBB’ on the class D notes.
KBRA noted that CRVNA 2021-4’s notes benefit from initial credit enhancement in the form of subordination, about 5.3% excess spread per year, and a reserve account funded at closing. The transaction also includes a reserve account that can pay any interest shortfalls on the class N certificates, KBRA said.
Bridgecrest Credit Company will service the notes, while Vervent will serve as the backup servicer. KBRA points to Bridgecrest’s presence on the deal as a credit positive, because it oversees an $11 billion portfolio, and is equipped to handle the needs of Carvana’s technology-savvy customer base. Bridgecrest’s touch points with consumers includes an online account services portal, a smartphone app, and text messaging, KBRA said.
Also, KBRA notes, Carvana maintains several business relationships with DriveTime, including DriveTime’s affiliate and the notes’ servicer, Bridgecrest. These relationships provide the benefits of a larger-scale organization, including access to a range of experts.
S&P noted a number of weaknesses on the transaction, including that Carvana has not been profitable since its inception in 2012, with the exception of Q2 2021. Carvana reported $45 million in net income, but expansion costs contributed to a net loss of $68 million in Q3, the rating agency said.
The company’s focus on aggressive growth was also concerning to S&P, as Carvana added 120 new markets in 2020, as well as opening four new inspection and reconditioning centers, and four new vending machine sites.
