Carvana, the e-commerce used-car sales site, has launched its fourth auto-loan securitization of the year, in a deal with reduced loss expectations compared with its prior asset-backed notes offering.
According to Kroll Bond Rating Agency, the $507.26 million Carvana Auto Receivables Trust 2019-4 has a lower base case loss projection of 10.25% versus 10.8% in the CRVNA 2019-3 deal that priced in September.
The primary reason was an increase in the share of higher-rated borrowers from the lender’s two highest internal credit tiers, according to Kroll’s report. The borrowers in Carvana’s top 80-100 score range make up 18.36% of the new pool, compared with 17.35% in the 2019-3 deal. The 60-79 score range population also increased to 17.66% from 15.45%.
The pool has a weighted average FICO of 634, but as Moody's Investors Service notes. The loan contracts backing the transaction are to obligors across the credit spectrum, but skew toward non-prime borrowers," according to Moody's Investors Service.
Moody’s, in its pre-sale analysis, is maintaining the 11% expected loss that was also attached to Carvana’s previous transaction.
Carvana (NYSE: CVNA) is marketing seven classes of notes including three senior-note tranches consisting of a $67 million money-market tranche (Class A-1) and two Class A term tranches totaling $105 million (Class A-2) and $100.5 million (Class A-2).
The Class A-2 (due July 2022) and A-3 notes (due September 2023) have preliminary AAA ratings from Kroll; the Class A-1 tranche has Kroll’s top short-term rating of K1+.
The senior notes are supported by 48.85% credit enhancement on the $520 million loan pool.
Carvana, which operates in 146 markets, has been in operation since 2012 but only had its first public securitization in March 2019. The fast-growing company (which had its IPO in 2017 after its spinoff from DriveTime Automotive Group ) is still amassing losses (losing $238.9 million for the first nine months of the year) as it accumulates debt to rapidly expand its nationwide market, according to a presale report from Kroll.
Carvana’s online sales model – in which consumers purchase and finance a vehicle without test drives or showroom demonstrations – has allowed it to reduce markups on vehicles and require lower down payments from consumers, resulting in lower loan-to-value and higher recovery amounts than traditional indirect finance companies,” according to Kroll.
As part of a forward-flow relationship with Ally Financial, Carvana will sell about 40%-50% of its loans with FICOs between 590 and 749 to Ally.
The 2019-4 transaction is being led by Credit Suisse, Deutsche Bank, Wells Fargo, Amherst Pierpont Securities LLC and Citigroup.
