Online used car dealer Carvana is sponsoring a $615.5 million asset-backed securities deal, for its latest asset-back security (ABS) this year, in a deal that features initial credit enhancement of 9.5% on the ‘AAA’ rated notes.
Carvana Auto Receivables Trust 2022-P2 has an $82-million tranche that KBRA rated ‘K1+’ with a 9.50% initial credit enhancement; two $185.500-million tranches rated ‘AAA’ with a 9.5% initial credit enhancement; a $97.550-million tranche rated ‘AAA’ with a 9.50% initial credit enhancement; an $18.450-million tranche rated ‘AA+’ with a 6.45% initial credit enhancement; a $17.550-million tranche rated ‘A+’ with a 3.55% initial credit enhancement; an $18.450-million
tranche with a ‘BBB+’ rating and a .50% initial credit enhancement; and a $10.587-million tranche rated ‘BBB-’ and a .30% initial credit enhancement.
Carvana’s 17th overall ABS is slated to close on May 25th.
CRVNA 2022-P2’s pool balance is much smaller than that of its most recent predecessors, which issued about $1.0 billion, KBRA noted.
First formed in 2012, Carvana, an ecommerce platform, operates in 315 markets. Users can purchase, finance, trade-in and get cars delivered through the business. The Tempe, Arizona company’s latest ABS is collateralized by $605 million automobile loans. The fixed-rate installment loans are to people with a “weighted average non zero FICO score of 704,” the report said.
The average principal balance is $24,150 with a weighted average original term and remaining term of 71 and 70 months, respectively, KBRA said. The net proceeds from issuing the notes will be for general operating, the report said.
Bridgecrest Credit Company, an affiliate of DriveTime, is the servicer; Computershare Trust Company, N.A., is the indenture trustee custodian and paying agent. BNY Mellon Trust of Delaware is the owner trustee and Vervent Inc. is the back up servicer.
Despite it national profile as an innovative car seller, Carvana began originating sizable volumes of loans to get on the radar of KBRA in 2016, the report said.
KBRA counted several aspects of Carvana’s business as a negative, citing its lack of robust historical performance data as one. Also, company is focused on growth, causing it to incur operating losses — a net loss of $287 million for fiscal year 2021—and a negative cash flow since inception, KBRA said.
Not all aspects of Carvana’s business are cause for concern, however. Its integrated business model allows it to keep a tighter rein on fixed, overhead costs compared with traditional retail dealers, the report said.
