Higher interest rates are impacting some of the mechanics on the Carvana Auto Receivables Trust, 2022-P3, an asset-backed securities deal secured by auto loans to prime borrowers, mainly.
The underlying collateral's interest rate has raised the transaction's expected annual gross excess spread, at 4.01%, compared with 3.80% on the CRVNA 2022-P2, according to the Kroll Bond Rating Agency. The current deal also has a higher expected weighted average note coupon. The collateral rates are unsurprising, especially amid the increasing interest rate environment, as the Federal Reserve raises rates to combat inflation.
KBRA noted that the company reported a net loss of $945 million for the six months ended June 30, a significantly larger loss than the net loss of $37 million for the same period a year ago. Nevertheless, total revenue increased about 32.2% for the June 2022 period, while cash and cash equivalents increased to $1.0 billion.
Carvana uses a Deal Score system to assess borrowers' credit quality, with scores ranging from 50 to 100. Some 48% of borrowers in the CRVNA 2022-P3 pool have Deal Scores that fall within 70 to 89, according to KBRA.
All of the auto loans are used, and were financed with fixed-rate loans, with a weighted average (WA) non-zero FICO score of 704. On average, the loans have a balance of $23,746, KBRA said.
On a weighted average (WA) basis, KBRA noted, the loans have a loan-to-value ratio of 93.6%, and a remaining term of 71 months. The pool also has some diversification, geographically. Texas, California and Florida account for the highest concentration of loans at 11.07%, 8.55% and 6.04%, respectively.
Initial credit enhancement ranges from 9.65% from the A-1 and A-4 classes, the rating agency said. The rest of the deal has credit enhancement ranging from 6.55% on the class B notes through 0.50% on the class D notes.
KBRA expects to assign ratings of 'K1+' on the A-1 notes; 'AAA' on the A-2 through A-4 notes; 'AA+' and 'A+' on classes B and C; and 'BBB+' and 'BBB' on classes D and N notes. Legal maturities range from September 2023 through September 2029, according to KBRA.
