Online used car dealership Carvana is sponsoring a $615.5 million asset-backed securities deal this year for its latest asset-backed security (ABS), a deal that offers an initial credit enhancement of 9.5 % on the “AAA” rated debt securities included.
Carvana Auto Receivables Trust 2022-P2 has an $82 million tranche that is KBRA rated “K1+” with an initial credit enhancement of 9.50%; two tranches of $185,500 million rated ‘AAA’ with an initial credit enhancement of 9.5%; a $97.550 million tranche rated AAA with an initial credit enhancement of 9.50%; an ‘AA+’ rated $18.450 million tranche with an initial credit enhancement of 6.45%; an ‘A+’ rated tranche of $17,550 million with an initial credit enhancement of 3.55%; $18.450 million
BBB+ rated tranche with an initial credit enhancement of 0.50%; and a $10.587 million tranche rated BBB- with an initial credit enhancement of 0.30%.
Carvana’s 17th overall ABS is scheduled to close on May 25th.
CRVNA 2022-P2’s pool balance is much smaller than that of its recent predecessors, which spent approximately $1.0 billion, KBRA noted.
Carvana, an e-commerce platform founded in 2012, operates in 315 markets. Users can buy, finance, trade and have cars delivered through the company. The Tempe, Arizona firm’s latest ABS is backed by $605 million in auto loans. The fixed-rate installment loans are to individuals with a “non-zero weighted average FICO score of 704,” the report said.
The average principal balance is $24,150 with a weighted average original and remaining maturity of 71 and 70 months, respectively, KBRA said. The net proceeds from the issuance of the debentures will be used for general operations, the report said.
Bridgecrest Credit Company, a subsidiary of DriveTime, is the service provider; Computershare Trust Company, NA, is the custodian and paying agent of the Indenture Trustee. BNY Mellon Trust of Delaware is the trustee of the owner and Vervent Inc. is the backup service provider.
Despite its national profile as an innovative auto seller, Carvana began lending sizable amounts in 2016 to get on KBRA’s radar, the report said.
KBRA negatively rated several aspects of Carvana’s business, citing a lack of robust historical performance data as one. Also, the company is focused on growth, which results in operating losses — a net loss of $287 million for fiscal 2021 — and negative cash flow since inception, KBRA said.
However, not all aspects of Carvana’s business are cause for concern. Its integrated business model allows the company to keep fixed costs more under control compared to traditional retailers, the report said.