Carvana prepares $615.5 million in ABS notes on fixed-rate installment loans to buy cars

Online used car dealership Carvana is sponsoring a $615.5 million asset-backed securities deal, for its latest asset-backed security (ABS) this year, in a deal that will includes an initial credit enhancement of 9.5% on “AAA” rated notes.

Carvana Auto Receivables Trust 2022-P2 has an $82 million tranche that 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 $18.450 million tranche rated “AA+” with an initial credit enhancement of 6.45%; a $17.550 million tranche rated “A+” with an initial credit enhancement of 3.55%; $18.450 million

tranche with a “BBB+” rating and an initial credit enhancement of 0.50%; and a tranche of $10.587 million rated “BBB-” and an initial credit enhancement of 0.30%.

Carvana’s 17th overall ABS is set to close on May 25.

CRVNA 2022-P2’s pool balance is much lower than its more recent predecessors, which issued around $1.0 billion, KBRA noted.

Founded in 2012, Carvana, an e-commerce platform, operates in 315 markets. Users can buy, finance, trade and have cars delivered through the company. The Tempe, Arizona-based company’s latest ABS is secured by $605 million in auto loans. Fixed-rate installment loans are for people 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 term and remaining term of 71 and 70 months, respectively, KBRA said. Net proceeds from the issuance of the tickets will be used for general operations, according to the report.

Bridgecrest Credit Company, a subsidiary of DriveTime, is the repairer; Computershare Trust Company, NA is the custodian and paying agent. BNY Mellon Trust of Delaware is the proprietary trustee and Vervent Inc. is the standby servicer.

Despite its national profile as an innovative car salesman, Carvana began generating significant volumes of loans to be on the KBRA’s radar in 2016, according to the report.

KBRA counted several aspects of Carvana’s business as negative, citing its lack of strong historical performance data as one. Additionally, the company is focused on growth, causing it to suffer 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 of concern. Its integrated business model allows it to more tightly control fixed overhead compared to traditional retailers, according to the report.