KBRA Assigns Preliminary Ratings to Carvana Auto Receivables Trust 2020-P1

·4-min read

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to eight classes of notes issued by Carvana Auto Receivables Trust 2020-P1 ("CRVNA 2020-P1"), an auto loan ABS transaction.

CRVNA 2020-P1 represents the second term ABS securitization for Carvana LLC ("Carvana" or the "Company") in 2020, the first under its prime shelf, and the sixth overall. CRVNA 2020-P1 will issue eight classes of notes totaling $420.0 million. The transaction is collateralized by approximately $405 million of automobile loans to primarily prime obligors as defined by the Company.

In 2012, DriveTime Automotive Group Inc. ("DriveTime") launched Carvana, an eCommerce platform for buying used vehicles. Carvana, through its website (www.Carvana.com), offers a unique used vehicle buying experience that enables customers to purchase vehicles online through an efficient and transparent process. Carvana's target customer demographic is not specific to credit and is geared to attract a broader credit spectrum and income classification than that of DriveTime. Initially launched in Atlanta, Georgia, Carvana has expanded nationally and is now operating in 263 markets. Carvana’s business and operations fully integrate all steps of the vehicle purchase process including vehicle acquisition, trade-in, financing, and delivery.

The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the subject pool and auto loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross charge-off assumptions for this transaction. The assumption increase was derived from KBRA’s analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008-2009 financial crisis for different types of lending products.

KBRA applied its Global Auto Loan ABS Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and Carvana’s historical static pool data as well as publicly available static pool loss data for comparable auto loan originators. KBRA also conducted an operational assessment on the originator and servicer, as well as a review of the transaction’s legal structure and transaction documents. KBRA will review the operative agreements and legal opinions for the transaction prior to closing.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.

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Contacts

Analytical Contacts

Alla Mikhalevsky, CFA, Director (Lead Analyst)
+1 (646) 731-3356
amikhalevsky@kbra.com

Pritam Patel, Associate
+1 (646) 731-3374
ppatel@kbra.com

Abby Barkwell, Director
+1 (646) 731-3304
abarkwell@kbra.com

Eric Neglia, Managing Director (Rating Committee Chair)
+1 (646) 731-2405
eneglia@kbra.com

Business Development Contact

Ted Burbage, Managing Director
+1 (646) 731-3325
tburbage@kbra.com