Five Ratings Raised, Eight Ratings Affirmed On Two CarMax Auto Owner Trust Transactions

Stocks and Financial Services Press Releases Wednesday November 15, 2017 08:56
NEW YORK--15 Nov--S&P Global Ratings

NEW YORK (S&P Global Ratings) Nov. 14, 2017--S&P Global Ratings today raised its ratings on five classes and affirmed its ratings on eight classes from CarMax Auto Owner Trust 2016-2 and CarMax Auto Owner Trust 2016-3(see list).

Today's rating actions reflect each transaction's collateral performance to date and our views regarding future collateral performance, each transaction's structure, and the respective credit enhancement levels. In addition, our analysis incorporated secondary credit factors, including credit stability, payment priorities under various scenarios, and sector- and issuer-specific analyses. More specifically, the raised and affirmed ratings reflect our view that the total credit support as a percentage of the amortizing pool balance, compared with our revised expected remaining losses, is adequate for each raised or affirmed rating.

We revised our lifetime loss expectations higher for series 2016-2 and 2016-3 (see tables 1 and 2). Our revised lifetime loss expectations for both transactions are slightly worse than our initial expectations partially due to higher cumulative gross losses and softening cumulative recovery rates. To account for some uncertainty regarding hurricane Harvey and Irma related-losses, we widened our ECNL range to 15 basis points from 10 basis points. Still, we believe hurricane-loss exposure is largely mitigated by the fact that most of the loans in the pools are to prime obligors. In addition, since the transactions closed, the credit support for each transaction has increased as a percentage of the amortizing pool balance (see table 3).

Table 1
Collateral Performance (%)
As of the October 2017 distribution date
Pool Current 60+ day
Series Mo. factor CNL delinq.
2016-2 18 54.53 1.19 1.41
2016-3 15 64.28 1.00 1.40
Mo.--Month. CNL--Cumulative net loss. Delinq.--Delinquencies.
Table 2
CNL Expectations (%)
Initial Revised
lifetime lifetime
Series ECNL ECNL
2016-2 2.10-2.20 2.35-2.50
2016-3 2.15-2.25 2.50-2.65
ECNL--Expected cumulative net loss.

Each transaction contains a sequential principal payment structure in which the notes are paid principal by seniority. The transaction documents state that each transaction receives credit enhancement through a nonamortizing reserve account, overcollateralization, subordination for the higher-rated tranches, and excess spread.

Each transaction's credit enhancement is at the specified enhancement target or floor, and each class' credit support is expected to continue to increase as a percentage of the amortizing collateral balance (see table 3).

Table 3
Hard Credit Support (%)
As of the October 2017 distribution month
Total hard Current total hard
credit support credit support
Series Class at issuance(i) (% of current)(i)
2016-2 A 6.90 13.56
2016-2 B 4.50 9.16
2016-2 C 1.80 4.22
2016-2 D 0.25 1.38
2016-3 A 6.60 11.04
2016-3 B 3.80 6.69
2016-3 C 1.80 3.58
2016-3 D 0.25 1.17

(i)Calculated as a percentage of the total gross receivable pool balance, consisting of a reserve account, overcollateralization, and, if applicable, subordination. Excess spread is excluded from the hard credit support that can also provide additional enhancement.

We incorporated a cash flow analysis in our review, which included our assumptions on recoveries, timing of losses, and voluntary absolute prepayment speeds that we believe are appropriate, given the transactions' performances to date.

We also conducted a sensitivity analysis to determine the impact that a moderate ('BBB' category) stress scenario would have on our ratings if losses began trending higher than our revised base-case loss expectations. Our results showed that the raised and affirmed ratings are consistent with our ratings stability criteria, which outline the outer bounds of credit deterioration for any given security under specific, hypothetical stress scenarios. The results demonstrated, in our view, that all of the classes have adequate credit enhancement at their respective raised and affirmed rating levels.

We will continue to monitor the performance of all the outstanding transactions to ensure that the credit enhancement remains sufficient, in our view, to cover our revised cumulative net loss expectations under our stress scenarios for each of the rated classes.


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