CarMax Auto Owner Trust 2021-4 - S&P Global

Presale:

CarMax Auto Owner Trust 2021-4

September 8, 2021

Preliminary Ratings

Class A-1 A-2a/A-2b A-3 A-4 B C D

Preliminary rating A-1+(sf) AAA (sf) AAA (sf) AAA (sf) AA+ (sf) A+ (sf) BBB+ (sf)

Type Senior Senior Senior Senior Subordinate Subordinate Subordinate

Interest rate(i) Fixed Fixed/floating(ii) Fixed Fixed Fixed Fixed Fixed

Base pool

Upsize Expected legal

amount (mil. amount (mil. final maturity

$)

$) date

171.00

208.17 Sept. 15, 2022

405.52

493.68 Nov. 15, 2024

405.52

493.68 Sept. 15, 2026

106.85

130.08 April 15, 2027

19.60

23.86 May 17, 2027

27.09

32.98 July 15, 2027

14.42

17.55 March 15, 2028

Note: This presale report is based on information as of Sept. 8, 2021. The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. (i)The tranches' coupons will be determined on the pricing date. (ii)The class A-2 notes may be split into a fixed-rate class A-2a and a floating-rate class A-2b. The sizes of classes A-2a and A-2b will be determined at pricing, though the principal balance of the class A-2b notes is not expected to exceed $121.66 million ($148.11 million for the upsized pool). The class A-2b coupon will initially be expressed as a spread tied to the one-month LIBOR.

PRIMARY CREDIT ANALYST

Dan Daley, CFA New York + 1 (212) 438 0020 dan.daley @

SECONDARY CONTACT

Steve D Martinez New York + 1 (212) 438 2881 steve.martinez @

Profile

Expected closing date

Sept. 22, 2021.

Collateral

Prime auto loan receivables.

Issuer

CarMax Auto Owner Trust 2021-4.

Originator, sponsor, and servicer CarMax Business Services LLC.

Depositor and seller

CarMax Auto Funding LLC.

Indenture trustee

U.S. Bank N.A.

Owner trustee

Wilmington Trust N.A.

Lead underwriter

Barclays Capital Inc.



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Presale: CarMax Auto Owner Trust 2021-4

Credit Enhancement Summary (%)

Series 2021-4

Series 2021-3

Series 2021-2

Initial(i)(ii) Target(i)(ii) Floor(i)(ii) Initial(i)(ii) Target(i)(ii) Floor(i)(ii) Initial(i)(ii) Target(i)(ii) Floor(i)(ii)

Class A

Subordination

5.30

5.30

5.30

5.55

5.55

5.55

6.70

6.70

6.70

Reserve account

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

O/C

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.40

0.40

Total

5.80

5.80

5.80

6.05

6.05

6.05

7.20

7.35

7.35

Class B

Subordination

3.60

3.60

3.60

4.00

4.00

4.00

3.90

3.90

3.90

Reserve account

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

O/C

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.40

0.40

Total

4.10

4.10

4.10

4.50

4.50

4.50

4.40

4.55

4.55

Class C

Subordination

1.25

1.25

1.25

1.30

1.30

1.30

1.40

1.40

1.40

Reserve account

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

O/C

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.40

0.40

Total

1.75

1.75

1.75

1.80

1.80

1.80

1.90

2.05

2.05

Class D

Reserve account

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

O/C

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.4

0.4

Total

0.50

0.50

0.50

0.50

0.50

0.50

0.50

0.65

0.65

Estimated annual

6.50

excess spread(iii)

--

--

6.63

--

--

6.21

--

--

(i)Applicable for both the $1.15 billion and $1.40 billion structure. (ii)Percentage of the initial receivables balance. (iii)Estimated annual excess spread is pre-pricing for series 2021-4 and post-pricing for series 2021-3 and 2021-2. O/C--Overcollateralization.

Rationale

The preliminary ratings assigned to CarMax Auto Owner Trust 2021-4's (CAOT 2021-4) auto receivables asset-backed notes reflect:

- The availability of approximately 13.1%, 11.3%, 8.3%, and 6.4% credit support for the base and upsized pools' class A, B, C, and D notes, respectively, based on our stressed break-even cash flow scenarios. These credit support levels provide coverage of over 5.0x, 4.5x, 3.3x, and 2.3x our 2.15%-2.25% expected net loss range to the respective classes and are commensurate with the assigned preliminary 'A-1+ (sf)', 'AAA (sf)', 'AA+ (sf)', 'A+ (sf)', and 'BBB+ (sf)' ratings, respectively (see the S&P Global Ratings' Expected Loss and Cash Flow Modeling sections below).



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Presale: CarMax Auto Owner Trust 2021-4

- The timely interest and full principal payments made under the stressed cash flow modeling scenarios appropriate for the assigned preliminary ratings (see the Cash Flow Modeling section).

- Our expectation that under a moderate ('BBB') stress scenario (2.0x our expected loss level), all else being equal, our preliminary 'A-1+ (sf)', 'AAA (sf)', 'AA+ (sf)', 'A+ (sf)', and 'BBB+ (sf)' ratings on the class A-1, A-2 through A-4, B, C, and D notes, respectively, are consistent with the tolerances outlined in our credit stability criteria (see "S&P Global Ratings Definitions," published Jan. 5, 2021).

- The performance of CarMax Business Services LLC's (CarMax) previous securitizations since 2001.

- The collateral characteristics of the securitized pool of auto loans, including a weighted-average nonzero FICO score of approximately 704.

- The transaction's payment and legal structures.

Environmental, Social, And Governance (ESG)

Our rating analysis considers a transaction's potential exposure to ESG credit factors. For the auto ABS sector, we view the exposure to environmental credit factors as above average, to social credit factors as average, and to governance credit factors as below average (see "ESG Industry Report Card: Auto Asset-Backed Securities," published March 31, 2021).

In our view, the exposure to ESG credit factors in this transaction is in line with our sector benchmark. Environmental credit factors are generally viewed as above average given that the collateral pool primarily comprises vehicles with internal combustion engines (ICE), which create emissions of pollutants including greenhouse gases. While the adoption of electric vehicles and future regulation could in time lower ICE vehicle values, we believe that our current approach to evaluating recovery and residual values adequately accounts for vehicle values over the relatively short expected life of the transaction. As a result, we have not separately identified this as a material ESG credit factor in our analysis.

Credit Enhancement Changes From Series 2021-3

- The initial, target, and floor overcollateralization (O/C), as a percentage of initial receivables balance, remained unchanged at 0.25%.

- The reserve account as a percentage of initial receivables balance remained the same at 0.25%.

- Subordination decreased to 5.30% from 5.55% for class A, decreased to 3.60% from 4.00% for class B, and decreased to 1.25% from 1.30% for class C.

- Total hard credit enhancement decreased to 5.80% from 6.05% for class A, decreased to 4.10% from 4.50% for class B, decreased to 1.75% from 1.80% for class C, and remain unchanged at 0.50% for class D.

- The estimated excess spread increased to approximately 6.5% (pre-pricing) from 6.6% (post-pricing) and 6.4% (pre-pricing).

The decrease in total hard credit enhancement for classes A, B, and C is a result of a lower percent of subordination offset by higher excess spread enhancement. Additionally, class A's total credit enhancement for series 2021-3 exceeded our required enhancement at the 'AAA' rating level to a



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Presale: CarMax Auto Owner Trust 2021-4

greater extent than series 2021-4.

Collateral Changes From Series 2021-3

Some of the notable characteristics indicative of the series 2021-4 base pool's collateral credit quality that we considered in our expected loss analysis are that: - The percentage of the pool from the company's two highest internal credit score categories

(tiers A and B) increased to 91.06% from 86.53%. - The percentage of the pool with original terms greater than 60 months increased to 65.45%

from 62.08%. - The percentage of the pool with called collateral decreased to 0.84% from 4.01%. - The weighted-average nonzero FICO score decreased slightly to 704 from 706. - The percent of down payment decreased to 19.03% from 19.86%.

The collateral characteristics for the base and upsized pool are similar. Overall, we believe the series 2021-4 collateral pool is slightly weaker than the series 2021-3 transaction, due to characteristics such as a higher percentage of long-term loans, and a lower percentage of called collateral (see the Pool Analysis section for the collateral pool comparison to 2021-3 and prior CarMax pools). However, the percentage of the pool from the company's two highest internal credit score categories increased, and CarMax's outstanding transactions with at least 12 months of data are performing better than our prior expectations (see the Securitization Performance section for the latest surveillance rating actions). The monthly extension rates on securitized pools have declined month to month since their peak in April 2020. As of the August 2021 distribution date, the monthly extension rates on all outstanding securitizations are at levels prior to the start of the COVID-19 pandemic. At the same time, our economic forecast has improved and we're factoring that into our expected net loss range. As a result, our initial loss expectation is 2.15%-2.25% for series 2021-4, the same as for series 2021-3. We will continue to monitor early performance indicators and reflect them in our analyses on a forward-looking basis.

Transaction Structure

CarMax will sell a pool of auto loan receivables to CarMax Auto Funding LLC, which will then sell the receivables to CAOT 2021-4, the transaction's issuing trust (see chart 1). In rating this transaction, we will review the legal matters we believe are relevant to our analysis as outlined in our criteria.



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Presale: CarMax Auto Owner Trust 2021-4 Chart 1

Transaction Summary

The series 2021-4 transaction incorporates the following structural features: - A sequential-pay mechanism among the class A, B, C, and D notes, which is expected to result

in more credit enhancement as a percentage of the current pool balance for the more-senior classes as the pool amortizes. - Notes that pay a fixed interest rate, except for the class A-2b notes, which pay a floating interest rate tied to one-month LIBOR. The exact amounts of the class A-2a and A-2b notes will be determined at pricing, though the principal balance of the class A-2b notes is not expected to exceed $121.66 million ($148.11 million for the upsized structure). - Subordination of approximately 5.30%, 3.60%, and 1.25% for classes A, B, and C, respectively. - A nonamortizing reserve account that will equal 0.25% of the initial pool balance. - Initial and target O/C of 0.25% of initial pool balance.

The class A-2b notes contain stated interest at one-month LIBOR plus a fixed margin. While the



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