Carvana Auto Receivables Trust 2020-P1
Presale:
Carvana Auto Receivables Trust 2020-P1
November 30, 2020
Preliminary Ratings
Class A-1 A-2 A-3 A-4 B C D
Prelim rating Type
A-1+ (sf)
Senior
AAA (sf)
Senior
AAA (sf)
Senior
AAA (sf)
Senior
AA (sf)
Subordinate
A (sf)
Subordinate
BBB (sf)
Subordinate
Interest rate Fixed Fixed Fixed Fixed Fixed Fixed Fixed
Prelim amount (mil. Expected legal final maturity $)(i) (ii) date 56.00 Dec. 8, 2021 120.00 Nov. 8, 2023 115.00 June 9, 2025 75.93 Oct. 8, 2026 13.37 Nov. 9, 2026 17.21 Nov. 9, 2026 7.49 Sept. 8, 2027
Note: This presale report is based on information as of Nov. 30, 2020. The ratings shown are preliminary. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. (i)The actual size of these tranches will be determined on the pricing date. (ii)Additionally, Carvana will issue class XS notes and class N notes, which are unrated and may be retained or sold in one or more private placements.
PRIMARY CREDIT ANALYST
Jenna Cilento New York + 1 (212) 438 1533 jenna.cilento @
SECONDARY CONTACT
Kenneth D Martens New York + 1 (212) 438 7327 kenneth.martens @
Profile
Expected closing date
Dec. 10, 2020.
Collateral
Prime auto loan receivables.
Originator, seller, and sponsor
Carvana LLC.
Servicer
Bridgecrest Credit Co. LLC.
Backup servicer
Vervent Inc.
Grantor trust
Carvana Auto Receivables Grantor Trust 2020-P1.
Issuer
Carvana Auto Receivables Trust 2020-P1.
Collateral custodian and indenture trustee Wells Fargo Bank N.A. (A+/Stable/A-1).
Owner trustee and grantor trust trustee Wilmington Trust N.A.
Lead underwriter
Credit Suisse Securities (USA) LLC.
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November 30, 2020 1 2562411
Presale: Carvana Auto Receivables Trust 2020-P1
Credit Enhancement Summary
Preliminary rating Class A Class B Class C Class D Class E
Subordination (% of the initial receivables)(i)
Class A Class B Class C Class D Class E Overcollateralization (% of the initial receivables) Initial Target(ii) Floor Reserve fund (% of the initial receivables) Initial Target Floor Total initial hard credit enhancement (% of the initial receivables) Class A Class B Class C Class D Class E Excess spread per year (%) (estimated)
CRVNA 2020-P1
AAA (sf) AA (sf) A (sf)
BBB (sf) N/A
9.40 6.10 1.85 0.00 N/A
0.00 1.50 1.50
0.50 0.50 0.50
9.90 6.60 2.35 0.50 N/A 6.02
CRVNA 2020-NP1(iii)
CRVNA 2019-4
CRVNA 2019-3
CRVNA 2019-2
CRVNA 2019-1
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
NR
51.85 30.85 25.35 13.85
0.00
45.15 28.80 19.65
8.50 0.00
44.65 29.00 19.35
7.75 0.00
45.05 29.80 19.65
8.20 0.00
45.60 30.95 21.15
8.00 0.00
3.00
2.45
2.80
2.75
3.20
10.10
5.20
5.50
5.50
5.65
1.50
5.20
5.50
5.50
5.65
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
1.25
56.10 35.10 29.60 18.10
4.25 15.80
48.85 32.50 23.35 12.20
3.70 15.36
48.70 33.05 23.40 11.80
4.05 15.21
49.05 33.80 23.65 12.20
4.00 14.18
50.05 35.40 25.60 12.45
4.45 13.96
(i)Principal will be paid sequentially on the preliminary rated notes. (ii)The overcollateralization target is a percentage of the initial receivables balance, except for the 2020-NP1 series, for which it is a percentage of the current receivables balance. (iii)Series 2019-1 through 2020-NP1 were not rated by S&P Global Ratings. CRVNA--Carvana Auto Receivables Trust. N/A--Not applicable. NR--Not rated.
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November 30, 2020 2 2562411
Presale: Carvana Auto Receivables Trust 2020-P1
Rationale
The preliminary ratings assigned to Carvana Auto Receivables Trust 2020-P1's (CRVNA 2020-P1) asset-backed notes series 2020-P1 reflect our view of:
- The availability of approximately 17.7%, 14.8%, 11.3%, and 9.1% credit support for the class A, B, C, and D notes, respectively, based on stressed break-even cash flow scenarios (including excess spread). These credit support levels provide approximately 4.71x, 3.95x, 3.01x, and 2.43x coverage of our expected net loss range of 3.50%-4.00% for the class A, B, C, and D notes, respectively (see the Cash Flow Modeling Assumptions And Results section below for more information).
- The timely interest and principal payments by the legal final maturity dates made under stressed cash flow modeling scenarios that we deem appropriate for the assigned preliminary ratings.
- The expectation that under a moderate ('BBB') stress scenario (2.00x our expected loss level), all else being equal, our ratings will be within the credit stability limits specified by section A.4 of the Appendix contained in S&P Global Rating Definitions (see "S&P Global Ratings Definitions," published Aug. 7, 2020).
- The collateral characteristics of the prime pool being securitized, including a weighted average nonzero FICO score of approximately 710 and a minimum nonzero FICO score of at least 590.
- The loss performance of Carvana's origination static pools and managed portfolio, its deal-level collateral characteristics, and comparison with its prime auto finance company peers.
- The transaction's credit enhancement in the form of subordinated notes; a nonamortizing reserve account; overcollateralization, which builds to a target level of 1.50% of the initial receivables balance; and excess spread (see the Credit Enhancement Summary table above).
- The transaction's sequential-pay structure, which builds credit enhancement (on a percentage-of-receivables basis) as the pool amortizes.
- The transaction's payment and legal structures.
S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
Key Ratings Considerations
CRVNA 2020-P1 is Carvana's first auto loan asset-backed securities (ABS) transaction rated by S&P Global Ratings and the first prime-only (50+ deal score) securitization. The securities are collateralized by a pool of prime retail automobile installment sales contracts secured by used automobiles.
Based on our review of Carvana's operations and performance history, we considered the following transaction strengths:
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Presale: Carvana Auto Receivables Trust 2020-P1
- Stable top-line management in place since 2015 and experienced CEO in the auto space.
- Strong relationships with Drivetime Automotive Group Inc. (DriveTime) and Ally Financial (Ally). In addition to servicing, Carvana leverages DriveTime's infrastructure and real estate for four of Carvana's 10 inspection and recondition centers. The company purchases 100% of its vehicles without any assistance from DriveTime. Ally has been a flow partner since 2016 and has provided a floorplan facility since 2012.
- An experienced servicer, Bridgecrest Credit Co. LLC (Bridgecrest), which has over 25 years of experience in servicing auto loans.
- Strong liquidity, including a $1.25 billion floorplan facility, a $3 billion flow program with Ally, and two short-term credit revolving facilities with other companies for $500 million each. Additionally, Carvana has successfully priced five ABS transactions.
- Multiple proprietary risk scoring models, which the company has enhanced over the years (see Originations and Underwriting section below for more detail).
- The company's underwriting platform is efficient and customizable. Customers can choose from a myriad of financing options and complete the process of purchasing, financing, and scheduling delivery or pickup of a vehicle online in as little as 10 minutes. Additionally, the company has a verification process that checks income, employment, and several other factors on 100% of the loans booked.
- Vervent Inc., an experienced auto loan servicer, is the warm backup servicer.
We also considered the following weaknesses and mitigating factors:
- The company has not been profitable since inception. The lack of profitability is mostly due to the company's focus on growth and expansion into new markets.
- The company has limited performance history. Although the company started in 2012, performance data is thin until 2016, effectively providing less than five years of meaningful data.
- Carvana has been growing aggressively since its inception. The company's aggregate managed portfolio increased to $4.8 billion as of September 2020 from $2.9 billion a year earlier. Despite this growth, collateral characteristics for the aggregate portfolio have been relatively stable.
Carvana
Carvana LLC is a used-vehicle retailer that sells 100% online, with direct delivery to customers or for pickup at one of its vending machines. On Carvana's website, customers can purchase used vehicles, arrange financing, purchase service plans, and sell cars to Carvana (as a trade-in or independently). Carvana owns and manages its inventory and distribution network. The company sources its inventory from auction channels or directly from customers and reconditions them internally for sale. While its primary business is selling cars, Carvana also offers financing to its customers (they finance approximately 75%-80% of all sales). As such, Carvana is a direct lender that originates prime, nonprime, and subprime auto loans.
The company was initially formed as a subsidiary of DriveTime in 2012 and became public in 2017. The founder and CEO, Ernie Garcia Jr., is the son of the CEO and founder of DriveTime. As a result, Carvana developed its processes, policies, and procedures using DriveTime's as a starting point and has continued to improve them. The company has been rapidly growing since its inception and continues to expand its market penetration. As of November 2020, Carvana was operating in 262
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Presale: Carvana Auto Receivables Trust 2020-P1
markets, compared with 146 markets at the end of 2019. As of Sept. 30, 2020, Carvana has purchased, reconditioned, sold, and delivered approximately 515,400 vehicles.
Management
Carvana has a stable top-line management, which has been in place since 2015. However, only the CEO has direct experience with auto financing. Ernie Garcia has served as the president and CEO since Carvana's inception. Before he founded Carvana, Garcia held various roles at DriveTime from January 2007 to January 2013, including vice president and treasurer and director of quantitative analytics.
Mark Jenkins joined Carvana in 2014 as the CFO. Before joining Carvana, Jenkins was a professor in the finance department at The Wharton School of the University of Pennsylvania.
Ben Huston, another co-founder of Carvana, has served as the chief operating officer since Carvana's inception. Before joining Carvana, Huston co-founded Looterang, a card-linking platform, in 2011 and was CEO from 2011 to 2012.
Ryan Keeton, also co-founder of Carvana, has been the chief brand officer since Carvana's inception. Before joining Carvana, Keeton was a principal at the Montero Group, a strategic consultancy firm, from 2010 to 2012.
Daniel Gill has served as the chief product officer since March 2015, overseeing all technology functions and strategic partnerships for the business. Before joining Carvana, Gill spent his career in both enterprise software and consumer internet businesses.
Paul Breaux has served as general counsel since August 2015. Before joining Carvana, Breaux practiced law at the Houston, Texas, office of the firm Andrews Kurth LLP (now Andrews Kurth Kenyon LLP) from 2008 to 2015.
Strategic partnerships
Drivetime
Since Carvana was initially formed as a subsidiary of DriveTime, it has strong ties to the company. In addition to leveraging the systems, processes, and policies of DriveTime at its inception, Carvana has had several agreements with the company, which include utilizing its inspection and reconditioning facilities and office space; selling vehicle service contracts and guaranteed asset protection (GAP) waiver insurance, which are both administered by Drivetime; and licensing agreements that govern the rights of certain intellectual property owned by Carvana and the rights of certain intellectual property owned by DriveTime. Bridgecrest, a wholly owned subsidiary of Bridgecrest Acceptance Corp. and servicer for DriveTime loans, is the servicer for all Carvana loans.
Ally
Carvana also benefits from a strong relationship with Ally Bank. Ally has been providing floorplan financing since Carvana's inception, recently increasing the amount to $1.25 billion, which expires in March 2023. Ally also provides a large flow agreement in the amount of $3.00 billion. While it is a one-year facility, it has been renewed since 2016. As a flow partner, Ally has provided feedback on loan underwriting and servicing to both Carvana and Bridgecrest, and Carvana acknowledges that while it developed its processes, policies, and procedures using DriveTime's as a starting point, it has continued to improve them with Ally's guidance. Ally also performs monthly audits on a subset
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November 30, 2020 5 2562411
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