Fitch Rates CarMax Auto Owner Trust 2016-2
OREANDA-NEWS. Fitch Ratings assigns the following ratings and Rating Outlooks to the notes issued by CarMax Auto Owner Trust 2016-2 (CAOT 2016-2) listed below:
--$230,000,000 class A-1 'F1+sf';
--$194,000,000 class A-2A 'AAAsf'; Outlook Stable;
--$194,000,000 class A-2B 'AAAsf'; Outlook Stable;
--$365,000,000 class A-3 'AAAsf'; Outlook Stable;
--$113,900,000 class A-4 'AAAsf'; Outlook Stable;
--$28,200,000 class B 'AAsf'; Outlook Stable;
--$31,700,000 class C 'Asf'; Outlook Stable;
--$18,200,000 class D 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Consistent Credit Quality: 2016-2 is slightly stronger than 2016-1, but consistent overall compared to the prior five transactions from a collateral credit quality perspective. The WA FICO is 704. However, greater than 60 months loans (60.5% of this pool) are at the highest level since 2013-4.
Adequate CE Structure: CAOT 2016-2 incorporates a sequential-pay structure. The initial hard credit enhancement (CE) for class A is unchanged from 2016-1 (not rated by Fitch) and higher than the last Fitch-rated deal (2015-3), while CE for the class B and C notes has declined. Initial CE for the class D notes remains unchanged. The initial CE is sufficient to withstand Fitch's base case cumulative net loss (CNL) proxy of 2.35% for all classes of notes at each class' respective loss coverage multiple.
Stable Portfolio/Securitization Performance: Losses on CAF's portfolio and 2010-2014 securitizations have remained below the peak levels seen in 2008.
Evolving Wholesale Market: The U.S. wholesale vehicle market (WVM) is normalizing following strong performance in recent years. Fitch expects increasing used vehicle supply from off-lease vehicles and trade-ins to pressure ABS recovery rates, leading to moderately higher loss rates. Fitch's analysis accounts for this risk by including periods of weak WVM performance in the derivation of its base case loss expectation.
Stable Origination, Underwriting and Servicing: Fitch believes CAF to be a capable originator, underwriter and servicer for CAOT 2016-2.
Integrity of the Legal Structure: The legal structure of the transaction should provide that a bankruptcy of CAF would not impair the timeliness of the payments on the securities.
Unanticipated increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than the base case. In turn, it could result in potentially adverse rating actions on the notes. Fitch evaluated the sensitivity of the ratings assigned to all classes of CarMax Auto Owner Trust 2016-2 to increased losses over the life of the transaction. Fitch's analysis found that the notes display some sensitivity to increased defaults and losses. In fact, they could lead to potential downgrades of up to one category under Fitch's moderate (1.5x base case loss) scenario. The notes could experience downgrades of two to three rating categories under Fitch's severe (2.5x base case loss) scenario.
DUE DILIGENCE USAGE
Additionally, Fitch was provided with third-party due diligence information from KPMG LLP. This third-party due diligence focused on comparing or recomputing certain information with respect to 125 loans from the statistical data file. Fitch considered this information in its analysis, and the findings did not have an impact on our analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary (RAC).
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'CarMax Auto Owner Trust 2016-2 - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated March 2016.