DBRS Morningstar Assigns Provisional Ratings to Carvana Auto Receivables Trust 2020-P1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Carvana Auto Receivables Trust 2020-P1 (CRVNA 2020-P1 or the Issuer):

-- $56,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $120,000,000 Class A-2 Notes at AAA (sf)
-- $115,000,000 Class A-3 Notes at AAA (sf)
-- $75,930,000 Class A-4 Notes at AAA (sf)
-- $13,365,000 Class B Notes at AA (sf)
-- $17,212,000 Class C Notes at A (sf)
-- $7,493,000 Class D Notes at BBB (sf)
-- $15,000,000 Class N Notes at BB (high) (sf)

The provisional ratings are based on a review by DBRS Morningstar of the following analytical considerations:

(1) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization, subordination, fully funded reserve funds, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.

(2) The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms in which they have invested. For this transaction, the rating addresses the payment of timely interest on a monthly basis and principal by the legal final maturity date.

(3) The transaction parties’ capabilities with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Carvana, LLC (Carvana) and Bridgecrest Credit Company, LLC and considers the entities to be an acceptable originator and servicer, respectively, of auto loans.

(4) The operational history of Carvana and the strength of the overall company and its management team.
-- Company management has considerable experience in the consumer lending business.
-- Carvana’s platform is a technology-driven platform that focuses on providing the customer with high-level experience, selection, and value. Its website and smartphone app provide the consumer with vehicle search and discovery (on a selection of more than 20,000 vehicles online); the ability to trade or sell vehicles almost instantaneously; and real-time, personalized financing. Carvana has developed underwriting policies and procedures for use across the lending platform that leverages technology where appropriate to validate customer identity, income, employment, residency, credit worthiness, and proper insurance coverage.
-- Carvana has developed multiple proprietary risk models to support various aspects of its vertically integrated automotive lending business. All proprietary risk models used in Carvana’s lending business are regularly monitored and tested. The risk models are updated from time to time to adjust for new performance data, changes in customer and economic trends, and additional sources of third-party data.

(5) The credit quality of the collateral, which includes Carvana-originated loans with Deals Score, of 50 or higher.
-- As of the November 18, 2020, cut-off date, the collateral pool for the transaction is primarily composed of receivables due from prime and near-prime obligors with a weighted-average (WA) FICO score of 710 and WA annual percentage rate of 8.20% and a WA loan-to-value ratio of 93.88%. Approximately 48.47%, 40.37%, and 11.16% of the pool include loans with CRVNA Deal Scores greater than or equal to 80, between 60 and 79, and between 50 and 59, respectively. Additionally, 13.22% of the pool comprises obligors with FICO scores greater than 800, 36.35% consists of FICO scores between 701 to 800, and 1.99% is from obligors with FICO scores less than or equal to 600 or with no FICO score.
-- DBRS Morningstar analyzed the performance of Carvana’s auto loan and retail installment contract originations and static pool vintage loss data broken down by Deal Score to determine a projected CNL expectation for the CRVNA 2020-P1 pool.

(6) DBRS Morningstar's projected losses include the assessment of the impact of the Coronavirus Disease (COVID-19). While considerable uncertainty remains with respect to the intensity and duration of the shock, DBRS Morningstar-projected CNL includes an assessment of the expected impact on consumer behavior. The DBRS Morningstar CNL assumption is 2.75% based on the cut-off date pool composition.
-- The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: September Update,” published on September 10, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on September 10, 2020, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008–09 financial crisis and the possible impact of stimulus. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario remains predicated on a more rapid return of confidence and a steady recovery heading into 2021.

(7) Carvana’s financial condition as reported in its annual report on Form 10-K filed as of February 26, 2020, and 10-Q.

(8) The legal structure and expected presence of legal opinions, which will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Carvana, that the trust has a valid first-priority security interest in the assets and consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance.”

The ratings on the Class A-1, A-2, A-3, and A-4 Notes reflect 9.90% of initial hard credit enhancement provided by subordinated notes in the pool (9.40%) and the reserve account (0.50%). The ratings on the Class B, C, and D Notes reflect 6.60%, 2.35%, and 0.50% of initial hard credit enhancement, respectively.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 13, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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