DBRS Morningstar Assigned Final Ratings on Carvana Auto Receivables Trust 2023-N2

DBRS, Inc. (DBRS Morningstar) assigned final ratings to the following classes of notes issued by Carvana Auto Receivables Trust 2023-N2 (the Issuer or CRVNA 2023-N2)

-- $69,700,000 Class A-1 Notes at AAA (sf)
-- $23,292,000 Class A-2 Notes at AAA (sf)
-- $24,019,000 Class B Notes at AA (sf)
-- $26,556,000 Class C Notes at A (sf)
-- $6,433,000 Class D Notes at BBB (high) (sf)
-- $18,220,000 Class E Notes at BB (high) (sf)

CREDIT RATING RATIONALE/DESCRIPTION

The ratings are based on DBRS Morningstar’s review 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 (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- As of the Cut-Off Date, the collateral pool for the transaction is primarily composed of receivables due from non-prime obligors with a nonzero weighted-average (WA) FICO score of 573, a WA Carvana Deal Score of 24, a WA annual percentage rate of 21.93%, and a WA loan-to-value ratio of 101.42%.
-- The DBRS Morningstar CNL assumption is 15.25% based on the pool composition.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update,” published on June 30, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(2) The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and the payment of principal by the legal final maturity date.
-- Principal on the Notes will initially be paid sequentially to reach or maintain each Class's Target Balance. Once a Class's Target Balance is reached, principal will be allocated in seniority to reach or maintain each Classes' Target Balances. Principal may be paid to subordinated Classes prior to senior Classes being fully paid to the extent that the Senior Classes' Target Balances are maintained.

(3) The consistent operational history of Carvana (CRVNA or the Company) and the strength of the overall Company and its management team.
-- The Carvana senior management team has considerable experience and a successful track record within the auto finance industry.
-- Carvana's financial condition as reported in its annual report on Form 10-K filed as of February 23, 2023.

(4) The capabilities of Carvana with regard to originations, underwriting, and Bridgecrest’s capabilities as servicer.
-- DBRS Morningstar performed an operational review of Carvana and considers the Company to be an acceptable originator and performed an operational review of Bridegcrest as servicer and considers them to be an acceptable servicer of subprime automobile loan contracts with an acceptable backup servicer.

(5) DBRS Morningstar exclusively used the static pool approach because Carvana has enough data to generate a sufficient amount of static pool projected losses.

(6) The Company indicated that there is no material pending or threatened litigation.

(7) The legal structure and presence of legal opinions that 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 the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

Carvana is an independent full-service automotive financing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The rating on the Class A Notes reflects 49.95% of initial hard credit enhancement provided by the subordinated notes in the pool (41.50%), the reserve account (1.25%), and OC (7.20%). The ratings on the Class B, C, D, and E Notes reflect 36.70%, 22.05%, 18.50%, and 8.45% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

DBRS Morningstar’s credit rating on the securities listed below addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (July 4, 2023).

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

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://www.dbrsmorningstar.com/research/413731)

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (February 6, 2023) https://www.dbrsmorningstar.com/research/409449/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023) https://www.dbrsmorningstar.com/research/417415/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (July 20, 2023) https://www.dbrsmorningstar.com/research/417416/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (December 7, 2022) https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

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