Fitch to Rate CarMax Auto Owner Trust 2016-4; Issues Presale

CHICAGO--()--Link to Fitch Ratings' Report: CarMax Auto Owner Trust 2016-4 (US ABS)
https://www.fitchratings.com/site/re/889010

Fitch Ratings expects to assign the following ratings and Rating Outlooks to the notes issued by CarMax Auto Owner Trust 2016-4 listed below:

--$205,000,000 class A-1 'F1+sf';

--$362,000,000 class A-2 'AAAsf'; Outlook Stable;

--$362,000,000 class A-3 'AAAsf'; Outlook Stable;

--$110,500,000 class A-4 'AAAsf'; Outlook Stable;

--$21,950,000 class B 'AAsf'; Outlook Stable;

--$18,700,000 class C 'Asf'; Outlook Stable;

--$19,850,000 class D 'BBBsf'; Outlook Stable.

KEY RATING DRIVERS

Consistent Credit Quality: The credit quality of the collateral backing 2016-4 is consistent with the prior five transactions. The WA FICO is 705, WA LTV is 94.8%, used vehicles total 99.7%, and loans with terms greater than 60 month loans is 59.8%, consistent with prior series.

Adequate CE Structure: 2016-4 incorporates a sequential-pay structure. Initial hard credit enhancement (CE) for the class A and B notes is down than the last transaction rated by Fitch (2016-3), while initial hard CE for the class C and D notes is unchanged. The initial CE is sufficient to withstand Fitch's base case cumulative net loss (CNL) proxy of 2.40% for all classes of notes at each class' respective loss coverage multiple.

Stable Portfolio/Securitization Performance: Delinquencies and losses on CAF's total 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 CarMax Business Services, LLC (CBS). to be a capable originator, underwriter and servicer for this series.

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.}

RATING SENSITIVITIES

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 2016-3 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. The 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 2016-4 - 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 May 2016.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 17 May 2016)

https://www.fitchratings.com/site/re/879815

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating Criteria for U.S. Auto Loan ABS (pub. 21 Mar 2016)

https://www.fitchratings.com/site/re/878723

Related Research

CarMax Auto Owner Trust 2016-4 Appendix

https://www.fitchratings.com/site/re/889088

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013054

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1013054&flm_nm=15e_1013054_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013054

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Thomas Kaiser, CPA, CFA
Associate Director
+1-312-368-3338
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Yun Tian
Associate Director
+1-212-908-0307
or
Committee Chairperson
Hylton Heard
Senior Director
+1-212-908-0214
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Thomas Kaiser, CPA, CFA
Associate Director
+1-312-368-3338
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Yun Tian
Associate Director
+1-212-908-0307
or
Committee Chairperson
Hylton Heard
Senior Director
+1-212-908-0214
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com