Fitch Rates CarMax Auto Owner Trust 2016-3

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns the following ratings and Rating Outlooks to the notes issued by CarMax Auto Owner Trust 2016-3 (CAOT 2016-3):

--$219,000,000 class A-1 'F1+sf';

--$396,000,000 class A-2 'AAAsf'; Outlook Stable;

--$425,000,000 class A-3 'AAAsf'; Outlook Stable;

--$130,630,000 class A-4 'AAAsf'; Outlook Stable;

--$35,000,000 class B 'AAsf'; Outlook Stable;

--$25,000,000 class C 'Asf'; Outlook Stable;

--$19,370,000 class D 'BBBsf'; Outlook Stable.

The former class A-2B note is no longer included in the capital structure. As such, Fitch withdraws its expected rating on this note in addition to assigning the ratings listed above.

KEY RATING DRIVERS

Consistent Credit Quality: 2016-3 is in line with the prior five transactions from a collateral credit quality perspective. The weighted average (WA) FICO is 703 and the amount of loans with terms greater than 60 month loans is consistent at 60.4%.

Adequate Credit Enhancement (CE) Structure: CAOT 2016-3 incorporates a sequential-pay structure. The initial hard CE for class A and B is lower than the last transaction rated by Fitch, 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 2.45% 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 2016-3.

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

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 2016-3 - 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. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Criteria for Servicing Continuity Risk in Structured Finance (pub. 17 Dec 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875586

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

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

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

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878723

Related Research

CarMax Auto Owner Trust 2016-3 -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884702

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009187

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1009187&flm_nm=15e_1009187_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009187

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160720006231/en/

Fitch Ratings
Primary Analyst
Eric Orenstein
Analyst
+1-646-582-4816
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
John Alberici
Associate Director
+1-212-908-0370
or
Committee Chairperson
Hylton Heard
Senior Director
+1-212-908-0214
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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