Rising interest rates are impacting some of the mechanics of the Carvana Auto Receivables Trust, 2022-P3, an asset-backed securities transaction secured by auto loans to principal borrowers, primarily.

According to ratings agency Kroll Bond, the interest rate on the underlying collateral increased the expected annual gross excess spread of the transaction to 4.01% from 3.80% on the CRVNA 2022-P2 . The current deal also has a higher expected weighted average rating coupon. Guaranteed rates are not surprising, especially in an environment of rising interest rates, as the Federal Reserve raises rates to fight inflation.

KBRA noted that the company reported a net loss of $945 million for the six months ended June 30, a significantly larger loss than the net loss of $37 million for the same period a year ago. Nonetheless, total revenue increased approximately 32.2% for the June 2022 period, while cash and cash equivalents increased to $1.0 billion.

Carvana uses a Deal Score system to assess the credit quality of borrowers, with scores ranging from 50 to 100. According to the KBRA, some 48% of borrowers in the CRVNA 2022-P3 pool have Deal Scores between 70 and 89.

All of the auto loans are used and were funded by fixed-rate loans, with a non-zero weighted average (WA) FICO score of 704. On average, the loans have a balance of $23,746, the KBRA said.

On a weighted average (WA) basis, the KBRA noted, the loans have a loan-to-value ratio of 93.6% and a remaining term of 71 months. The pool also presents a certain diversification, geographically. Texas, California and Florida account for the highest concentration of loans at 11.07%, 8.55% and 6.04%, respectively.

The initial credit enhancement ranges from 9.65% from classes A-1 and A-4, the rating agency said. The remainder of the deal has credit enhancement ranging from 6.55% on Class B notes to 0.50% on Class D notes.

KBRA plans to award grades of “K1+” over A-1 grades; ‘AAA’ on notes A-2 to A-4; ‘AA+’ and ‘A+’ on classes B and C; and “BBB+” and “BBB” on Class D and N tickets. The legal deadlines range from September 2023 to September 2029, according to the KBRA.