CarMax Auto Owner Trust 2022-4
This Form 10-K is a specialized reporting vehicle for the CarMax Auto Owner Trust 2022-4, an asset-backed securitization trust that holds a diversified pool of retail auto loans originated by CarMax Business Services, LLC. Key takeaways: 1. Structure and Purpose • The Issuing Entity is CarMax...
CarMax Auto Owner Trust 2022-4: A Deep Dive into the 10-K Filing
In the world of asset-backed securities (ABS), specialized issuers like CarMax Auto Owner Trust 2022-4 represent a key building block for fixed-income investors seeking incremental yield outside of traditional corporate or government bonds. This blog post unpacks the Trust’s annual 10-K filing, highlighting the structure, risks, and opportunities that underpin an investment in these notes.
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1. Structure and Stakeholders
Issuing Entity: CarMax Auto Owner Trust 2022-4
Depositor: CarMax Auto Funding LLC
Sponsor/Servicer: CarMax Business Services, LLC
Indenture Trustee: Wilmington Trust, National Association
CarMax Auto Owner Trust 2022-4 (“the Trust”) was formed in October 2022 to securitize a pool of retail auto loans originated by CarMax Business Services, LLC. The Depositor (CarMax Auto Funding LLC) transfers the loans into the Trust. The Trust issues notes to investors and distributes principal and interest payments from borrower collections, less fees charged by the Servicer and Trustee.
Why Trust Structures Matter
Trusts like this cordon off assets away from the sponsor’s corporate balance sheet, offering bankruptcy-remote status. A properly structured trust ensures that if the sponsor hits financial distress, the cash flows from the collateral remain dedicated to noteholders.
2. Pool Composition and Credit Concentration
Under Item 1112(b) of Regulation AB, the filing discloses that no single obligor represents 10% or more of the pool assets, indicating a well-diversified loan book. Concentration risk can undermine ABS performance if large exposures default simultaneously. Here, diversification mitigates idiosyncratic credit losses.
Credit Enhancement
Remarkably, no external credit enhancement or support is provided (Item 1114(b)(2)). Instead, this transaction likely relies on:
- Subordination tranches across the note classes
- Excess spread—the interest margin between the weighted-average coupon on the loans and the funding rate on the notes
- Overcollateralization—aggregate pool balance exceeding the outstanding notes
Without external support, noteholders directly bear credit losses up to and including the subordination level they occupy.
3. Servicing, Compliance, and Legal Proceedings
Servicing Criteria
Under Regulation AB Item 1122, CarMax Business Services, LLC (Servicer) and Wilmington Trust (Indenture Trustee) completed independent servicing reports and attestation reports by KPMG and PwC, respectively. No material non-compliance was found.
Legal Proceedings
No material legal proceedings are pending or contemplated against any party to the transaction. This “clean bill of health” removes the specter of litigation expenses eroding cash flows.
4. Omitted Disclosure and Financials
Consistent with an asset-backed securitization 10-K:
- Items 1–4 in Part I (Business, Risk Factors, Properties, Legal Proceedings) are omitted under General Instruction J.
- Items 5–9 in Part II (Market for Equity, MD&A, Financial Statements, etc.) are omitted.
- Items 10–14 in Part III (Directors, Compensation, etc.) are omitted.
Why? The Trust issues no equity and retains no earnings. It is a bankruptcy-remote vehicle that passes cash flows directly to noteholders. As such, it does not have a traditional balance sheet, income statement, or MD&A commentary.
Profitability
The Trust itself generates no net profit or loss—the cash flows from the auto loan pool are fully allocated to pay interest and principal on the notes, minus servicing and trustee fees.
5. Investment Considerations
Strengths
- Diversified collateral: No obligor concentration above 10%.
- Rigorous servicing oversight: Independent attestation with no compliance exceptions.
- CarMax sponsorship: Established auto retailer with a long history of originations and servicing.
Risks
- No external credit enhancement: Relies entirely on structural subordination and excess spread.
- Credit cycle exposure: A downturn in consumer credit or rising delinquencies directly impacts note performance.
- Prepayment risk: Auto loans can prepay faster when refinancing rates drop, affecting yield.
Yield vs. Duration
Auto-loan ABS generally offer yields above similarly rated corporate bonds for the same duration, making them appealing to total-return investors. However, investors should be comfortable modeling prepayment speeds and loss severity under various macro scenarios.
6. The Verdict: Investment Score and Outlook
Given the strong structural features, diversified collateral, and robust servicing compliance, balanced against lack of external credit enhancement and economic/credit cycle risk, we assign CarMax Auto Owner Trust 2022-4 an investment score of 6.5 out of 10.
Recommended Investor Profile
- Income-focused fixed-income investors seeking yield pick-up over vanilla corporate bonds.
- Investors comfortable with securitized structures and modeling prepayment/default assumptions.
Net Profit/Loss (Trust): Not applicable—pass-through cash flow structure with no retained earnings.
Investment Score: 6.5 / 10
Whether you’re adding ABS to enhance yield or diversifying across credit instruments, CarMax Auto Owner Trust 2022-4 offers a solid, mid-cycle opportunity in the auto-loan space. Assess your forecast for consumer credit health and prepayment trends to fine-tune the risk/reward.
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