CarMax Auto Owner Trust 2023-4: Deep Dive Review

Introduction

CarMax Auto Owner Trust 2023-4 is a privately placed asset-backed securities (ABS) transaction sponsored by CarMax Business Services, LLC. This securitization trust holds a pool of auto loan receivables originated by CarMax Auto Funding LLC and issues notes to investors who seek exposure to a diversified portfolio of used-car financing. In this blog post, we unpack the most important elements of the Trust’s latest Form 10-K for the fiscal year ended February 28, 2025, and assess its potential as an investment.

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Trust Structure and Parties

• Issuing Entity: CarMax Auto Owner Trust 2023-4
• Depositor: CarMax Auto Funding LLC (Delaware ; IRS # 01-0794037)
• Sponsor/Servicer: CarMax Business Services, LLC ; responsibilities include asset administration, collection, pooling
• Indenture Trustee: U.S. Bank Trust Company, National Association

Key Highlights

• No public equity: This trust issues only asset-backed notes, with no common stock or shares.
• Regulatory compliance: All required SEC reports filed; no delinquencies or unresolved comments.
• Servicer compliance: Independent audits (KPMG, Ernst & Young) found no material noncompliance with servicing criteria.

Pool Assets

The Trust holds a diversified pool of auto loan receivables originated by CarMax. Notable characteristics:

• No single obligor exceeds 10% of pool balance — mitigates concentration risk
• Credit Enhancement: None provided externally. Investors rely on the performance of collateral and CarMax’s servicing track record.
• Collateral Type: Primarily used-vehicle loans, diversified by geography, credit score, loan size, and term.

Although specific pool balances, delinquencies, and weighted-average metrics are omitted (per instruction of Regulation AB), CarMax auto loan pools historically exhibit strong seasoning and default performance compared to subprime benchmarks.

Credit Enhancement and Support

• External Support: The 10-K discloses that no entity provides external credit enhancement or guarantees payment on either the pool assets or the notes. Absent overcollateralization, reserve accounts, or subordinated tranches, investors bear first-loss exposure to defaults.
• Derivatives: No derivative instruments are used for hedging the Trust’s interest-rate or credit exposures.

This structure can yield a higher coupon compared to enhanced ABS but carries elevated risk if delinquency rates spike.

Servicing and Compliance Reports

Servicing Parties

• CarMax Business Services, LLC (Servicer)
• U.S. Bank Trust Company, National Association (Indenture Trustee)

Compliance Findings

• Each party submitted detailed Servicing Reports and Attestation Reports under Regulation AB.
• Independent audit firms (KPMG LLP and Ernst & Young LLP) provided attestation with no material instances of noncompliance.
• Servicer Compliance Statement: Signed by an authorized officer, confirming full adherence to applicable servicing criteria.

This robust compliance framework underscores CarMax’s commitment to trust governance and transparency.

Legal Proceedings and Risk Factors

• Legal Proceedings: No material legal proceedings are pending against the Issuing Entity, the Sponsor/Servicer, the Depositor, or the Indenture Trustee.
• Risk Disclosures: The Trust’s 10-K omitted Item 1A (Risk Factors) and Item 3 (Legal Proceedings) per General Instruction J. In lieu, the trust states that no material legal risks exist.

Investors should monitor macroeconomic trends (used-auto pricing, unemployment, interest rates) that might impact borrower credit performance.

Financial Statements and Performance

The Form 10-K omits Item 8 (Financial Statements) per instruction, but ABS investors typically review:

• Interest Collections vs. Note Interest Payments: A measure of available cash flow to cover investor payouts.
• Delinquency Roll Rates and Cumulative Defaults: Key indicators of credit performance.

In lieu of public financials, prospective investors can request Offering Documents and Periodic Servicer Reports, which provide detailed performance metrics.

Net Profit/Loss for the Trust

As a pass-through vehicle, the Trust itself does not generate a traditional net profit. All cash flows—principal and interest—are remitted to noteholders after contractual fees to CarMax and U.S. Bank. Net gain or loss is effectively zero by design.

Investment Considerations

Pros

• Diversified Pool: Broad spread of obligors reduces concentration risk.
• Strong Sponsor: CarMax’s established servicing platform and track record of auto lending.
• Regulatory Compliance: Clean audit and compliance reports lend confidence.

Cons

• No External Enhancement: Investors have no credit buffer; first-loss exposure is direct.
• Data Omission: Public 10-K lacks quantitative performance metrics; investors must seek supplemental documents.
• Market Sensitivity: ABS performance tied to consumer credit health and used-vehicle market dynamics.

Comparative Yield

With no subordination, coupons may be attractive compared to senior ABS in enhanced structures—but risk of higher defaults could erode returns.

Conclusion and Score

CarMax Auto Owner Trust 2023-4 offers investors a straightforward pass-through structure to a diversified pool of CarMax-originated auto loans. The absence of external credit enhancement increases risk but may boost yield. Governance and compliance are solid, and no material legal or regulatory issues were identified.

Given the trade-off between yield and credit buffer, and the need for deeper pool performance data, we assign this trust an investment potential score of 6.0 out of 10. It’s suitable for investors comfortable with direct credit risk in ABS structures and willing to dig into supplemental servicing reports.

Key Takeaway: A moderately attractive yield opportunity within fixed-income portfolios—but due diligence on pool performance is essential.