DBRS Morningstar Finalizes Provisional Ratings on Westlake Automobile Receivables Trust 2021-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Westlake Automobile Receivables Trust 2021-1 (Westlake 2021-1 or the Issuer):

-- $212,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $655,340,000 Class A-2-A Notes at AAA (sf)
-- $50,000,000 Class A-2-B Notes at AAA (sf)
-- $135,680,000 Class B Notes at AA (sf)
-- $174,870,000 Class C Notes at A (sf)
-- $131,160,000 Class D Notes at BBB (sf)
-- $55,020,000 Class E Notes at BB (sf)
-- $85,930,000 Class F Notes at B (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the timely payment of interest on a monthly basis and principal by the legal final maturity date for each class.

(2) DBRS Morningstar’s projected CNL assumption includes an assessment of how collateral performance could deteriorate because of macroeconomic stresses related to the Coronavirus Disease (COVID-19) pandemic.

(3) The transaction assumptions consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus pandemic, available in its commentary “Global Macroeconomic Scenarios: January 2021 Update,” published on January 28, 2021. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, that have been regularly updated. The scenarios were last updated on January 28, 2021, and are reflected in DBRS Morningstar’s rating analysis. The assumptions also take into consideration observed performance during the 2008–09 financial crisis and the possible impact of stimulus. The assumptions consider the moderate macroeconomic scenario outlined in the commentary, with the moderate scenario serving as the primary anchor for current ratings. The moderate scenario factors in increasing success in containment during the first half of 2021, enabling the continued relaxation of restrictions.

(4) The consistent operational history of Westlake Services, LLC (Westlake or the Company) and the strength of the overall Company and its management team.
-- The Westlake senior management team has considerable experience and a successful track record within the auto finance industry.

(5) The capabilities of Westlake with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Westlake and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

(6) DBRS Morningstar used the static pool approach exclusively because Westlake has enough data to generate a sufficient amount of static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis performed on the static pool data.

(7) The Company indicated that it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against Westlake could take the form of class action complaints by consumers; however, the Company indicated that there is no material pending or threatened litigation.

(8) Westlake 2021-1 provides for Class F Notes with an assigned rating of B (sf). While DBRS Morningstar's “Rating U.S. Retail Auto Loan Securitizations” methodology does not set forth a range of multiples for this asset class at the B (sf) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples DBRS Morningstar applies in its stress analysis for a B (sf) rating is 1.00 times (x) to 1.25x.

(9) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Westlake, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

DISCONTINUATION OF LIBOR
-- The Westlake 2021-1 transaction documents include provisions based on the recommended contractual fallback language for U.S.-dollar Libor-denominated securitizations published by the Federal Reserve’s Alternative Reference Rates Committee (ARRC) on May 31, 2019.
-- In the event that the Libor-denominated Class A-2-B Notes are issued and Libor is discontinued, the Class A-2-B Notes will be allowed to transition to ARRC’s recommended alternative reference rate (which is the Secured Overnight Financing Rate (SOFR)).
-- DBRS Morningstar assumes that, because the sum of the new benchmark replacement rate and the benchmark replacement adjustment (as further defined in the transaction documents) is intended to be a direct replacement for Libor, the contemplation of SOFR as a benchmark replacement rate is not a material deviation from the framework provided under DBRS Morningstar’s “Interest Rate Stresses for U.S. Structured Finance Transactions” and related methodologies.
-- Document provisions will provide for prior notification to DBRS Morningstar of any subsequent change to the benchmark.

The collateral securing the notes consists entirely of a pool of retail automobile contracts secured by predominantly used vehicles that typically have high mileage. The loans are primarily made to obligors who are categorized as subprime, largely because of their credit history and credit scores.

Westlake is an independent full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The ratings on the Class A-1, A-2-A, and A-2-B Notes reflect 40.15% of initial hard credit enhancement provided by subordinated notes in the pool (38.65%), the reserve account (1.00%), and OC (0.50%). The ratings on the Class B, Class C, Class D, Class E, and Class F Notes reflect 31.15%, 19.55%, 10.85%, 7.20%, and 1.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 13, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277