DBRS Morningstar Assigns Provisional Ratings to Westlake Automobile Receivables Trust 2022-2

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Westlake Automobile Receivables Trust 2022-2 (Westlake 2022-2 or the Issuer):

-- $230,600,000 Class A-1 Notes at R-1 (high) (sf)
-- Class A-2-A Notes at AAA (sf) *
-- Class A-2-B Notes at AAA (sf) *
-- $148,580,000 Class A-3 Notes at AAA (sf)
-- $90,230,000 Class B Notes at AA (high) (sf)
-- $143,030,000 Class C Notes at A (high) (sf)
-- $123,650,000 Class D Notes at BBB (high) (sf)
-- $40,100,000 Class E Notes at BB (high) (sf)
-- $100,920,000 Class F Notes at B (high) (sf)

*The combination of the Class A-2-A and Class A-2-B Notes is expected to equal $422,890,000. The allocation of the principal amount between the Class A-2-A and Class A-2-B Notes will be determined at or before the time of pricing (subject to a maximum allocation of 30% to the Class A-2-B notes) and may result in the principal amount of the Class A-2-B notes being zero.

The provisional 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 ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date for each class.

(2) The Westlake 2022-B Notes are exposed to interest risk because of the fixed-rate collateral and the variable interest rate borne by the Class A-2-B Notes.
-- DBRS Morningstar ran interest rate stress scenarios to assess the effect on the transaction’s performance and its ability to pay noteholders per the transaction’s legal documents.
-- DBRS Morningstar assumed two stressed interest rate environments for each rating category, which consist of increasing and declining forward interest rate paths for 30-day average Secured Overnight Financing Rate (SOFR) based on the DBRS Morningstar Unified Interest Rate Tool.

(3) The DBRS Morningstar CNL assumption is 10.10% based on the expected pool composition.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns March 2022 Update,” published on March 24, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020. Despite several new or increasing risks, including the Russian invasion of Ukraine, rising inflation, and new coronavirus variants, the overall outlook for growth and employment in the United States remains relatively positive.

(4) The Westlake 2022-2 Notes are exposed to interest risk because of the fixed-rate collateral and the variable interest rate borne by the Class A-2-B Notes.
-- DBRS Morningstar ran interest rate stress scenarios to assess the effect on the transaction’s performance and its ability to pay noteholders per the transaction’s legal documents.
-- DBRS Morningstar assumed two stressed interest rate environments for each rating category, which consist of increasing and declining forward interest rate paths for 30-day average Secured Overnight Financing Rate (SOFR) based on the DBRS Morningstar Unified Interest Rate Tool.

(5) 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.

(6) 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.

(7) 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.

(8) 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.

(9) Westlake 2022-2 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.

(10) Computershare Trust Company, N.A. (rated BBB and R-2 (middle) with Stable trends by DBRS Morningstar) has served as a backup servicer for Westlake.

(11) The legal structure and expected presence of legal opinions that will 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.”

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, A-2-B, and A-3 Notes reflect 41.00% of initial hard credit enhancement provided by subordinated notes in the pool (37.25%), the reserve account (1.00%), and OC (2.75%). The ratings on the Class B, Class C, Class D, Class E, and Class F Notes reflect 34.25%, 23.55%, 14.30%, 11.30%, and 3.75% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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