Morningstar DBRS Assigns Provisional Ratings to Westlake Automobile Receivables Trust 2024-2

DBRS, Inc. (Morningstar DBRS) assigned provisional ratings to the classes of notes to be issued by Westlake Automobile Receivables Trust 2024-2 (Westlake 2024-2 or the Issuer) as follows:

-- $300,000,000 Class A-1 Notes at R-1 (high) (sf)
-- $101,250,000 Class A-2-A Notes at AAA (sf)*
-- $303,750,000 Class A-2-B Notes at AAA (sf)*
-- $113,870,000 Class A-3 Notes at AAA (sf)
-- $106,530,000 Class B Notes at AA (sf)
-- $151,280,000 Class C Notes at A (sf)
-- $134,940,000 Class D Notes at BBB (sf)
-- $62,500,000 Class E Notes at BB (sf)

*The combination of the Class A-2-A and Class A-2-B Notes is expected to equal $405,000,000. 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 75% to the Class A-2-B Notes) and may result in the principal amount of the Class A-2-B Notes being zero.

CREDIT RATING RATIONALE
The provisional ratings are based on Morningstar DBRS’ 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 available excess spread. Credit enhancement levels are sufficient to support the Morningstar DBRS-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 Morningstar DBRS CNL assumption is 14.00% based on the expected pool composition.
-- The transaction assumptions consider Morningstar DBRS’ baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, “Baseline Macroeconomic Scenarios for Rated Sovereigns: March 2024 Update,” published on March 27, 2024. These baseline macroeconomic scenarios replace Morningstar DBRS’ moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(3) The Westlake 2024-2 Notes are exposed to interest risk because of the fixed-rate collateral and the floating interest rate borne by the Class A-2-B Notes.
-- Morningstar DBRS 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.
-- Morningstar DBRS assumed two stressed interest rate environments for each rating category, which consist of increasing and declining forward interest rate paths for a 30-day average Secured Overnight Financing Rate based on the Morningstar DBRS Unified Interest Rate Tool.

(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, having managed the Company through multiple economic cycles.

(5) The capabilities of Westlake with regard to originations, underwriting, and servicing.
-- Morningstar DBRS 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) The Company indicated that it is 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 believes that it has taken prudent steps to address and mitigate the litigation risks associated with its business activities.

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

(8) 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 Morningstar DBRS’ “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 43.35% of initial hard credit enhancement provided by subordinated notes in the pool (32.05%), the reserve account (1.00%), and OC (10.30%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 35.85%, 25.20%, 15.70%, and 11.30% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

Morningstar DBRS’ credit rating on the securities referenced herein addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated notes are the related Noteholders’ Monthly Interest Distributable Amount and the related Note Balance.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. The associated contractual payment obligation that is not a financial obligation for each of the rated notes is the related interest on any Noteholders' Interest Carryover Shortfall.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (January 23, 2024).

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

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2024; https://www.dbrsmorningstar.com/research/432562)

Other methodologies referenced in this transaction are listed at the end of this press release.

The Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/430189

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

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

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

Rating U.S. Structured Finance Transactions (April 15, 2024)
https://dbrs.morningstar.com/research/431204/rating-us-structured-finance-transactions

Operational Risk Assessment for U.S. ABS Servicers (March 21, 2024)
https://dbrs.morningstar.com/research/430003/operational-risk-assessment-for-us-abs-servicers

Operational Risk Assessment for U.S. ABS Originators (March 21, 2024)
https://dbrs.morningstar.com/research/430004/operational-risk-assessment-for-us-abs-originators

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.