DBRS Morningstar Finalizes Provisional Ratings on Westlake Automobile Receivables Trust 2023-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Westlake Automobile Receivables Trust 2023-1 (Westlake 2023-1 or the Issuer):

-- $314,700,000 Class A-1 Notes at R-1 (high) (sf)
-- $435,000,000 Class A-2-A Notes at AAA (sf)
-- $90,000,000 Class A-2-B Notes at AAA (sf)
-- $157,000,000 Class A-3 Notes at AAA (sf)
-- $107,970,000 Class B Notes at AA (high) (sf)
-- $172,750,000 Class C Notes at A (high) (sf)
-- $141,190,000 Class D Notes at BBB (high) (sf)
-- $81,390,000 Class E Notes at BB (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 ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date for each class.

(2) The DBRS Morningstar CNL assumption is 10.60% based on the 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: December 2022 Update,” published on December 21, 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.

(3) The Westlake 2023-1 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 a 30-day average Secured Overnight Financing Rate based on the DBRS Morningstar 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.

(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 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.

(8) 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.

(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.”

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 (30.30%), the reserve account (1.00%), and OC (9.70%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 34.50%, 24.10%, 15.60%, and 10.70% 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 (May 17, 2022).

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

The principal methodology applicable to the rating is Rating U.S. Retail Auto Loan Securitizations (May 10, 2022; https://www.dbrsmorningstar.com/research/396623).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 info@dbrsmorningstar.com.

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

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

Rating U.S. Structured Finance Transactions (November 8, 2022) https://www.dbrsmorningstar.com/research/405084/rating-us-structured-finance-transactions.

Operational Risk Assessment for U.S. ABS Servicers (November 8, 2022) https://www.dbrsmorningstar.com/research/405083/operational-risk-assessment-for-us-abs-servicers.

Operational Risk Assessment for U.S. ABS Originators (November 8, 2022) https://www.dbrsmorningstar.com/research/405082/operational-risk-assessment-for-us-abs-originators.

Legal Criteria for U.S. Structured Finance (December 7, 2022) https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance.

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022) https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.