Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to eight classes of notes issued by Westlake Automobile Receivables Trust 2020-3 (“WLAKE 2020-3”), a $1.0 billion auto loan ABS transaction. The preliminary ratings reflect initial credit enhancement level of 40.75% for the Class A-1 and Class A-2 notes, through 5.00% for the Class F notes. Credit enhancement will consist of subordination (except for the Class F notes), overcollateralization, a reserve account and excess spread.
The notes are collateralized by a pool of fixed rate retail automobile contracts, made to subprime, near prime and prime obligors and secured by new and used automobiles, sport utility vehicles, light duty trucks and vans. As of the statistical cutoff date, borrowers in WLAKE 2020-3 have a weighted average APR and weighted average FICO score of 19.14% and 603, respectively. The collateral pool has a weighted average original term of 61 months and a weighted average seasoning of four months.
This transaction represents the third term ABS securitization in 2020 and the 23rd overall for Westlake Services, LLC (“Westlake” or the “Company”). The Company issued its first securitization in May 2010 and 22 total transactions that were supported by aggregate original collateral of approximately $12.5 billion. Most of Westlake’s borrowers have experienced prior credit difficulties and generally have credit bureau scores ranging from 500 to 700. Loans are originated through independent and franchise dealers and segmented into 3 credit tiers (Standard, Gold and Platinum) each based on a borrower’s credit bureau score. Westlake also utilizes a proprietary model to calculate a customer factor for each loan.
The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the subject pool and auto loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross charge-off assumptions for this transaction. The assumption increase was derived from KBRA’s analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008-2009 financial crisis for different types of lending products.
KBRA applied its Global Auto Loan ABS Rating Methodology published on August 27, 2020 and Global Structured Finance Counterparty Methodology published on August 8, 2018 as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and Westlake’s historical gross loss data. KBRA has conducted an on-site operational review of Westlake at its Los Angeles, CA headquarters and has held regular diligence calls with the Company, as well as a review of the transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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