Westlake Services is sponsoring a pool of “slightly weaker” quality for its next subprime auto securitization.
But ratings agencies are still projecting lower expected credit losses on the deal because of improved economic conditions and the company’s handling of underwriting and servicing challenges amid coronavirus-related stresses.
DBRS Morningstar and S&P Global Ratings each have lower projected net losses for the $1.1 billion Westlake Automobile Receivables Trust 2021-1 transaction, in comparison to the lender’s prior $1.4 billion securitization that priced in October 2020.
S&P net loss range is 13.5%-14.5%, lower than the loss expectation of 14.75%-15.25% from Westlake 2020-3. DBRS Morningstar as a base-case cumulative net loss of 13.3%, compared to 14.55% in the last Westlake deal it rated in June 2020 (Westlake 2020-2).
“Based on the change in collateral characteristics, we believe this is a slightly weaker pool than the 2020-3 transaction,” stated S&P’s new presale report issued Wednesday. “However, we have deceased our loss expectation on this transaction versus the previous transaction, primarily due to our economic outlook and the issuer's performance through the pandemic.”
The weaker features of the deal include a lower weighted-average borrower FICO (600), a higher average balance of $14,337 on 116,116 loans with average APRs of 19.22% (an increase from 19.1% in Westlake 2020-3).
Also rising was average loan-to-value ratio (113.15%) and the share of extended-term loan contracts in the pool: 51% of the collateral in the new deal are loans with original terms of 61-72 months, up from 49% in the prior deal. (That exacerbates the recovery risk in used vehicles with relatively high mileage, averaging over 75,000 miles). More than 95% of the contracts are for used vehicles, a majority of which are sold through independent dealers.
For the third consecutive transaction, credit enhancement levels declined for a Westlake auto-loan securitization. The initial hard CE is 40.15%, compared to 40.75% in Westlake’s previous ABS deal last year. S&P and DBRS Morningstar have assigned early AAA ratings on the senior term notes totaling $516 million in the capital stack.
Westlake has boosted originations in the past year, increasing its managed portfolio to $9.1 billion, up from $7.5 billion in January 2020.
JPMorgan is the underwriter.
The Westlake 2021-1 transaction is the 24thoverall ABS deal sponsored by the lender, majority owned by The Hankey Group. It is also among four deals to launch or price so far this month.
Also entering the pipeline this week is a $315.34 million transaction, GLS Auto Receivables Issuer Trust 2021-1, with loans pooled from the deep subprime sector with an average FICO of 569. S&P and Kroll Bond Rating Agency have issued preliminary AAA ratings to the $153.4 million senior-note tranche in that deal.
Also, this week GM Financial’s AmeriCredit ($1.45 billion) and United Auto Credit ($259 million) each priced their first ABS deals of 2021.
Twelve deals totaling $7.14 billion have priced so far this year.
