Westlake adds $800M offering to subprime auto ABS pipeline
Westlake Services has launched its second subprime auto-loan securitization of the year, amid a continued tightening of spreads of asset-backed notes in the sector.
The $800 million Westlake Automobile Receivables Trust 2020-2 pools a portfolio of mostly high-mileage used-vehicles financed by the privately held Westlake through independent and franchise dealers. The deal includes a $370.9 million triple-A tranche (as preliminarily rated by S&P Global Ratings and DBRS Morningstar) that benefits from 42.75% initial credit enhancement.
As with other recent subprime auto ABS transactions, Westlake’s deal has higher credit enhancement levels and greater loss expectations that other recent issues from its securitization shelf, stemming from expected economic stresses from the COVID-19 pandemic.
DBRS Morningstar has elevated loss expectations to 14.55% from the most recent Westlake ABS deal is rated last year (13.25%). S&P has boosted its loss range projection to 14.75%-15.25%.
The deal is being underwritten by Bank of Montreal.
Overall, the collateral pool for the 2020-2 pool is slightly improved over recent Westlake offerings: the weighted average FICO has improved slightly to 610 from 601, and the percentage of loans with original terms of 61-72 months declined to 41.41% of the pool compared to 52.43% in Westlake’s first transaction this year.
Ratings agencies have expressed concern about near-term subprime auto ABS stability due to the potential number of deferred and delinquent loan payments that could transpire in the space. Westlake’s latest pool does not include loans in which borrowers have taken out a payment holiday, however.
That $778 transaction priced in early March, with a spread of 1.44% for a fixed-rate tranche of senior notes totaling $355.8 million (representing a spread of 95 basis points over the ESFD benchmark.
Westlake is bringing its deal to market in the midst of an 11-week run of tightening spreads in auto ABS, according to research from Deutsche Bank.