Westlake Automobile Receivables Trust is preparing to issue $1 billion in asset-backed securities (ABS) in a deal collateralized by retail auto installment contracts made to subprime, near prime, and prime borrowers.
An ownership structure including Nowlake Technology, Don Hankey (70.5%), Marubeni Auto Investment Holding, LLC (21.7%), certain executives and an employee stock ownership plan (7.8%) control Westlake, which is sponsoring the transaction, according to a pre-sale report from Kroll Bond Rating Agency.
Also known as WLAKE 2022-1, the transaction will repay noteholders through a sequential structure wherein class A-1 notes will receive principal payments and be paid in full, before payments are forwarded to noteholders in classes A-2- A, and A-2-B, followed by classes A-3, classes B, C, D, E, and F receiving principal, KBRA said.
Aside from subordination, the notes benefit from credit enhancement in the form of overcollateralization, a cash reserve account and excess spread. Initial overcollateralization reaches 1.10% on the initial pool balance. Once WLAKE repays the class A-2 notes in full, the overcollateralization target will step down by 0.20% to 4.20%, KBRA said. The overcollateralization is subject to a floor equal to 1.00% of initial pool balance, the rating agency said.
WLAKE also has a non-declining cash reserve account equal to 1% of the initial collateral balance. Excess spread form the deal is about 10.6%, according to KBRA.
KBRA expects to assign ratings of ‘K1+’ to the $172 million A-1 notes; ‘AAA’ to classes A-2A, A-2B, and A-3. After that, the ratings range from ‘AA+’ on the class B notes to ‘B’ on the class F notes, the rating agency said.
The current state of the car market, which is sending sales and prices of used cars spiking, could pose a credit challenge to the notes, KBRA cautioned.
“This creates the potential for lower recovery rates on defaulted collateral if used car pricing returns to historical levels,” the rating agency said.
On a weighted average basis, the loans in the collateral pool have a current loan balance of $14,876; an average coupon of 18.1%; a credit bureau score of 603; and a loan-to-value ratio of 111.8%, KBRA said.
Geographically, Texas, Florida and California account for the highest concentrations of loans in the pool, at 15.2%; 12.9% and 12.8%, respectively.
