Westlake launches $1 billion deal secured by auto finance contracts
Westlake Automobile Receivables Trust to issue $1 billion of asset-backed securities (ABS) in a transaction secured by retail automotive installment payment contracts with subprime, quasi-prime and first class.
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%) controls Westlake, which sponsors the transaction, according to a pre-sale report from ratings agency Kroll Bond.
Also known as WLAKE 2022-1, the transaction will repay noteholders in a sequential structure in which Class A-1 Notes will receive principal payments and be paid in full, before payments are passed on to holders. of tickets of classes A-2-A and A-2-B, followed by classes A-3, classes B, C, D, E and F, KBRA said.
In addition to subordination, the notes benefit from credit enhancement in the form of overcollateralization, a cash reserve account and excess margin. The initial overcollateralization reaches 1.10% on the initial pool balance. Once WLAKE fully redeems Class A-2 tickets, the overcollateralization target will decrease from 0.20% to 4.20%, KBRA said. Overcollateralisation is subject to a floor equal to 1.00% of the initial pool balance, the rating agency said.
WLAKE also has a non-declining cash reserve account equal to 1% of the initial guarantee balance. The excess spread of the deal is around 10.6%, according to the KBRA.
KBRA Plans to Assign “K1+” Ratings to $172 Million A-1 Notes; ‘AAA’ at classes A-2A, A-2B and A-3. After that, ratings range from “AA+” on class B tickets to “B” on class F tickets, the rating agency said.
The current state of the auto market, which is driving up used car sales and prices, could pose a credit problem for ratings, KBRA warned.
“This creates the potential for lower recovery rates on defaulted collateral if used car prices return to historical levels,” the rating agency said.
On a weighted average basis, collateral pool loans have a current loan balance of $14,876; an average coupon of 18.1%; a credit agency score of 603; and a loan-to-value ratio of 111.8%, KBRA said.
Geographically, Texas, Florida and California represent the highest loan concentrations in the pool, at 15.2%; 12.9% and 12.8%, respectively.