DBRS Morningstar Finalizes Provisional Ratings on Westlake Automobile Receivables Trust 2021-3

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Westlake Automobile Receivables Trust 2021-3 (Westlake 2021-3 or the Issuer):

-- $298,500,000 Class A-1 Notes at R-1 (high) (sf)
-- $656,750,000 Class A-2 Notes at AAA (sf)
-- $285,380,000 Class A-3 Notes at AAA (sf)
-- $159,030,000 Class B Notes at AA (sf)
-- $220,270,000 Class C Notes at A (sf)
-- $177,790,000 Class D Notes at BBB (sf)
-- $66,180,000 Class E Notes at BB (sf)
-- $101,740,000 Class F Notes at B (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating addresses the timely payment of interest on a monthly basis and principal by the legal final maturity date for each class.

(2) DBRS Morningstar’s projected CNL assumption includes an assessment of how collateral performance could deteriorate because of macroeconomic stresses related to the Coronavirus Disease (COVID-19) pandemic.

(3) The DBRS Morningstar CNL assumption is 11.45% based on the expected pool composition.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” published on September 8, 2021. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020. The baseline macroeconomic scenarios reflect the view that, although coronavirus remains a risk to the outlook, uncertainty around the macroeconomic effects of the pandemic has gradually receded. Current median forecasts considered in the baseline macroeconomic scenarios incorporate some risks associated with further outbreaks, but remain fairly positive on recovery prospects given expectations of continued fiscal and monetary policy support. The policy response to coronavirus may nonetheless bring other risks to the forefront in the coming months and years.

(4) The consistent operational history of Westlake Services, LLC (Westlake or the Company) and the strength of the overall Company and its management team.
-- The Westlake senior management team has considerable experience and a successful track record within the auto finance industry.

(5) The capabilities of Westlake with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Westlake and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

(6) DBRS Morningstar used the static pool approach exclusively because Westlake has enough data to generate a sufficient amount of static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis performed on the static pool data.

(7) The Company indicated that it may be subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against Westlake could take the form of class action complaints by consumers; however, the Company indicated that there is no material pending or threatened litigation.

(8) Westlake 2021-3 provides for Class F Notes with an assigned rating of B (sf). While DBRS Morningstar's “Rating U.S. Retail Auto Loan Securitizations” methodology does not set forth a range of multiples for this asset class at the B (sf) level, the analytical approach for this rating level is consistent with that contemplated by the methodology. The typical range of multiples DBRS Morningstar applies in its stress analysis for a B (sf) rating is 1.00 times (x) to 1.25x.

(9) The legal structure and presence of legal opinions that address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Westlake, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

The collateral securing the notes consists entirely of a pool of retail automobile contracts secured by predominantly used vehicles that typically have high mileage. The loans are primarily made to obligors who are categorized as subprime, largely because of their credit history and credit scores.

Westlake is an independent full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The ratings on the Class A-1, A-2, and A-3 Notes reflect 38.20% of initial hard credit enhancement provided by subordinated notes in the pool (36.70%), the reserve account (1.00%), and OC (0.50%). The ratings on the Class B, Class C, Class D, Class E, and Class F Notes reflect 30.15%, 19.00%, 10.00%, 6.65%, and 1.50% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Retail Auto Loan Securitizations (May 10, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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