Westlake Automobile Receivables Trust 2020-1€¦ · Collateral Subprime auto loan receivables. Issuer Westlake Automobile Receivables Trust 2020-1. Originator, sponsor, servicer,

Presale:

Westlake Automobile Receivables Trust 2020-1March 4, 2020

Preliminary Ratings

ClassPreliminaryrating Type Interest rate(i)

Preliminary amount(mil. $)

Legal finalmaturity date

A-1 A-1+ (sf) Senior Fixed 162.00 March 15, 2021

A-2-A/A-2-B AAA (sf) Senior Fixed/floating(ii) 355.80 Sept. 15, 2023

B AA (sf) Subordinate Fixed 72.68 April 15, 2025

C A (sf) Subordinate Fixed 106.03 April 15, 2025

D BBB (sf) Subordinate Fixed 81.23 June 16, 2025

E BB (sf) Subordinate Fixed 35.48 Oct. 15, 2025

F B+ (sf) Subordinate Fixed 36.78 Sept. 15, 2026

Note: This presale report is based on information as of March 4, 2020. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed asevidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. (i)The interest rate for each classwill be determined on the pricing date. (ii)The sizes of class A-2-A and A-2-B will be determined at pricing, and the maximum size of the classA-2-B will be 50% of the overall class. The class A-2-A may be sized at 100% of the overall class with a fixed coupon. The class A-2-B couponwill be expressed as a spread tied to one-month LIBOR.

Profile

Expected closing date March 17, 2020.

Collateral Subprime auto loan receivables.

Issuer Westlake Automobile Receivables Trust 2020-1.

Originator, sponsor, servicer, and custodian Westlake Services LLC.

Originator Westlake Portfolio Services Inc., a Texas corporation.

Depositors Westlake Funding IV LLC and WPS IV LLC.

Indenture trustee and backup servicer Wells Fargo Bank N.A. (A+/Stable/A-1).

Owner trustee Wilmington Trust N.A. (A/Stable/A-1).

Underwriter J.P. Morgan Securities LLC.

Presale:

Westlake Automobile Receivables Trust 2020-1March 4, 2020

PRIMARY CREDIT ANALYST

Jenna Cilento

New York

(1) 212-438-1533

[email protected]

SECONDARY CONTACT

Kenneth D Martens

New York

(1) 212-438-7327

[email protected]

www.standardandpoors.com March 4, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

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mailto: [email protected]




Credit Enhancement Summary

Westlake2020-1

Westlake2019-3

Westlake2019-2

Westlake2019-1

Westlake2018-3

Westlake2018-2

Westlake2018-1

Westlake2017-2

Subordination (% of the initial receivables)(i)

Class A 38.85 40.15 39.25 39.75 39.50 39.50 39.50 34.50

Class B 30.35 31.40 30.65 31.15 30.90 30.90 30.90 25.80

Class C 17.95 20.00 19.75 20.25 20.00 20.00 20.00 14.30

Class D 8.45 9.80 9.55 10.05 9.80 9.80 9.80 4.80

Class E 4.30 5.35 5.10 5.75 5.50 5.50 5.50 0.00

Class F 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A

Overcollateralization

Initial (% of theinitialreceivables)

0.60 1.50 2.50 2.50 2.75 3.00 3.00 7.00

Target(ii) 3.60 5.50 6.50 6.50 6.75 7.00 7.00 13.00

Floor (% of theinitialreceivables)

1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Reserve fund (% of initial receivables)

Initial 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Target 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Floor 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Total initial hard credit enhancement (% of the initial receivables)

Class A 40.45 42.65 42.75 43.25 43.25 43.50 43.50 42.50

Class B 31.95 33.90 34.15 34.65 34.65 34.90 34.90 33.80

Class C 19.55 22.50 23.25 23.75 23.75 24.00 24.00 22.30

Class D 10.05 12.30 13.05 13.55 13.55 13.80 13.80 12.80

Class E 5.90 7.85 8.60 9.25 9.25 9.50 9.50 8.00

Class F 1.60 2.50 3.50 3.50 3.75 4.00 4.00 N/A

Estimatedexcess spreadper year (%)(iii)

13.56 12.84 11.95 11.25 11.49 11.43 11.46 12.93

(i)Principal will be paid sequentially on the notes. (ii)The overcollateralization target is a percentage of the current receivables balance. Targetovercollateralization for series 2017-2, 2018-1, 2018-2, 2018-3, 2019-1, 2019-2,2019-3 and 2020-1 will step down once the class A-2 notes arepaid in full, to 12.00%, 6.00%, 6.00%, 5.75%, 5.50%,5.50%,4.50% and 2.60%, respectively. (iii)Excess spread is post pricing for the 2017-2through 2019-3 transactions. Westlake--Westlake Automobile Receivables Trust. N/A--Not applicable.

Rationale

The preliminary ratings assigned to Westlake Automobile Receivables Trust 2020-1's (Westlake2020-1's) $850 million automobile receivables-backed notes series 2020-1 reflect:

- The availability of approximately 47.33%, 40.84%, 31.74%, 24.77%, 21.42%, and 18.51% creditsupport for the class A, B, C, D, E, and F notes, respectively, based on stressed cash flow



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Presale: Westlake Automobile Receivables Trust 2020-1

scenarios (including excess spread). These provide approximately 3.50x, 3.00x, 2.30x, 1.75x,1.50x, and 1.23x, respectively, of our 13.00%-13.50% expected cumulative net loss (CNL) range.

- The transaction's ability to make timely interest and principal payments under stressed cashflow modeling scenarios appropriate for the assigned preliminary ratings.

- Our expectation that under a moderate ('BBB') stress scenario, all else being equal and for thetransaction's life, our rating on the class A notes would not likely be lowered from the assignedpreliminary rating; our rating on the class B and C notes would likely remain within one ratingcategory of the assigned preliminary ratings; and our rating on the class D notes would likelyremain within two rating categories of the assigned preliminary rating. Our ratings on the classE and F notes would likely remain within two rating categories of the assigned preliminaryratings during the first year but would ultimately default under our 'BBB' moderate stressscenario, which is within the bounds of our credit stability criteria (see "Methodology: CreditStability Criteria," published May 3, 2010).

- The collateral characteristics of the securitized pool of subprime automobile loans.

- The originator/servicer's long history in the subprime/specialty auto finance business.

- Our analysis of approximately 14 years (2006-2019) of static pool data on the company'slending programs.

- The transaction's payment, credit enhancement, and legal structures.

Significant Changes From Westlake 2019-3

This is the company's first asset-backed securities (ABS) transaction in 2020 and 21st overall. Thesignificant credit enhancement changes from its last transaction, Westlake 2019-3, include thefollowing:

- Subordination for the class A, B, C, D, and E notes has decreased to 38.85%, 30.35%, 17.95%,8.45%, and 4.30% from 40.15%, 31.40%, 20.00%, 9.80%, and 5.35%, respectively.

- Initial and target overcollateralization decreased to 0.60% and 3.60% (2.60% once A-2 classpays off) from 1.50% and 4.50%, respectively.

- Total initial hard credit enhancement for the class A, B, C, D, E, and F notes decreased to40.45%, 31.95%, 19.55%, 10.05%, 5.90%, and 1.60% from 42.65%, 33.90%, 22.50%, 12.30%,7.85%, and 2.50%, respectively, as a result of the decreases in overcollateralization

- Estimated annual excess spread has increased to 13.56% compared with 13.14% (post-pricing)for the previous deal.

Despite these declines in initial hard credit enhancement, all classes are sufficiently enhanced towithstand our stress scenarios at the assigned preliminary ratings.

Collateral characteristic changes

VantageScore

The 2019-2 transaction was the first in which Westlake started utilizing Vantage score data.Although the non-zero credit scores for the previous Westlake transactions were 100%FICO-based, the series 2020-1, 2019-3, and 2019-2 transactions include approximately 47.20%,41.68%, and 22.74% loans with Vantage scores, respectively. Vantage requires one month of



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credit history in order to assign a credit score to a borrower, which is less than that required for aFICO score. As a result of using Vantage, more loans can be scored. However, the percentage ofloans without a credit score has increased slightly to 22.31% from 21.57% for the series 2020-1deal.

For the approximately 77.69% of the pool that is scored, the weighted average non-zero creditscore of 600 is based on a blended average of the FICO score for approximately 30.50% of the pooland Vantage score for 47.20% of the pool.

Other significant collateral changes from the Westlake 2019-3 transaction include:

- The percentage of the pool in the Gold and Platinum programs decreased to 36.60% and 2.39%from 38.64% and 2.50%, respectively, while the Standard program concentration increased to61.01% from 58.86%.

- The loans from franchised dealers increased to 43.58% from 38.17%.

- The percentage of loans with an original term of 61-72 months increased to 48.58% from47.52%.

- The weighted average APR increased to 20.09% from 19.92%.

We view the overall collateral characteristics to be slightly weaker by program and percentage ofloans with an original term of 61-72 months but stronger by channel distribution than the previousdeal. The inclusion of approximately 47.20% VantageScore loans in the pool did not, in our view,have a material impact on the pool's credit quality, although we will continue to monitor thedifference in performance. As a result, we are maintaining the CNL range for this transaction at13.00%-13.50%, which is the same as for the 2019-3 transaction (see the S&P Global Ratings'Expected Loss section).

Transaction And Legal Overview

The series 2020-1 deal is Westlake's 21st term ABS transaction. The transaction is structured as atrue sale of the receivables from Westlake Services LLC and Westlake Portfolio Services, Inc. toWestlake Funding IV LLC and WPS IV LLC (the depositors), respectively, both special-purposeDelaware limited liability companies. The depositors will then sell the receivables to Westlake2020-1, the issuing entity, which is a newly formed special-purpose Delaware statutory trust.Westlake 2020-1 will pledge its interest in the receivables and its security interests in the vehiclesto the trust collateral agent for the indenture trustee's benefit on the noteholders' behalf (seechart 1).



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Chart 1

In rating this transaction, S&P Global Ratings will review the legal matters that it believes arerelevant to its analysis as outlined in its criteria.

Transaction Structure

Westlake 2020-1 will employ a sequential principal payment structure among the preliminaryrated class A, B, C, D, E, and F notes: the class A notes will be paid in full before the class B notesreceive principal distributions; the class B notes will be paid in full before the class C notes receiveprincipal distributions, and so forth. The transaction's structure incorporates a 1.00%non-declining reserve account and an initial overcollateralization amount of 0.60% that will buildto a target of 3.60% of the current receivables pool balance. The overcollateralization target willstep down to the greater of 2.60% of the current pool balance and 1.00% of the initial pool balanceonce the class A-2-A and A-2-B notes (collectively the class A-2 notes) are paid in full. The



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transaction has an overcollateralization floor of 1.00% of the initial receivables pool balance andapproximately 13.56% excess spread per year.

The series 2020-1 transaction documents include fallback language that closely follows therecommended contractual language published on May 31, 2019, by the Federal Reserve'sAlternative Reference Rates Committee (ARRC) for new issuances of LIBOR securitizations. In theevent of a LIBOR cessation and occurrence of a benchmark transition event, both as defined in thetransaction documents and by ARRC, the class A-2-B floating rate will be allowed to transitionfrom LIBOR as the benchmark rate. We currently do not expect the ultimate discontinuance ofLIBOR to have a material impact on the preliminary ratings as we expect the class A-2-Bfloating-rate notes will be fully repaid by the class' legal final maturity date or earlier (due to thetranche's short weighted average life) and the class' limited exposure to a floating-ratebenchmark (approximately 50% maximum as a percentage of the aggregate note balance). We willcontinue to monitor the events related to this topic as they evolve and evaluate potential impact toour ratings, if any.

Payment Structure

Payment distributions

The class A, B, C, D, E, and F notes will total approximately $850 million. Interest and principalpayments are scheduled on the 15th day, or the next business day of each month, beginning April15, 2020. On each payment date, distributions will be made from available funds according to thepayment priority (see table 1).

Table 1

Payment Waterfall

Priority Payment

1 To the servicer, the 4.0% annual servicing fee and to any successor servicer, the transition fees (up to$200,000 in aggregate).

2 To the trustees, the backup servicer, and the lockbox bank, any accrued and unpaid fees, expenses, andindemnities, subject to an annual aggregate limit of $100,000 (the owner trustee) and $200,000 (the lockboxbank, the indenture trustee, and the backup servicer, collectively).

3 Class A interest to the class A noteholders.

4 The first-priority principal payment to the class A noteholders.

5 Class B interest to the class B noteholders.

6 The second-priority principal payment to the senior-most class outstanding.

7 Class C interest to the class C noteholders.

8 The third-priority principal payment to the senior-most class outstanding.

9 Class D interest to the class D noteholders.

10 The fourth-priority principal payment to the senior-most class outstanding.

11 Class E interest to the class E noteholders.

12 The fifth-priority principal payment to the senior-most class outstanding.

13 Class F interest to the class F noteholders.

14 The sixth-priority principal payment to the senior-most class outstanding.

15 To the reserve account, the amount required to restore the reserve account to its required level.



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Table 1

Payment Waterfall (cont.)

Priority Payment

16 The regular principal payment on the senior-most class outstanding, which builds overcollateralization to thetarget.

17 To the indenture trustee, owner trustee, backup servicer, lockbox bank, and successor servicer, any fees andexpenses that exceed the related cap or annual limit specified in items 1 and 2 above.

18 All remaining amounts to the certificateholders.

Events Of Default

Under the indenture, the following occurrences constitute an event of default:

- A default in the interest payment on any of the controlling class' notes when due and payablethat continues for five or more business days.

- A default in the principal payment on any note on the final scheduled payment or redemptiondate.

- The issuer breaches certain representations, warranties, and covenants.

- The issuer files for bankruptcy.

- The issuer becomes taxable as an association or becomes a publicly traded partnership that istaxable as a corporation for federal or state income tax purposes.

Payment Priority After An Event Of Default

On each payment date after an event of default due to a breach of representations, warranties,and covenants, the payment priority will remain the same as in table 1 except the fees andexpenses to the trustee, backup servicer, and lockbox bank will be unlimited and the regularprincipal payment amount (item 16 in table 1) will include a sufficient amount to retire the notes infull before any funds can be used to pay items 17 (fees above the capped amount) and 18 (releasesto the certificateholders).

On each payment date after an event of default other than an event of default due to a breach ofrepresentations, warranties, and covenants, available funds will be distributed in the priorityshown in table 2.

Table 2

Payment Waterfall After An Event Of Default(i)

Priority Payment

1 To the servicer, the lockbox bank, the owner trustee, the indenture trustee, and the backupservicer, accrued and unpaid fees not subject to any caps.

2 Class A interest to the class A noteholders.

3 Class A-1 principal to the class A-1 noteholders until the notes have been reduced to zero.

4 Class A-2 principal to the class A-2 noteholders until the notes have been reduced to zero.

5 Class B interest to the class B noteholders.



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Table 2

Payment Waterfall After An Event Of Default(i) (cont.)

Priority Payment

6 Class B principal to the class B noteholders until the notes have been reduced to zero.

7 Class C interest to the class C noteholders.

8 Class C principal to the class C noteholders until the notes have been reduced to zero.

9 Class D interest to the class D noteholders.

10 Class D principal to the class D noteholders until the notes have been reduced to zero.

11 Class E interest to the class E noteholders.

12 Class E principal to the class E noteholders until the notes have been reduced to zero.

13 Class F interest to the class F noteholders.

14 Class F principal to the class F noteholders until the notes have been reduced to zero.

15 All remaining amounts to the certificateholders.

(i)Excluding an event of default due to a breach in representations, warranties, and covenants.

Securitization Performance/Surveillance Update

We maintain ratings on nine outstanding Westlake transactions that closed in 2016 through 2019,as shown in table 3. We have periodically reviewed the performance on the outstandingtransactions

In March 2019, we revised our loss expectations on the series 2016-2, 2017-2, and 2018-1transactions. The 2016-2 transaction is performing in line with our revised loss expectations,while the 2017-2 and 2018-1 transactions are performing better than our initial loss expectations.

In October 2019, we revised our loss expectations on the series 2016-3 deal to up to 14.00%. Wealso revised our loss expectation lower on the series 2017-1, 2018-2, and 2018-3 deals to a rangeof 12.50%-13.00%.

When comparing the 2014, 2015, 2016, 2017, and 2018 vintages' CNLs relative to the pool factors(see chart 4) at the same pool factor (50% as an example), the CNLs for the 2016 vintages aretrending higher than any other vintage. The vintages for 2017 and 2018 appear to be trendingbetter than the 2016 vintages and in-line with or better than our initial expected CNL.

Despite losses trending higher than our initial expectations for the 2015 and 2016 series, sinceeach transaction closed, credit support for each class has increased as a percentage of theamortizing pool balances. We have upgraded and affirmed our ratings on various transactions. Thelatest review was in October 2019 (see "Twelve Ratings Raised, Eight Affirmed On Four WestlakeAutomobile Receivables Trust Transactions," published Oct. 16, 2019). We will continue to monitorperformance of outstanding transactions and take rating actions as appropriate.



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Table 3

Performance Data For Outstanding Westlake Automobile Receivables TrustTransactions(i)

Series Month

Poolfactor

(%)CNL(%)

CurrentCRR (%)

60-plus daydelinquency

(%)Extensions

(%)

Initiallifetime CNL

exp. (%)Prior lifetimeCNL exp. (%)

Revisedlifetime CNL

exp. (%)

2016-3 40 11.61 13.81 32.95 1.78 9.85 12.75-13.25 13.75-14.25(ii) Up to 14.00 (iv)

2017-1 35 15.80 12.17 32.85 1.83 8.74 13.00-13.50 13.00-13.50(ii) 12.50-13.00 (iv)

2017-2 30 23.77 11.02 32.38 1.92 8.38 13.25-13.75 N/A 13.00-13.50 (iii)

2018-1 25 32.55 8.34 34.38 1.65 7.39 13.00-13.50 N/A 12.75-13.25 (iii)

2018-2 21 42.72 7.75 35.55 1.88 7.94 13.00-13.50 N/A 12.50-13.00(iv)

2018-3 18 52.70 6.44 34.60 1.59 6.97 13.00-13.50 N/A 12.50-13.00 (iv)

2019-1 12 66.50 3.88 31.47 1.39 5.78 13.00-13.50 N/A N/A

2019-2 8 79.23 2.32 29.17 1.19 5.52 13.00-13.50 N/A N/A

2019-3 4 90.34 0.60 25.01 0.82 3.84 13.00-13.5 N/A N/A

(i)As of the February 2020 distribution date. (ii)Revised in April 2018. (iii)Revised in March 2019 (iv) Revised in October 2019CNL--Cumulative net loss. CRR--Cumulative recovery rate. N/A–-Not applicable.

Chart 2



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Chart 3

Chart 4



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Pool Analysis

The Westlake 2020-1 transaction consists of a pool of motor vehicle loans. As of the Jan. 31, 2020,statistical date, the statistical pool consisted of $1.320 billion in loans. The final pool will be asubset of the statistical pool presented and will depend on the final deal size, but thecharacteristics are not expected to differ materially from the overall pool. We compared theWestlake 2020-1 collateral pool with that of Westlake's previous securitization pools as shown intable 4. All loans were originated by Westlake.

Table 4

Collateral Composition

Westlake2020-1

Westlake2019-3

Westlake2019-2

Westlake2019-1

Westlake2018-3

Westlake2018-2

Westlake2018-1

Westlake2017-2

Westlake2017-1

Receivablesbalance (mil. $)

1,320.72 1,319.80 1230.80 1,025.64 1,131.11 1,030.97 1,030.93 870.00 750.29

No. ofreceivables

96,590 99,376 93,692 79,870 84,686 82,151 87,082 78,301 67,773

Averageprincipalbalance ($)

13,673 13,280 13,137 12,841 13,357 12,550 11,839 11,111 11,071

Weightedaverage APR (%)

20.09 19.92 19.13 19.00 19.33 19.26 19.36 19.58 19.73

Weightedaverage LTV (%)

113.44 113.71 112.12 110.94 108.77 108.39 109.84 106.91 109.57

Weightedaverage originalterm (mos.)

59.83 59.58 60.10 58.77 58.87 57.40 54.94 52.82 52.92

Weightedaverageremaining term(mos.)

56.88 56.46 56.80 54.90 56.79 54.25 50.90 49.17 48.28

Weightedaverageseasoning(mos.)

2.95 3.12 3.30 3.87 2.07 3.14 4.04 3.65 4.64

Original term49-60 mos. (%)

21.24 21.45 21.02 22.60 21.86 21.13 20.94 18.16 17.51

Original term61-72 mos. (%)

48.58 47.52 49.68 43.86 44.68 40.01 30.58 24.92 26.25

Average mileage 74,927 74,756 72,043 75,858 71,949 73,022 79,208 86,849 85,214

New vehicles(%)

5.77 6.13 6.08 5.97 7.06 5.84 5.59 4.90 6.64

Used vehicles(%)

94.23 93.87 93.92 94.03 92.94 94.16 94.41 95.10 93.36

WeightedaverageWestlakeproprietarycredit score(i)

3.24 3.10 3.11 3.05 2.94 2.84 2.65 2.51 2.41

Standard (%)(ii) 61.01 58.86 59.09 63.21 64.40 60.94 59.67 61.56 58.36



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Table 4

Collateral Composition (cont.)

Westlake2020-1

Westlake2019-3

Westlake2019-2

Westlake2019-1

Westlake2018-3

Westlake2018-2

Westlake2018-1

Westlake2017-2

Westlake2017-1

Gold (%)(ii) 36.60 38.64 38.33 34.29 32.35 35.23 37.34 35.44 38.68

Platinum (%)(ii) 2.39 2.50 2.58 2.50 3.25 3.83 2.99 3.00 2.96

Franchisedealers (%)

43.58 41.42 42.77 38.96 39.78 38.27 33.86 29.94 33.21

Independentdealers (%)

56.42 58.58 57.23 61.04 60.22 61.73 66.14 70.06 66.79

WeightedaverageFICO/creditscore (iii)

600 602 601 602 600 601 602 596 599

FICO/Credit Score distribution (%) (iii)

Less than540

12.62 11.42 12.74 10.69 12.07 13.65 12.11 15.86 14.86

540-599 26.09 25.69 24.05 18.84 20.29 19.73 20.05 20.19 20.53

600-659 26.23 28.10 28.16 24.66 23.33 25.54 26.88 25.55 28.11

660 andabove

12.76 13.04 12.75 12.12 12.27 13.52 13.45 12.33 13.53

None 22.31 21.75 22.33 33.67 32.03 27.56 27.51 26.06 22.96

Top three state concentrations (%)(iv)

TX=22.03 CA=22.25 CA=23.96 CA=21.20 CA=20.78 CA=21.77 CA=21.23 CA=20.79 CA=21.33

CA=18.11 FL=13.53 FL=13.83 TX=15.94 TX=17.89 TX=19.61 TX=16.96 TX=16.00 TX=16.03

FL=12.10 TX=11.75 TX=12.82 FL=14.12 FL=15.04 FL=14.52 FL=13.30 FL=12.92 FL=13.34

S&P GlobalRatings' originalCNL exp. (%)

13.00-13.50 13.00-13.50 13.00-13.50 13.00-13.50 13.00-13.50 13.00-13.50 13.00-13.50 13.25-13.75 13.00-13.50

S&P GlobalRatings'revised/updatedCNL exp. (%)

N/A N/A N/A N/A 12.50-13.00 12.50-13.00 12.75-13.25 13.00-13.50 12.50-13.00

Current CNL (%) N/A 0.60 2.32 3.88 6.64 7.75 8.34 11.02 12.17

(i)Westlake Services LLC uses its proprietary credit score, which is scaled from zero to 10 (10 being the best credit quality), to support its credit approval and pricingprocess. (ii)Westlake Services LLC divides the collateral pool into three distinct underwriting channels: Standard, Gold, and Platinum. (iii)Starting with the 2019-2transaction, Westlake is using a blended credit score, which incorporates both FICO and Vantage scores. (iv)As a percentage of the principal balance.Westlake--Westlake Automobile Receivables Trust. APR--Annual percentage rate. LTV--Loan to value. CNL--Cumulative net loss expectations. N/A--Not applicable.

Managed Portfolio

Westlake's managed portfolio performance improved as of January 2020 from a year earlier. Whiledelinquencies increased to 4.22% from 3.78% a year earlier, losses (as percentage of period-endprincipal outstanding) decreased to 5.44% from 6.23% for the same period in 2019. However,some of the improvement could be due to growth in the portfolio, which expanded approximately35.00% over the same time frame, including the company's expansion into the prime segment(700+ FICOs). Originations in the Platinum program have continued to increase year over year. The



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Platinum program is Westlake's best performing program and the higher concentration of themanaged portfolio in the better program may lead to lower delinquencies and losses. Despite theincrease in prime originations in the managed portfolio, there has not been a similar increase inthe better quality paper in the securitizations.

Table 5

Managed Portfolio

As of Jan. 31, As of Dec. 31

2020 2019 2019 2018 2017 2016 2015 2014 2013

Delinquency experience

Amount ofreceivablesoutstanding (mil. $)

7,541.48 5,603.45 7,442.83 5,492.27 3,967.27 3,176.02 2,541.97 1,960.04 1,612.42

Total delinquencies(% of principalamount ofreceivablesoutstanding)

4.22 3.78 4.20 4.11 4.50 5.59 5.39 5.18 4.79

Net loss experience

Avg. month-endamount outstanding(mil. $)

7,492.16 5,547.86 6,518.27 4,861.76 3,575.77 2,934.28 2,286.26 1,793.69 1,546.90

Net losses (% of theavg. month-endamount outstanding)

5.48 6.30 5.23 5.65 7.36 8.95 8.27 8.44 8.74

S&P Global Ratings' Expected Loss: 13.00%-13.50%

Westlake's dealer loan programs were previously FICO-based. Starting with the 2019-2transaction, the dealer loan programs are credit score-based blending both FICO and Vantagescores and broken out as follows:

- Standard: less than 600;

- Gold: 600 through 699; and

- Platinum: 700 and greater.

For each loan program, Westlake provided us with static pool performance data by originationmonth, broken out by franchise (excluding Carmax, which we viewed separately), and independentdealer and loan program. While Westlake has focused predominantly on independent,non-franchise dealers historically, they have been steadily originating more contracts fromfranchise dealers. The uptick in franchise loans has caused an increase in longer-term loan paper(greater than 60 months) and higher LTV ratios, which is mitigated by a better quality vehicle withlower mileage. Based on data provided by Westlake, their franchise loans typically perform betterthan independent loans. Additionally, we looked at this data broken out further by original termsup to 60 months and greater than 60 months.

We used a second-quarter 2006 through 2013 paid-off loss curve to project losses for theoutstanding collateral for 2013 through 2018 by dealer type and program. We then calculatedweighted average projected loss proxies for each of the 13 loan term/program/dealer types by



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weighting each outstanding vintage month's projected loss by the origination dollar volume for therespective vintage. Then we computed a weighted average projected loss for the pool by weightingthe loss proxies for each term/program/dealer type by the respective percentage of the currentpool balance for each program.

We expect Westlake 2020-1 to experience CNLs of 13.00%-13.50% based on our review of theorigination static pool performance, a comparison of the collateral pool to previous Westlakepools, the securitization performance (see the Surveillance Update section above), and aforward-looking view of the economy in which recovery rates continue to decline.

Cash Flow Modeling

We modeled the transaction to simulate stress scenarios appropriate for the assigned preliminaryratings (see table 6). The cash flow results are based on a $855 million pool.

Table 6

Break-Even Analysis Summary

Preliminary rating

Assumptions AAA (sf) AA (sf) A (sf) BBB (sf) BB (sf) B+ (sf)

Multiple (x) 3.50 3.00 2.30 1.75 1.50 1.23

Loss timing (12/24/36) input (%) 50/40/10 50/40/10 50/40/10 50/40/10 50/40/10 50/40/10

Loss timing (12/24/36) actual (%) 57/42/0 51/40/9 50/40/10 50/40/10 50/40/10 50/40/10

ABS voluntary prepayments (%) 1.6 1.6 1.6 1.6 1.6 1.6

Recoveries (%) 35.0 35.0 35.0 35.0 35.0 35.0

Recovery lag (mos.) 3 3 3 3 3 3

Servicing fee and other fees (%) 4.0 4.0 4.0 4.0 4.0 4.0

Approximate cumulative net lossbreak-even levels for the floating-ratestructure (%)(i)

47.20 40.69 31.52 24.51 21.16 18.21

Approximate cumulative gross lossbreak-even levels for the floating-ratestructure (%)(i)

72.62 62.60 48.49 37.70 32.55 28.02

(i)The maximum cumulative net and gross losses on the pool, with 100% credit given to excess spread, that the transaction can withstandwithout triggering a payment default on the relevant classes of notes. ABS--Absolute prepayment speed.

We used our expected 13.00%-13.50% net loss range and applied the aforementioned stresses inour internal cash flows runs. The break-even results show that the class A, B, C, D, E, and F notesare enhanced to the degree necessary to withstand a stressed level of net losses that is consistentwith the assigned preliminary ratings. Because of a slower observed loss curve on the 2009 and2010 static pool vintages and more long-term receivables in the pool, we ran a back-loaded losscurve in addition to the front-loaded loss curve. We found the back-loaded loss curve to be slightlyless stressful for all classes of notes because the loss timing slows down significantly; therefore,increasing the excess spread and resulting in almost no releases.

We also tested the structure with an assumption that no floating rates are issued. The resultsremain consistent with the assigned preliminary ratings.



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Modeling the class A-2-B floating-rate notes

Class A-2 may be split into two classes: classes A-2-A (fixed-rate) and A-2-B (floating-rate); theactual split between the fixed- and floating-rate classes will be set at pricing, and class A-2-B willbe a maximum of 50.00% of the overall class. This introduces interest rate risk into thetransaction because the assets are fixed-rate contracts, while the class A-2-B notes areunhedged floating-rate notes. Our approach in this scenario was to model the coupon on thefloating-rate notes using the appropriate high-path interest rate vector to simulate a stressedfloating-rate scenario (see "U.S. Interest Rate Assumptions Revised For May 2012 AndThereafter," published April 30, 2012).

Sensitivity Analysis

In addition to analyzing break-even cash flows, we conducted a sensitivity analysis to determinewhether, under a moderate ('BBB') stress scenario, all else being equal, our ratings would remainwithin the tolerances allowed by our ratings stability criteria (see "Methodology: Credit StabilityCriteria," published May 3, 2010).

Table 7

Sensitivity Analysis Summary

Moderate stress scenario

Assumptions Front-loaded loss curve Back-loaded loss curve

Cumulative net losslevel (%)

23.19 23.19

Loss timing(12/24/36/48) (%)(i)

50/40/10/0 45/35/10/10

ABS voluntaryprepayments (%)

1.6 1.6

Recoveries (%) 35.0 35.0

Recovery lag (mos.) 3 3

Servicing fee andother fees (%)

4.0 4.0

Potential rating decline

Class A: 'AAA (sf)' No rating decline expected. No rating decline expected.

Class B: 'AA (sf)' One rating category. One rating category.

Class C: 'A (sf)' One rating category. One rating category.

Class D: 'BBB (sf)' Two rating categories. Two rating categories.

Class E: 'BB (sf)' Two rating categories. Class E eventuallydefaults on principal in this scenario after payingoff approximately 45% of the bond.

Two rating categories. Class E eventuallydefaults on principal in this scenario after payingoff approximately 53% of the bond.

Class F: 'B+ (sf)' Two rating categories. Class F defaults in thisscenario; no principal is paid.

Two rating categories. Class F defaults in thisscenario; no principal is paid.

(i)Input and actual. ABS--Absolute prepayment speed.

Our sensitivity analysis results indicated that, in a moderate ('BBB') stress scenario for the front-and back-loaded loss timing curves, the ratings on the class A notes would not be lowered from



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the assigned preliminary rating, the class B and C notes would remain within one rating categoryof the assigned preliminary ratings, and the class D notes would remain within two ratingcategories of the assigned preliminary rating for the transaction's life. The class E notes wouldremain within two rating categories of the assigned preliminary rating over one year but woulddefault with approximately 45% principal repaid (see table 7). The class F notes would remainwithin two rating categories of the assigned preliminary rating over one year but would defaultwith no principal being paid. These potential rating movements are all consistent with, and insome cases stronger than, our credit stability criteria (see chart 3 for the coverage multiplesduring the first three years for the class A through F notes under a moderate stress scenario).

Chart 5



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Chart 6

Money Market Tranche Sizing

The proposed money market tranche (class A-1) has a legal final maturity date of March 15, 2021.To test whether the money market tranche can be repaid by its legal final maturity, we ran cashflows using assumptions to delay the principal collections. We assumed zero defaults and a 0.50%absolute prepayment speed for our cash flow run, and we checked that approximately 11 monthsof principal collections would be sufficient to pay off the money market tranche, so there is a onemonth lag between repayment and the 12-month legal final maturity date.

Legal Final Maturity

To test the legal final maturity dates set for classes A-2 through E, we determined when therespective notes would be fully amortized in a zero-loss and zero-prepayment scenario, and thenadded three months to that date. For the longest-dated security (class F), we added six months tothe tenor of the longest-dated receivable in the pool to accommodate extensions on thereceivables. Furthermore, in the break-even scenario for each respective rating level, weconfirmed that credit enhancement was sufficient to both cover losses and repay the relatednotes in full by the legal final maturity date.

Westlake

Westlake, an independent specialty auto finance company, was founded in 1978 by Don Hankeyand incorporated in California in 1988 as a subchapter S corporation. Westlake is primarily ownedby Mr. Hankey (the CEO) and his family, certain executives, and Marubeni Corp. (Marubeni; a



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Japanese conglomerate), which owns 24.0% of Westlake.

As of Jan. 31, 2020, Westlake had:

- 2,472 employees;

- A network of more than 19,650 producing dealers nationwide for the last 12 months across all50 states from which it buys its auto loans;

- A portfolio of prime, nonprime, and subprime retail auto installment sales contracts of $8.020billion;

- Pretax income of $556 million in 2019, $397 million in 2018, compared with $298 million in2017, $235 million in 2016, $247 million in 2015 (before accounting for $44 million insettlement payments), and $237 million in 2014;

- Equity of $1.58 billion; and

- A 3.92x debt-to-equity ratio.

The company has been profitable each year since inception, and while its profit margins havedeclined slightly since 2011, its pretax return on assets was approximately 8.00% (excluding thosefrom Credit Union Leasing of America, which Westlake acquired in May 2017) as of Dec. 31, 2019.

Westlake has a diversified funding base that includes:

- A $420 million corporate secured line of credit provided by a Wells Fargo Bank N.A.-led bankgroup, which matures in November 2020;

- Asset-backed warehouse lines of credit with Wells Fargo Bank N.A. ($475 million, maturing inNovember 2020), J.P. Morgan Chase & Co./Credit Suisse AG ($600 million, maturing in April2020), Sumitomo Mitsui Banking Corp. ($150 million, maturing in December 2021), Bank ofMontreal/Mitsubishi UFJ Financial Group/Mizuho Bank ($700 million, maturing in June 2020),and MG Leasing Corp. ($80 million, maturing December 2020); and

- The ABS markets through its auto loan securitizations.

In addition to the funding facilities above, additional capital has been provided by Marubeni. In2011, it acquired a 20.00% ownership stake in Westlake for $250 million and gained two seats onthe executive board. In November 2014, Marubeni further increased its equity stake by $100million and provided $100 million of convertible fixed-rate debt.

Westlake has an experienced management team, and most of the executive management teamhas been with the company for several years and is experienced in specialty auto finance. IanAnderson, the president, joined the company in 2005 as the director of risk management, and hepreviously held positions at Bayview Acceptance Corp. and Triad Financial Corp. Paul Kerwin, chieffinancial officer, joined the company in 2002. In late 2015, the company hired Robert Engilman aschief compliance officer. He is directly responsible for the compliance department, operationalaudit, and corporate training.

Underwriting and collections

The company's underwriting operations are centralized in Los Angeles. Most collections are alsocentralized in its Los Angeles headquarters; however, it also opened another collections center inDallas in late 2015.

Dealers enter application information into Westlake's proprietary decision model software, The



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Buy Program, which then automatically sends its declination or approval with the purchase priceto the dealer in real time. Dealers can interface with the model to see if changes in the proposedloan structure can change a No decision into a Yes. The Buy Program's underlying approach is toevaluate each deal on three fronts: the customer, the loan structure, and the vehicle beingfinanced. The automated underwriting process has been customized for the various markets inwhich the company operates to account for differences when predicting credit quality because ofvarious attributes that depend on obligor characteristics and obligor location.

Given Westlake's automated underwriting process, it devotes most of its underwriting effort toverifying applications it has approved before funding--or possibly denying--the loan contract'spurchase. According to management, information regarding the vehicle, obligor job/income,obligor address, references, and insurance are verified for each loan. Per the transactiondocuments, the vehicle being financed must be covered by a comprehensive and collisioninsurance policy at origination. Management has stated that Westlake continually monitors thevehicle's insurance coverage thereafter.

Every month, Westlake mails the customer a billing statement that directs the customer to mailpayments to a lockbox bank or to make electronic payments for deposit in a lockbox account. Oncedeposited, Westlake receives the payment receipt data from its lockbox bank via electronictransfer and posts it to the motor vehicle loan contract accounting system. Customers can alsopay through third-party payment providers, such as Western Union and MoneyGram, byelectronically transmitting funds directly to the lockbox bank. Westlake calls delinquent accountsas early as one day past due. The company uses several technology-enabled platforms, includingan interactive voice recording system that routes incoming calls to the appropriate person and apredictive dialing system that calls customers whose payments are past due.

Westlake has purchased portfolios from companies in chapter 11 bankruptcies and receivership.According to management, these loan programs are completely separate from Westlake's loanprograms and are not included in the reported managed portfolio or securitized pools.

Regulatory

Since 2014, Westlake has received civil subpoenas and civil investigative demands (CIDs) fromvarious federal and state agencies. These types of investigations and proceedings could result inadverse consequences to Westlake. In 2015, Westlake agreed to pay approximately $30mn in civilpenalties and consumer remuneration and provide approximately $18 million in credits to certaindeficiency accounts as part of a redress plan resulting from Consumer Financial Protection Board("CFPB") allegations pertaining to certain violations of consumer financial laws by Westlakerelating to collection and repossession calls, modifications to contract terms and advertisementof annual percentage rates.

Westlake currently has ongoing investigations with the CFPB, the U.S. Department of Justice, theFederal Trade Commission, and the Massachusetts Attorney General. At this time Westlake hascomplied with all requests made by the regulatory bodies and in some instances has alreadyimplemented a plan of action to address the situation. We will continue to monitor the outcome ofthese open investigations.

Related Criteria

- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates InStructured Finance, Oct. 18, 2019



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- Criteria | Structured Finance | Legal: U.S. Structured Finance Asset Isolation AndSpecial-Purpose Entity Criteria, May 15, 2019

- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating StructuredFinance Securities: Methodology And Assumptions, Jan. 30, 2019

- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

- Criteria | Structured Finance | General: Methodology: Criteria For Global Structured FinanceTransactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon ANonmonetary EOD, March 2, 2015

- Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, AndIndemnifications, July 12, 2012

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- Criteria | Structured Finance | ABS: General Methodology And Assumptions For Rating U.S. AutoLoan Securitizations, Jan. 11, 2011

- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28,2009

Related Research

- Twelve Ratings Raised, Eight Affirmed On Four Westlake Automobile Receivables TrustTransactions, Oct. 16, 2019

- Twelve Ratings Raised, Six Ratings Affirmed On Four Westlake Automobile Receivables TrustTransactions, March 18, 2019

- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top FiveMacroeconomic Factors, Dec. 16, 2016

In addition to the criteria specific to this type of security (listed above), the following criteriaarticles, which are generally applicable to all ratings, may have affected this rating action:"Counterparty Risk Framework: Methodology And Assumptions," March 8, 2019; "Post-DefaultRatings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23,2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions,"Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D'And 'SD' Ratings," Oct. 24, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings,"Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch AndOutlooks," Sept. 14, 2009.



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Standard & Poor’s | Research | March 4, 2020 21

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Documents

Westlake Automobile Receivables Trust 2020-1€¦ · Collateral Subprime auto loan receivables. Issuer Westlake Automobile Receivables Trust 2020-1. Originator, sponsor, servicer,