KBRA affirms the Issuer rating of BBB- for Westlake Services, LLC (“Westlake” or “the company”) and assigns an Issuer rating of BBB- to Nowlake Technology, LLC (“Nowlake”); Westlake’s 100% owner. The Outlook for both entities’ ratings is Positive.

Key Credit Considerations

Through a January 2021 ownership adjustment in which holding company, Nowlake became the company’s sole owner, Westlake, with its multi-decade history as a leading indirect auto lender and servicer focused principally on financing used vehicles for mostly nonprime borrowers, has added a legal corporate affiliate, Nowcom Corporation (“Nowcom”), a technology platform and services company focused on the auto dealer industry; both companies having been separate entities previously, both majority-owned by Westlake founder, Don Hankey (through his investment company, the Hankey Group).

Westlake’s Issuer rating, as well as Positive Outlook, remain supported by a superior, long-term performance track record that benefits from a well-developed risk management framework (and execution associated with it) and operations that have led to outperformance in what remains a fairly fragmented industry; notwithstanding some large competitors. The company’s rating continues to be supported by solid equity capitalization, supplemented by meaningful credit reserves and dealer discounts, that is considered essential given potential subprime auto asset quality volatility.

While Westlake remains the principal contributor to parent, Nowlake’s recent revenue and earnings generation (and represents essentially all of the consolidated assets, as well as allocated equity capital), Nowcom’s third-party (i.e., dealer clients) business momentum, revenue and very high profit margins, are becoming increasingly additive to Nowlake’s operating profile. From a ratings perspective, Nowcom’s growing and highly profitable fee stream, and low capital intensity business model, combined with no parent company debt, as well as no specific regulatory control over intercompany cash flows, are supportive of equalizing the parent and subsidiary ratings and outlooks.

Also important to the relative positive momentum in Westlake and Nowlake’s creditor profiles has been a modestly more conservative approach to capital management in recent years. Some additional, favorable fee income diversification beyond Nowcom has also been generated by Westlake’s third-party servicing business.

Notwithstanding Westlake’s market position as a leading nonprime auto lender and lessor, with a diverse geographic footprint and seasoned management team, the highly competitive industry remains historically prone to select periods where irrational pricing and / or credit performance volatility can challenge industry returns. In this regard, Westlake’s credit strengths are counterbalanced, in part, by the inherent risks associated with its traditional borrower base, primarily credit, but operational risk as well. Market funding also remains a ratings constraint for non-depository lenders.

Rating Sensitivities

Continued fee income diversification, enhanced non-spread earnings generation, and comparatively strong through-the-cycle asset quality could facilitate further positive rating momentum. Worse-than-expected asset quality could negatively impact Westlake's, as well as Nowlake's, ratings.

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Methodologies

Financial Institutions: Finance Company Global Rating Methodology

ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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