KBRA Affirms Issuer Ratings for Westlake Services, LLC and Parent, Nowlake Technology, LLC

KBRA affirms the Issuer rating of BBB- for Westlake Services, LLC (“Westlake” or “the company”), as well as the BBB- Issuer rating for parent company, Nowlake Technology, LLC (“Nowlake” or “the parent company”). The Outlook for both ratings is Positive.

Key Credit Considerations

Westlake’s and Nowlake’s Issuer ratings, as well as the respective Positive Outlooks, remain supported by the former’s 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 the outperformance; notwithstanding an array of capably managed and large auto finance competitors. Ratings continue to be supported by solid equity capitalization at Westlake (as well as Nowlake), supplemented by meaningful credit reserves and dealer discounts; each loss absorbing elements that are essential given potential subprime auto asset quality volatility. In this regard, despite some moderate slippage in asset quality metrics in recent periods, which have actually tracked better than those reflected by the industry, Westlake continues to generate strong profitability (1H24 pre-tax ROA of ~5%).

While Westlake remains the principal contributor to parent Nowlake’s recent revenue and earnings generation (and represents essentially all of the consolidated assets and allocated equity), the parent company’s other principal subsidiary, auto dealer focused technology services firm, Nowcom Corporation ("Nowcom"), continues to reflect strong dealer client business momentum, revenue and very high profit margins, which 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, are supportive of continuing to equalize the parent company ratings / Outlook with those of Westlake. Also important to the relative positive momentum in Westlake’s/Nowlake’s creditor profiles has been a conservative approach to capital management in recent years.

Notwithstanding Westlake’s market position as a leading nonprime auto lender/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 rating 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 / Nowlake ratings.

To access rating and relevant documents, click here.

Methodologies