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

Both Westlake’s and Nowlake’s Issuer ratings remain supported by the former’s superior, long-term performance track record – notwithstanding some modest slippage during 2023 and 2024 stemming from asset quality normalization – that continues to benefit from a well-developed risk management framework and execution, as well as overall operations. Despite this noted partial compression of returns, Westlake still generated enviable pre-tax ROA and ROE of 4.6% and ~26% for FY24, respectively, with 1H25 performance metrics moving back up to 5% and ~29%. Ratings also continue to be supported by solid relative equity capitalization, supplemented by meaningful credit reserves and dealer discounts; each 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 and allocated equity), the parent company’s other principal subsidiary, auto dealer focused technology services firm, Nowcom Corporation's ("Nowcom"), dealer client business momentum, revenue and very high profit margins, have been additive to Nowlake’s operating profile. Some additional fee income diversification beyond Nowcom has also been generated by Westlake’s third-party servicing business. From a ratings perspective, Nowcom’s growing and highly profitable fee stream, a low capital intensity business model, and lack of parent company debt, support our equalization of Nowlake’s and Westlake’s ratings.

Notwithstanding Westlake’s market position as a leading 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 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 / Nowlake ratings.

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Methodologies