Westlake Financial’s ABS volume to top $3b by yearend
MIAMI — Westlake Financial Services is on track to issue $3.4 billion in asset-backed securitizations by the end of the fourth quarter, a 13.3% increase year over year, company Treasury Director Franka Bicolli told Auto Finance News.
“Usually we issue the third securitization in August,” Bicolli said. “This year we have increases with different warehouse lines, so we want to come to the market when it’s not as busy.” The Los Angeles-based lender closed its last ABS deal — a $1.2 billion issuance — at the end of June.
The increase in ABS volume this year is due, in part, to an increased investor base, Bicolli said. “The U.S. market is doing better than everywhere else, so more global banks and investors are entering the space,” she said, noting Westlake’s investors are mostly American, but investors from Australia and Japan have entered the market. “The U.S. consumer is resilient, so where else are [investors] going to put their money?” she said.
Westlake also attributes an increase in ABS volume to its stable transaction characteristics and its early adoption of the Financial Accounting Standards Board rule called Current Expected Credit Losses (CECL), Bicolli added. “We are conservative,” she said. “We reserve 17% of capital for losses, so we don’t have to do a stress test because we are already doing it.”
“At first, it’s hard to put money in the reserve, because it’s just capital that is stuck there,” Bicolli continued. “But now that CECL is coming up, banks are struggling, you have to put a lot of capital aside. So everyone else is stressed, but we’ve done it already.”
As for the lender’s ABS deals, Westlake keeps its ABS investors satisfied by “remaining stable,” because “investors don’t like change,” Bicolli said. “The main thing to do when you’re stable is to maintain your standard of originations. A lot of issuers, when the market is doing well, they get so aggressive, they loosen their programs. Never fully change your underwriting based on the market.”
For example, Westlake takes a slow and steady approach with prime loans. “We securitize about 3% of prime paper,” Bicolli said. “Today, we are more full-spectrum, but investors don’t like change, so we keep our characteristics the same because we are still perceived as a subprime lender.”
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