Weekly Wrap: Toyota returns to auto-lease securitization after 'long hiatus'

April 8, 2021 6:09 PM

A report from Moody’s Investors Service this week noted Toyota Motor Credit Corp. (TMCC) is returning to auto-lease securitization “after a long hiatus.”

How long? Toyota’s time away from the 144A auto-lease ABS market dates back to the Clinton administration.

According to ratings agency reports and filings with the Securities and Exchange Commission, the $1.19 billion Toyota Lease Owner Trust (TLOT) 2021-A (via JPMorgan Securities) is the first publicly rated since 1998 to exclusively pool auto-lease receivables serviced by Toyota’s U.S. captive finance arm.

TMCC, based in Plano, Tex., is one of the leading issuers of prime auto-loan securitizations. Over the past year its trusts have issued a market-leading $10 billion in bonds backed by new and used auto-loan contracts originated through U.S. Toyota dealers. TMCC has sponsored over 50 securitization trusts backed by retail installment sale contracts since 1993, according to ratings agency reports.

The TLOT 2021-A deal “is TMCC's first auto lease securitization on the TLOT platform. However, TMCC sponsored three auto lease securitizations in the past and provided more than 10 years of quarterly origination static pool performance data broken out by various segments,” stated S&P Global’s report.

Other lenders have included new Toyota and Lexus lease contracts in lease securitizations, most notably World Omni Corp., which serves as a regional finance company serving Toyota dealers in five Southeastern states. World Omni priced a $1.1 billion lease ABS deal in February.

Additionally, in 2014 TMCC issued a “green” bond offering that raised proceeds strictly for installment loan contracts and leases in gas-electric hybrid and alternative fuel power train vehicles under the Toyota and Lexus brand.

The deal comes on the heels of a huge new-car sales surge in the first quarter for U.S. Toyota dealers. According to Bloomberg, Toyota had a 22% surge in global auto sales in the first quarter, as customers flocked into showrooms for models like the Rav4 crossover and the popular Tacoma mid-size pickup truck.

In a February investor presentation, Toyota shared that for year-to-date fiscal 2021 it had sponsored $7.4 billion in public and 144A-registered asset-backed securities, along with $10.9 billion in private ABS deals that, in all. account for 41% of the $44.9 billion in global term-debt funding.

Moody’s and S&P Global have issued preliminary triple-A ratings to the three term-note tranches in TLOT 2021-A: a $395 million Class A-2 tranche due September 2023; $368 million in Class A-3 bonds due April 2024 and a $95 million Class A-4 offering due August 2025.

A $142 million Class A-1 money-market tranche carries a Moody’s P-1 rating and an S&P A-1+ rating — the highest short-term ratings for each.

The pool consists of 41,403 prime auto lease receivables, with contracts of 36 months or more making up 73.3% of the pool by securitization value. No leases have terms greater than 48 months.

Both S&P and Moody’s established low credit-loss expectations of 0.5% on the transaction.

Andrew Harrer

Domino's orders extra toppings for $1.7B whole-biz deal

Domino's Pizza (NYSE: DPZ) is looking to finance equity shareholder returns as well as potential stock-share buybacks from the proceeds of a forthcoming franchise-fee securitization that could top $2 billion.

According to a presale report from S&P Global Ratings, the 2021-1 issuance from Domino's Pizza Master Issuer LLC will primarily be used to pay off $873 million in outstanding notes from its 2017 whole-biz transaction.

The remainder will be for general corporate purposes which "may include returning capital to shareholders, other equivalent payments, and/or stock repurchases," S&P's report issued Wednesday stated.

The planned issuance includes a pair of Class A-2 tranches totaling $750 million each, as well as an expected fully drawn, $200 million Class A-1 variable funding note. S&P rated the deal on the assumption Domino's will also take advantage of $350 million in additional issuance capacity for the Class A-2 notes (which would push the overall company levarage to 6.5x). All the notes have preliminary BBB+ ratings by S&P.

The whole-biz bonds would be supported by the recent strong performance by the company, which had $16.1 billion in global retail sales last year across 17,644 mostly franchise sores (more than 97%) in 90 markets. That included an 11.5% increase in U.S. same-store sales, and 4.4% internationally, boosted by openings of a net 624 new stores.

More than half opened in the fourth quarter of 2020, following the permanent closure of more than 300 locations earlier in the year, "which indicates the impact of the COVID-19 pandemic," S&P's report stated.

Glen Fest

CRE CLO managers expand deal flexibility

A forthcoming $1 billion commercial real estate CLO sponsored by a Blackstone Group affiliate will include a slew of new allowances on manager reinvestment and modification decisions for the portfolio.

The deal, BXMT 2021-FL4, is the first of Blackstone Mortgage Trust’s four managed CRE CLOs to include a six-month ramp up period in which its affiliate manager can spend up to $50 million to add new first-lien, senior secured loans to the pool, after the transaction closes, according to a presale report from Kroll Bond Rating Agency.

In addition, the transaction introduces a “rebalancing” feature that allows the issuer to buy companion loan participations at any time related to existing assets in the pool, and also allows Blackstone to add debt from loan modifications.

All of the loans in the pool are considered non-investment grade, according to Kroll and Moody’s Investor Service.

The Class A notes in the structured finance deal (totaling $492.5 million) are supported by 50.75% effective subordination, and have an assumed coupon of one-month Libor plus 1%.

The deal is an example of the increased flexibility CRE CLO issuers are obtaining to manage concentration and credit-profile risks in the deals, in contrast to the static, fixed deals that were commonly released in recent years as the asset class emerged from a post-crisis hiatus.

CRE CLOs have grown in issuance volume over the last five years as investors were attracted to the deals' short-term note structures, backed by bridge loans on transitional properties that have volatile (or no) income flows due to renovation, expansion or market-repositioning efforts.

Last month, Moody’s issued a report stating that actively managed CRE CLOs successfully navigated the COVID-19 pandemic due to actions involving reinvestment loan works, credit risk exchanges “and, to a lesser extent, cash infusions from the managers themselves.”

None of the 62 CRE CLO transactions Moody's follows had ever fallen below their mandatory overcollateralization levels during the COVID-19 pandemic, the report stated.

Glen Fest

CFPB tries to stave off COVID-19 foreclosure surge

WASHINGTON — The Consumer Financial Protection Bureau proposed new steps on Monday intended to avert a wave of foreclosures resulting from borrowers exiting their mortgage forbearance plans.

The deadline for borrowers affected by the COVID-19 pandemic to request or extend a forbearance plan is June 30, which is also the end of a foreclosure moratorium on federally backed mortgages. As a result, analysts expect a potential surge of delinquencies in the fall. CFPB officials note that many of the borrowers currently in forbearance are more than 120 days late on their payments.

Under the new proposal, a lender or servicer could not immediately foreclose on a home once the forbearance period ends. The set of rule changes would institute a “special pre-foreclosure review period” that would generally block most servicers from initiating foreclosure proceedings until after Dec. 31. Servicers could offer simplified loan modification options to borrowers experiencing pandemic-related hardship.

Agency officials told reporters in a call that the impending end of many forbearance plans could put pressure on servicers trying to respond to the situation.

See story

Hannah Lang

Q1’s delinquent mortgage cures total better than predicted

Mortgage delinquency cure rates for the first quarter were stronger than expected, giving confidence that the private mortgage insurers' loan inventory will continue to decline for the rest of 2021, a BTIG report said.

Still, the share of loans leaving the delinquency inventory varied widely among the four companies that report this data, BTIG Analyst Ryan Gilbert commented.

"Relative to our current estimates, full quarter results were mixed — ending default inventory was better than expected for Essent and Radian and somewhat worse for MGIC and National MI," Gilbert said. "However, March quarterly cure rates are running ahead of our second quarter-to-fourth quarter estimates which, along with lower new default rates, give us confidence that default inventory will continue to decline in the coming quarters — driving loss ratios lower and return on equity higher."

At the end of the first quarter, MGIC had 52,775 mortgages in the delinquent inventory, down from 55,103 on Feb. 28 and 57,710 on Dec. 31, 2020.

That was slightly above Gilbert's estimate of 52,378 due to fewer cures than expected: 17,628 compared with a projected 18,756. But new defaults during the quarter of 13,011 beat BTIG's estimate of 13,795.

National MI ended March with 11,090 mortgages in the inventory, and that was 5% above Gilbert's expected 10,589.

Still, the inventory was down from 11,648 on Feb. 28 and 12,209 on Dec. 31, 2020.

The good news was that the default rate continued to decline during the quarter, to 2.54% in March, from 2.77% in February and 2.9% in January.

Gilbert was impressed by National MI's growth in new insurance written, and not just for the volume.

"Insured loans increased 16% year-over-year, beating our plus-10% estimate," Gilbert said. "March NIW risk characteristics were consistent with February and National MI continues to increase its footprint in targeted risk segments, although layered risk of 0.1% remains consistent with prior quarter and is below pre-COVID levels."

At Radian, the delinquent inventory totaled 50,106 loans at the end of the first quarter, compared with 52,882 one month prior and 55,537 as of the end of the fourth quarter 2020.

The inventory's size "is better than our current 51,764 estimate on better than expected new defaults and cures," Gilbert said. "First quarter new defaults of 11,851 beat our 13,080 estimate and cures of 17,137 also beat our 16,661 estimate."

Finally, Essent ended March with 29,080 loans in the inventory; Gilbert had expected 29,359 loans.

This was down from 30,645 in February and 31,459 at the end of 2020.

The number of new defaults entering the inventory was lower than Gilbert had forecasted, at 7,422 instead of 8,156. However cures leaving the inventory were also lower than projected, at 9,737 compared with 10,227.

Brad Finkelstein