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Toyota cuts long-term loans, builds up new cars in next ABS

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Toyota Motor Credit Corp. is reducing exposure to riskier loans with extended terms and boosting new car collateral in its fourth prime auto-loan pool of the year.

The $1.25 billion Toyota Auto Receivables 2018-D Owner Trust (TAOT) has a collateral pool that “marginally” reduces the percentage of loans with original terms of between 61 and 72 months, to 56.17% from 56.39% in the $1.4 billion TAOT 2018-C, which priced in August, according to S&P Global Ratings.

However, exposure to loans with remaining terms of 61-72 months decreased to 26.6% from 29.35%.

TMCC also slightly raised the share of new vehicles to 82% from the prior deal’s 80.9%, representing the highest ratio of new-to-used autos in TMCC’s deals dating back to last year.

The deal will push TMCC’s prime-auto securitization volume to beyond $6 billion for the year, up from $4.87 billion for all of 2017. The 2018-D transaction, the company’s 42nd overall, also promotes the Plano, Tex.-based finance company into the second-busiest prime auto ABS issuer of the year behind the $7.7 billion in deals printed by Ford Motor Credit.

The transaction is being underwritten by JPMorgan.

Four senior tranches of notes will be issued in Toyota's new transaction: a $303 million Class A-1 money market tranche rated A-1+ by S&P Global Ratings and P-1 by Moody’s Investors Service and three term tranches totaling $915.8 million rated triple-A. All benefit from 2.75% credit enhancement (in line with most recent TAOT deals).

The three-year Class A-2 notes sized at $450 million will be split between fixed- and floating-rate tranches, with the variable-rate note balance capped at 60% of the Class A-2 issuance. The Class A-3 notes due 2023 total $360 million, and the six-year Class A-4 notes are $105.8 million.

A $31.2 million subordinate, single-A rated Class B tranche is rated A1 by Moody’s and AA+ by S&P.

TMCC, as of June 30, had a managed retail loan portfolio of $53 billion, with net losses at 0.45% and delinquencies are 1.81%.

Much of the portfolio characteristics of the latest deal are in line with recent deals, including the weighted average FICO of 762 and a WA APR of 2.13. The WA loan-to-value ratio of 99.14% is nine basis points higher than the prior deal.

“Recent TAOT transactions' performances show an improving trend,” Moody’s noted in its presale report published Thursday. “TAOT transactions are performing strongly in relation to the industry and performance of recent transactions has improved. [The] 2018 transactions, although include a higher percentage of longer term loans, are performing in-line with the stronger performing 2017 and 2016 transactions.”

Moody’s expectation for cumulative net losses of 0.6% and S&P’s in the range of 0.55%-0.65% are both unchanged from TAOT 2018-C.

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