Toyota Motor Corp. is launching its first 2025 securitization backed by leases of Toyota and Lexus vehicles, a $1.3 billion deal split into three tranches each anticipated to be rated AAA by S&P Global Ratings. A fourth tranche maturing in just over a year will hold S&P Global's top rating for short-term debt of A-1.
The Toyota Lease Owner Trust (TLOT) 2025-A offering's stellar ratings incorporate the rating agency's macroeconomic and auto finance sector outlook under the new Trump Administration, which is generally positive if moderating somewhat from last year and facing unpredictability.
In a February 12 pre-sale report, S&P Global said that the preliminary ratings in part reflect the availability of 20.8% credit enhancement, in the form of 16.25% initial and target overcollateralization, a 0.25% non-amortizing reserve account, and excess spread. Its expected cumulative net credit loss for the transaction is 0.65% of the securitization value.
Lead underwriters on the deal are BofA Securities, BNP Paribas Securities, Credit Agricole Securities and MUFG Securities Americas, according to the ASR Database.
The rating agency described the current deal as similar to the issuer's two lease ABS offerings in 2024. Its pool comprises 43,130 prime auto lease receivables, with obligors holding a minimum FICO score of 620 and a weighted average FICO score of 772; just under half have FICO scores are 780 and higher.
Moody's Ratings noted in its February 12 pre-sale report that a $371.25 million, floating-rate tranche will be priced over compounded SOFR.
"With the assets paying strictly fixed rates of interest, a spike in interest rates would erode excess spread that will be available as enhancement to the notes in a stressed interest rate environment," Moody's said.
The rating agency also said that used car prices recently stabilizing after dropping from historical highs could fall further if there's a slowdown in economic activity, exposing the securitization to a higher residual loss on the turned in vehicles and a higher net credit loss on the defaulted vehicles due to lower recovery rate.
S&P Global forecasts the economy expanding at a solid pace, although slowing somewhat to 2.0 in 2025 from 2.7% last year, and the Federal Reserve slowing federal funds rate cuts. It also noted that the labor market has cooled, but unemployment remains low.
"Our forecasts are not all encompassing, given uncertainty about how the President's campaign promises will materialize," the rating agency said.
S&P Global added that unemployment-rate changes have historically been a key determinant of charge-offs in the auto finance industry, and that inflationary effects have recently contributed to higher defaults, especially among lower-income consumers. It said it is watching for developments including vehicle affordability due to higher car prices, interest rates and insurance premiums, as well as growing consumer debt levels.
