Toyota Motor Credit is preparing to sell $1 billion in asset-backed securities (ABS), secured by prime retail installment auto sales contracts, and which features a five-year revolving period.
Moody's Ratings and Fitch Ratings analysts said Toyota Auto Loan Extended Note Trust, 2025-1, will sell the notes through one class A tranche, with a legal final maturity of May 25, 2038.
TALNT 2025-1's notes benefit from initial hard credit enhancement that totals 6.33% of the note balance, the rating agencies said. That enhancement includes overcollateralization (OC) of $64.9 million, or 6.10% of the note balance, the rating agency said.
Moody's says expects a cumulative net loss of 1.30% for TALNT 2025-1, with a 5.50% on the Aaa stress level, particularly when the deal meets the floor credit enhancement requirements. The rating agency says Toyota's experience securitizing its auto contracts is a plus, pointing out its solid historical performance and on previous securitized pools. Loss expectations for deals issued from 2016 through the present range from 0.50% to 0.85%, at issuance.
TALNT 2025-1 is structured with several net loss and delinquency triggers to protect from outsized losses to the notes. Should the deal breach various levels of triggers, it will have to increase overcollateralization (OC), or the transaction will enter early amortization. At that stage, the deal will treat excess interest as principal payments to the notes, Moody' said.
Sponsors hope these structural safeguards will keep cash flowing to the notes, considering the long revolving period in place before amortization begins. During that five-year stretch, the sponsor can add new receivables to the pool, which can change the pool quality and introduce performance uncertainties.
The 55,833 loans in the pool have an average principal balance of $20,021, and borrowers have a FICO score of 760, on a weighted average (WA) basis.
Moody's assigns Aaa to the notes, which Fitch assigns AAA.
