Toyota Motor Credit is offering as much as $1.75 billion of notes backed by prime auto loans in its third securitization of the year.

The collateral backing the notes has the highest concentration to date of longer-term loans of any Toyota deal. This, along with the overall weakening performance trends of recent Toyota transactions, led Moody’s Investors Service to increase its expectations for cumulative net losses by 10 basis points to 0.60%.

However, Toyota was still able to secure Aaa ratings for the three senior term tranches of the deal without increasing credit support for the notes.

The transaction, Toyota Auto Receivables 2017-C, also features an unrated money market tranche and a subordinated tranche rated ‘A1’ that will mature in 2023. All but one of the notes will pay a fixed rate of interest. The outlying class A-2b note will pay interest at a floating rate over LIBOR.

According to Moody’s presale report, Toyota will issue either $1.25 billion or $1.75 billion in notes, depending on market conditions at the time of issuance.

Regardless of the deal’s size, the Class-A notes will account for 97.50% of the total structure.

Citigroup Global Markets is the lead underwriter.

Among the key credit considerations, according to Moody’s, is the fact that approximately 42.6% of loans in the pool mature between 61 and 72 months; that’s up 3.7 percentage points from its last securitization. Historically, long-term auto loans produce higher losses because these loans amortize more slowly, leaving the borrowing “underwater” on the loan for longer.

Despite the increased concentration of extended-term loans in the pool, credit enhancement remains consistent with Toyota’s past securitizations at 2.75% for the senior notes and 0.25% for the subordinate tranche.

The average FICO score of borrowers in the pool is 760, up two points from borrowers in Toyota’s last transaction.
Toyota is the highest-rated captive auto finance company sponsoring auto-backed ABS in the United States. Despite slightly higher losses than usual in its 2016 transactions, Moody’s stated that losses in Toyota securitizations are typically the lowest amongst similar companies that issue auto-backed securities.

Headquartered in California, Toyota Motor Credit has originated retail installment contracts since 1983 and is one of the country’s largest captive finance companies with a managed retail portfolio of nearly $51 billion. Since 1993, it has sponsored 36 securitizations backed by auto loans.

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