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Weaker prime ABS performance prompts rising loss projections for Toyota

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Rising portfolio losses and a slightly higher concentration of longer-term loans amount to a small ding to Toyota Motor Credit Corp.’s (TMMC) second prime-auto loan securitization of the year.

Moody’s Investors Service projects slightly higher losses for the new Toyota Auto Receivables 2018-B Trust transaction of 0.7% over the life of the deal. While still at historic lows for the 25-year-old platform, htat's 10 basis points higher than the initial 0.6% for TMCC’s first auto-loan receivables ABS in January. Moody’s cited rising levels of delinquencies and ABS portfolio losses have slightly weakened credit performance in TMCC’s $52.3 billion managed portfolio of loans.

S&P Global Ratings is maintaining a loss projection range of 0.55%-0.65%, unchanged from TMMC’s 2018-A deal.

For both agencies, the loss levels are well above the 0.3% expected loss levels that Toyota’s 2010-2014 vintage deals have experienced as well as the 0.5%-0.6% levels of 2015-17 transactions.

Among Toyota’s retail managed portfolio of 3.16 million contracts, delinquencies were up slightly to 2.44% from 2.31%, although annualized net losses were down to 0.57% from 0.67%.

The new transaction is a proposed bond issuance of $1.25 billion, but Toyota will have the option to upsize the notes issue to $1.6 billion, depending on market conditions. Toyota has upsized its four previous auto-loan securitizations dating to May 2017.

The new deal, underwritten via Bank of America Merrill Lynch, has four senior-class note tranches along with a single subordinate class of interest-only notes. The term notes in the stack include three-year, Class A-2 notes that will be divided between floating- and fixed-rate tranches at a proposed size of $460.9 million or $587.6 million; a four-year Class A-3 tranche of $353 million or $454 million fixed-rate notes; and five-year, Class A-4 fixed-rate tranche notes sized at either $100.8 million or $128.4 million. Each of the classes is triple-A rated.

The money-market tranche will be sized at either $304 million or an upsized $390 million, with a preliminary P-1 rating from Moody’s and A-1+ by S&P.

Credit enhancement remains unchanged at 2.75%, but Toyota is building the pool's yield supplement overcollateralization account to 10.45% from 9.42% in its first prime-loan securitization of 2018. (The YSOA account is an overcollateralization that subsidizes the below-market interest rates Toyota markets to incentivize well-qualified buyers.)

Otherwise, S&P says there is little material change to the collateral. The weighted average FICO of 761 and average APR of 2.15% is unchanged from Toyota’s two previous securitizations, and the percentage of new cars in the pool remains 80%.

Toyota continued its recent trend of boosting the number of 61-plus-month originations, which make up 54.1% of the new pool, compared with 50.3% in 2018-A. But Toyota also boosted the number of borrowers with 850-and-above credit scores, making up 9.8% of the pool, versus 9% in 2018-A.

The percentage of passenger cars continues to decline to just 42% of the pool but remains the largest concentration of vehicle type of SUVs (39%) and light-duty trucks (19%).

This is the 40th securitization by Toyota Motor Credit since 1993, and the tenth through its Reg AB II compliant retail shelf. Toyota has issued 24 deals since re-entering the securitization market in 2010.

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