For its first 2023 transaction, the Toyota Auto Receivables Owner Trust will raise about $1.2 billion from the asset-backed market, although it is unclear whether the issuer priced any of the tranches to a term Secured Overnight Financing Rate, or skipped it and stayed with fixed-rate notes throughout the deal.

Toyota Auto Receivables Owner Trust 2023-A also holds the line on the percentage of electric or hybrid vehicles in the portfolio to 22%, a shave smaller than the 22.3% seen in the TAOT 2022-D transaction.

Toyota Motor Credit Corporation will issue notes through about five tranches of asset-backed securities, or ABS, according to a prospectus Securities and Exchange Commission, or SEC.

S&P Global Ratings notes that BofA Securities is the lead underwriter on the transaction, which is slated to close on January 30.

In its previous transaction, the TAOT program issue one floating-rate tranche of notes pegged to the one-month SOFR, a term rate. At the time this was noteworthy, because the Alternative Reference Rate Committee (ARRC), a group convened by the Federal Reserve Board to provide some guidance and to the transition away from the LIBOR benchmark, generally prefers that the industry price notes to the rates that reset on a daily basis.  

The structure provides subordination of the class B notes to the four classes of class A notes, just one form of credit enhancement. Other credit supports include a reserve account in the amount of 0.25% of the deal’s adjusted pool balance on its cutoff date. That amount could vary, depending on the aggregate initial principal amount of the notes, but whatever the case the percentage will remain the same, according to the SEC.

The regulator did not specify what ratings the notes could garner from credit rating agencies, but it did note that final schedule payment dates ranged from Jan. 16, 2024 through Aug. 15, 2029. The class A-1 notes will issue about $245 million in securities; while classes A-2 and A-3 both will issue $412.5 million; the class A-4 notes will issue $100 million and the class B notes will issue $30 million, according to the SEC.

Credit enhancement also includes overcollateralization, a yield supplement overcollateralization amount, and excess spread, the SEC said.

The deal sponsor warns investors that a potential recession and another severe COVID-19 outbreak could dampen consumer confidence and spending, or impose financial hardships leading to payment delinquencies. Another severe COVID-19 adversely impact dealer inventory supplies and eventually lead to increased competition from other financial institutions, according to the SEC.

Both conditions could undermine consumer confidence and ability to maintain payments to the outstanding leases, according to the SEC.

S&P expects to assign ratings of ‘A-1+’ to the most senior class, the A-1 notes, and then ‘AAA’ to the A-2 through A-4 notes. Fitch Ratings expects to rate the most senior class of notes F-a+’, and similarly will assign ‘AAA’ ratings to the A-2 through A-4 notes.


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