Prime quality retail auto sales contracts will secure $1 billion in asset-backed securities (ABS) slated to come to the market from the Toyota Auto Loan Extended Note Trust, 2024-1.
Led by Citigroup
Global Markets, the TALNT 2024-1 will distribute virtually all of its notes through one class A tranche, which gets at least some of its credit enhancement from a $64 million overcollateralization piece, according to Moody’s Ratings, which gives those notes a Aaa rating.
The total initial hard credit enhancement amounts to 6.33%, which includes a reserve fund representing 0.23% of the pool balance, the rating agency said.
Toyota Motor Credit’s solid performance history of origination and servicing is a boon to the notes’ credit outlook, Moody’s said. The previous TALNT transactions, while still revolving, are still performing within the rating agency’s expectation and net loses have remained below overcollateralization step-up trigger levels. Also, the losses of a related securitization program, the Toyota Auto Receivables Owner Trust (TAOT), have been among the lowest of all captive finance issuers, the rating agency said.
This portfolio contains 57,269 contracts and obligors that are financing new vehicles (85%). On a weighted average (WA) basis, the loans have a FICO score of 760, an annual percentage rate of 5.33%,
By vehicle type, the assets include crossover utility vehicles, 49%; cars, 25%; trucks, 18% and sport utility vehicles, 8%.
In fact, for deals issued from 2016 through present, loss expectations have fallen between 0.50%-0.85% upon issuance. TALNT 2024-1 also has several structural protections to insulate noteholders from losses should performance deteriorate. One is a set of performance trigger levels.
Yet the deal has several potential credit drawbacks. For one, the revolving period is five years long, so the pool characterization could change—exposing it to uncertainties—as the sponsor adds new receivables over time. Longer-term loans have been included in the deal, too, as TALNT 2024-1 allows for loans with original terms up to 84 months. At closing, some 21.7% of TALNT 2024-1’s aggregate pool balance is within the 73- 84-month original term loan bucket.
