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Rating Action:

Moody's assigns Definitive ratings to Toyota Auto Receivables 2018-B Owner Trust Notes

16 May 2018

$1.6 billion securities rated

New York, May 16, 2018 -- Moody's Investors Service (Moody's) has assigned definitive ratings to the notes to be issued by Toyota Auto Receivables 2018-B Owner Trust (TAOT 2018-B). This is the second auto loan transaction of the year for Toyota Motor Credit Corporation (TMCC; Aa3). The notes are backed by a pool of retail automobile loan contracts originated by TMCC, who is also the servicer and administrator for the transaction.

The complete rating actions are as follows:

Issuer: Toyota Auto Receivables 2018-B Owner Trust

$390,000,000, 2.25000%, Class A-1 Notes, Definitive Rating Assigned P-1 (sf)

$367,000,000, 2.64%, Class A-2a Notes, Definitive Rating Assigned Aaa (sf)

$220,634,000, One-Month LIBOR + 0.10%, Class A-2b Notes, Definitive Rating Assigned Aaa (sf)

$454,000,000, 2.96%, Class A-3 Notes, Definitive Rating Assigned Aaa (sf)

$128,366,000, 3.11%, Class A-4 Notes, Definitive Rating Assigned Aaa (sf)

$40,000,000, 0.00%, Class B Notes, Definitive Rating Assigned Aa3 (sf)

RATINGS RATIONALE

The ratings are based on the quality of the underlying collateral and its expected performance, the strength of the capital structure, and the experience and expertise of TMCC as the servicer.

The definitive rating for the Class B notes, Aa3 (sf), is one notch higher than its provisional rating, (P)A1 (sf). This difference is a result of (1) the transaction closing with a lower weighted average cost of funds (WAC) than Moody's modeled when the provisional ratings were assigned and (2) the percent of the Class A-2 notes that are floating rate, which are subject to a stressed interest rate assumption, is lower than Moody's modeled when the provisional ratings were assigned. The WAC assumptions and the floating-rate percent of the Class A-2 notes, as well as other structural features, were provided by the issuer.

Moody's median cumulative net loss expectation for the 2018-B pool is 0.70% and the loss at a Aaa stress is 5.25%. The cumulative net loss expectation is higher by 10bps and loss at a Aaa stress is higher by 25bps than TAOT 2018-A, the last transaction that we rated. The reasons for the increase in loss levels include an increase in longer-term loans as a % of loan pool balance and weakening credit performance of past TAOT transactions. Prime-quality longer term loans generally have weaker performance compared to loans with lower terms because the longer term exposes the loan to risks over a longer time horizon and increases volatility of the expected loss.

Moody's based its cumulative net loss expectation and loss at a Aaa stress on an analysis of the credit quality of the underlying collateral; the historical performance of similar collateral, including securitization performance and managed portfolio performance; the ability of TMCC to perform the servicing functions; and current expectations for the macroeconomic environment during the life of the transaction.

At closing, the Class A notes and Class B notes are expected to benefit from 2.75% and 0.25% of hard credit enhancement, respectively. Hard credit enhancement for the notes consists of a non-declining reserve account and subordination, except for the Class B notes, which do not benefit from subordination. The notes will also benefit from excess spread.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Up

Moody's could upgrade the Class B notes if, given current expectations of portfolio losses, levels of credit enhancement are consistent with higher ratings. In sequential pay structures, such as the one in this transaction, credit enhancement grows as a percentage of the collateral balance as collections pay down senior notes. Prepayments and interest collections directed toward note principal payments will accelerate this build of enhancement. Moody's expectation of pool losses could decline as a result of a lower number of obligor defaults or appreciation in the value of the vehicles securing an obligor's promise of payment. Portfolio losses also depend greatly on the US job market, the market for used vehicles, and changes in servicing practices.

Down

Moody's could downgrade the notes if, given current expectations of portfolio losses, levels of credit enhancement are consistent with lower ratings. Credit enhancement could decline if excess spread is not sufficient to cover losses in a given month. Moody's expectation of pool losses could rise as a result of a higher number of obligor defaults or deterioration in the value of the vehicles securing an obligor's promise of payment. Portfolio losses also depend greatly on the US job market, the market for used vehicles, and poor servicing. Other reasons for worse-than-expected performance include error on the part of transaction parties, inadequate transaction governance, and fraud. Additionally, Moody's could downgrade the Class A-1 short-term rating following a significant slowdown in principal collections that could result from, among other things, high delinquencies or a servicer disruption that impacts obligor's payments.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1124376

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ruomeng Cui
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Michael Labuskes
Asst Vice President - Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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