SUMMARY OF RISK FACTORS
The following summary is a concise description of certain of the material risk factors that you should consider in making your decision to purchase any notes. This summary does not purport to summarize all of the risks that you should consider in making your decision to purchase any notes. You should carefully read the risks factors set forth under “Risk Factors,” as well as the other information contained in this prospectus.
Risks primarily related to the nature of the notes and the structure of the transaction.
The notes are subject to certain risks related to their nature as asset-backed securities and the structure of the transaction, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | the limited pool of receivables and other assets available to make payments on the notes; |
| • | the subordination of certain classes of the notes to other more senior classes of the notes; |
| • | unpredictability of the rate at which the notes will amortize, and the potential acceleration of payments on the notes due to the occurrence of an event of default; and |
| • | the suitability of the notes as investments for investors subject to the EU Securitization Rules or the UK Securitization Rules. |
Risks primarily related to the receivables and economic conditions.
The notes are subject to certain risks related to the receivables and economic conditions, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | the effect of the COVID-19 pandemic, and related measures taken in response to the pandemic, on the obligors of the receivables, on the transaction parties and on the abilities of the transaction parties to perform their respective obligations under the transaction agreements; |
| • | economic developments, geopolitical conditions, public health concerns and other market events; |
| • | discount pricing incentives, marketing incentive programs and other used car market factors that may impact the amounts received upon disposition of the financing vehicles; |
| • | certain contractual terms and low annual percentage rates of the receivables, and the rate of depreciation of the related financed vehicles; |
| • | potential adverse effects of any recalls with respect to the financed vehicles; and |
| • | geographic concentrations of the receivables and extreme weather conditions, public health concerns, natural disasters and other similar events in specific geographic areas. |
Risks primarily related to legal and regulatory matters.
The notes are subject to certain risks related to legal and regulatory matters, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | federal and state consumer protection laws regulating the creation, collection and enforcement of the receivables; |
| • | the regulatory environment in which TMCC operates, and potential litigation or governmental proceedings that could affect the transaction parties; and |
| • | the Servicemembers Civil Relief Act and other similar state laws potentially limiting the ability of the servicer to collect from certain obligors of the receivables. |
Risks primarily related to servicing.
The notes are subject to certain risks related to the servicing of the receivables, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | the ability of the servicer to commingle collections on the receivables for a limited time; |
| • | the potential cost of transferring servicing responsibilities to a successor servicer, in the event of a servicer default; |
| • | the effect of credit ratings-related matters on the servicer; |
| • | the potential that a security breach or cyber-attack could adversely affect TMCC’s business and its ability to service the receivables; |
| • | TMCC’s enterprise data practices are subject to increasingly complex, restrictive, and punitive regulations; and |
| • | TMCC’s servicing activities could be disrupted by a failure or interruption of its information services. |
Risks primarily related to bankruptcy and insolvency of transaction parties and perfection of security interests.
The notes are subject to certain risks related to the potential bankruptcy and insolvency of transaction parties and perfection of security interests, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | the bankruptcy or insolvency of TMCC, the depositor or the issuing entity; |
| • | interests of other persons or competing claims in the receivables or the related financed vehicles could be superior to the interests of the indenture trustee therein; and |
| • | the failure of the servicer to maintain control of the receivables evidenced by electronic contracts. |
General risks relating to the transaction.
The notes are subject to certain general risks applicable to transactions of this nature, which could lead to payment delays, shortfalls in payments or losses on your notes, including due to factors such as, but not limited to:
| • | the complexity of the notes; |
| • | the potential absence of a secondary market for the notes; |
| • | withdrawal or downgrade of the ratings on the notes, potential issuance of unsolicited ratings on the notes, rating agency conflicts of interest and related regulatory scrutiny; |
| • | the retention by the depositor of certain of the notes; and |
| • | limitations on your ability to exercise rights directly, due to the absence of physical notes, and potential delays in receiving payments as the result of the notes being held in book-entry form. |
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase any notes.
Risks Primarily Related to the Nature of the Notes and the Structure of the Transaction
You must rely for repayment only upon payments from the issuing entity’s assets, which may not be sufficient to make full payments on your notes.
The notes represent indebtedness of the issuing entity and will not be insured or guaranteed by the depositor, sponsor, administrator, servicer or any of their respective affiliates, any governmental entity, the trustees or any other person. The only sources of payment on your notes are payments received on the receivables and, to the extent available, any funds on deposit in the accounts of the issuing entity, including amounts on deposit in the reserve account. The amounts deposited in the reserve account will be limited. If the entire reserve account has been used and the available credit enhancement is exhausted, the issuing entity will depend solely on current collections on the receivables to make payments on the notes. The issuing entity will also have the benefit of overcollateralization (including the yield supplement overcollateralization amount) to provide limited protection against low-interest yielding receivables. For additional information, you should refer to “Payments to Noteholders—Credit and Cash Flow Enhancement—Overcollateralization,” “—Yield Supplement Overcollateralization Amount” and “—Reserve Account” in this prospectus. If the assets of the issuing entity are not sufficient to pay interest on and principal of the notes you hold, you will suffer a loss.
Certain events (including some that are not within the control of the issuing entity, the depositor, the sponsor, the administrator, the servicer, the indenture trustee, the owner trustee or of their respective affiliates) may result in events of default under the indenture and cause acceleration of all outstanding notes. If so directed by the holders of notes evidencing not less than a majority of the aggregate principal amount of the notes of the controlling class then outstanding (excluding for such purposes the aggregate outstanding principal amount of any notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates), acting together as a single class, following an event of default resulting in an acceleration of the notes, the indenture trustee will liquidate the assets of the issuing entity only in limited circumstances, and the issuing entity may be required promptly to sell the receivables, liquidate its assets and apply the proceeds to the payment of the notes. Liquidation would be likely to accelerate payment of all notes that are then outstanding. If a liquidation occurs close to the date when any class otherwise would have been paid in full, repayment of that class might be delayed while liquidation of the assets is occurring. The issuing entity cannot predict the length of time that will be required for liquidation of its assets to be completed. In addition, the amounts received from a sale in these circumstances may not be sufficient to pay all amounts owed to the holders of all classes of notes or any class of notes, and you may suffer a loss. This deficiency will be more severe in the case of any notes where the aggregate outstanding principal amount of the notes exceeds the aggregate principal balance of the receivables. Even if liquidation proceeds are sufficient to repay the notes in full, any liquidation that causes principal of a class of notes to be paid before the related final scheduled payment date will involve the prepayment risks described under “—Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you” below. Also, an event of default that results in the acceleration of the maturity of the notes will cause priority of payments of the notes to change, as described under “Payments to Noteholders—Payments After Occurrence of Event of Default Resulting in Acceleration” in this prospectus. Therefore, all outstanding notes may be affected by any shortfall in liquidation proceeds. For additional information, you should refer to “—Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you” below.
Failure to pay principal on your notes will not constitute an event of default until maturity.
The amount of principal required to be paid to the noteholders will generally be limited to amounts available in the collection account (including amounts transferred to the collection account from the reserve account). Therefore, the failure to pay principal of your notes generally will not result in the occurrence of an event of default until the final scheduled payment date for your notes. For additional information, you should refer to “Description of the Notes—Indenture—Events of Default; Rights Upon Event of Default” in this prospectus.
Payment priorities increase risk of loss or delay in payment to certain classes of notes.
Based on the priorities described under “Payments to Noteholders” in this prospectus, classes of notes that receive principal payments before other classes will be repaid more rapidly than the other classes. Because principal of the notes will be paid sequentially, except in the case of the class A-2 notes, the class A-3 notes and the class A-4 notes after an event of default resulting in an acceleration of the notes, classes of notes that have higher sequential
numerical class designations or higher alphabetical sequential class designations will be outstanding longer and therefore will be exposed to the risk of losses on the receivables during periods after other classes have received most or all amounts payable on their notes, and after which a disproportionate amount of credit enhancement may have been applied and not replenished.
Because of the priority of payment on the notes, the yields of the higher numerically designated classes or higher alphabetically designated classes will be more sensitive to losses on the receivables and the timing of such losses than the lower numerically designated classes and lower alphabetically designated classes. Accordingly, the class A-2 notes will be more sensitive to losses on the receivables and the timing of such losses than the class A-1 notes; the class A-3 notes will be relatively more sensitive to losses on the receivables and the timing of such losses than the class A-1 notes and the class A-2 notes; the class A-4 notes will be relatively more sensitive to losses on the receivables and the timing of such losses than the class A-1 notes, the class A-2 notes and the class A-3 notes; and the class B notes will be relatively more sensitive to losses on the receivables and the timing of such losses than the class A notes. If the actual rate and amount of losses exceed your expectations, and if amounts in the reserve account are insufficient to cover the resulting shortfalls, the yield to maturity on your notes may be lower than anticipated, and you could suffer a loss.
Classes of notes that receive payments of principal earlier than expected are exposed to greater reinvestment risk, and classes of notes that receive payments of principal later than expected are exposed to greater risk of loss. In either case, the yields on your notes could be materially and adversely affected. In addition, the notes are subject to risk because payments of principal and interest on the notes on each payment date are subordinated to the payment of the total servicing fee and certain amounts payable to the indenture trustee, the owner trustee and the asset representations reviewer in respect of fees, expenses and indemnification amounts. This subordination could result in reduced or delayed payments of principal and interest on the notes.
For additional information, you should refer to “—You must rely for repayment only upon payments from the issuing entity’s assets, which may not be sufficient to make full payments on your notes” above.
Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you.
If you receive payment of principal on your notes earlier than you expected, you may not be able to reinvest the principal you receive at a rate as high as the rate on your notes. Prepayments on the receivables will shorten the life of the notes to an extent that cannot be predicted. Prepayments may occur for a number of reasons. Some prepayments may be caused by the obligors under the receivables. For example, obligors may: (i) make early payments, since receivables will be prepayable at any time without penalty; (ii) default, resulting in the repossession and sale of the financed vehicle; (iii) damage the vehicle or become unable to pay due to death or disability, resulting in payments to the issuing entity under any existing physical damage, credit life or other insurance; or (iv) sell their vehicles or be delinquent or default on their receivables as a result of a manufacturer recall.
Some prepayments may be caused by the sponsor, the depositor or the servicer. For example, the sponsor and the depositor will make representations and warranties regarding the receivables, and the servicer will agree to take or refrain from taking certain actions with respect to the receivables. If the sponsor or the depositor breaches any such representation or warranty, or if the servicer breaches any such agreement, and such breach is material and cannot be remedied, the breaching party will be required to purchase the affected receivables from the issuing entity. This will result, in effect, in the prepayment of the purchased receivables. The servicer will also have the option to purchase the receivables from the issuing entity on or after the payment date when the aggregate outstanding principal balance of the receivables has declined to 5% or less of the aggregate principal balance of the receivables as of the cutoff date. In addition, an event of default under the indenture could cause your notes to be prepaid.
Additionally, under its current servicing practices, the servicer will modify the terms of any receivable impacted by the Servicemembers Civil Relief Act, as amended, and will be obligated to purchase any such modified receivable by depositing an amount equal to the remaining outstanding principal balance of such impacted receivable into the collection account. The Servicemembers Civil Relief Act provides, and similar laws of many states may provide, relief to obligors who enter active military service (including national guard members) and to obligors in reserve status who are called to active duty after the origination of their receivables. In addition, relief may also be granted to obligors who are dependents of persons eligible for benefits under the Servicemembers Civil Relief Act. Global conflicts and tensions may continue to involve military operations that will increase the number of U.S. citizens who have been called or will be called to active duty. The Servicemembers Civil Relief Act provides, generally, that an obligor who is covered by the Servicemembers Civil Relief Act may not be charged interest on the related receivable in excess of 6% per annum during the period of the obligor’s active duty. The Servicemembers Civil Relief Act also limits the ability of the servicer to repossess the financed vehicle securing a receivable during the related obligor’s period of active duty and, in some cases, may require the servicer to extend the maturity of the receivable, lower the monthly payments and readjust the payment schedule for a period of time after the completion of the obligor’s military service. We do not know how many receivables may be impacted by the Servicemembers Civil Relief Act.
The rate of prepayments on the receivables may be influenced by a variety of economic, social and other factors. The sponsor cannot predict the actual prepayment rates for the receivables, and you will bear any reinvestment risks resulting from a faster or slower rate of payments of the receivables. Increased delinquency and credit losses are significantly influenced by the combined impact of a number of factors, including the effects of changes in a servicer’s servicing operations, lower used vehicle values, continued economic weakness, longer term financing and tiered/risk based pricing. TMCC cannot guarantee that the delinquency and loss levels of the receivables will correspond to the delinquency and loss levels TMCC has experienced in the past on its loan portfolio. There is a risk that delinquencies and losses could increase or decline from historical levels for various reasons including changes in underwriting standards, changes in local, regional or national economies or the impact of other local, national or global events, including public health concerns, such as the COVID-19 Outbreak. For additional information, you should refer to “Weighted Average Lives of the Notes” in this prospectus.
The notes may not be suitable investments for investors subject to the EU Securitization Rules or the UK Securitization Rules, and such rules could have an adverse impact on the value and liquidity of the notes.
TMCC will agree to retain, on an ongoing basis, the SR Retained Interest. In addition, TMCC will agree not to sell, transfer or otherwise surrender all or part of the rights, benefits or obligations arising from the SR Retained Interest or subject it to any credit risk mitigation or hedging, except to the extent permitted by the EU Securitization Rules and the UK Securitization Rules.
However, the securitization transaction described in this prospectus is not being structured to ensure compliance by any person with the transparency requirements in Article 7 of the EU Securitization Regulation or Article 7 of the UK Securitization Regulation. In particular, neither TMCC nor any other party to the transaction described in this prospectus will be required to produce any information or disclosure for purposes of Article 7 of the EU Securitization Regulation or Article 7 of the UK Securitization Regulation, or to take any other action in accordance with, or in a manner contemplated by, such articles.
Prospective investors are responsible for analyzing their own legal and regulatory position and are advised to consult with their own advisors regarding the suitability of the notes for investment and compliance with the EU Securitization Rules, the UK Securitization Rules or any existing or future similar regimes in any relevant jurisdictions. Failure by an EU Affected Investor to comply with any applicable EU Securitization Rules or a UK Affected Investor to comply with the UK Securitization Rules with respect to an investment in the notes may result in the imposition of a penalty regulatory capital charge on that investment or of other regulatory sanctions or measures. The EU Securitization Rules, the UK Securitization Rules and any other changes to the regulation or regulatory treatment of the notes for some or all investors may negatively impact the regulatory position of EU Affected Investors and UK Affected Investors and have an adverse impact on the value and liquidity of the notes.
For more information regarding the EU Securitization Rules and the UK Securitization Rules, see “The Sponsor, Administrator and Servicer––Credit Risk Retention—EU and UK Risk Retention” and “EU Securitization Regulation and UK Securitization Regulation” in this prospectus.
Risks Primarily Related to the Receivables and Economic Conditions
Adverse events arising from the coronavirus outbreak could have an adverse effect on your notes.
An outbreak of infectious disease caused by a coronavirus discovered in late 2019 and related variants (collectively, “COVID-19”) has spread throughout the world, including in the United States (the “COVID-19 Outbreak”). The COVID-19 Outbreak has led, and will likely continue to lead, to disruption and volatility in the global capital markets and in the economies of many nations. In the United States, the COVID-19 Outbreak has caused an unprecedented level of unemployment claims, economic volatility, and resulted in a decline in consumer confidence and spending. The long-term and ultimate impacts of the social, economic and financial disruptions caused by the COVID-19 Outbreak are unknown. The ultimate duration or possible resurgence of the COVID-19 Outbreak or similar public health issues are also uncertain. See “—Economic developments, geopolitical conditions, public health concerns and other market events may adversely affect the liquidity, performance and market value of your notes” below.
The negative economic conditions arising from the COVID-19 Outbreak impacted certain of TMCC’s financial results during fiscal year 2021, including higher provision for credit losses on its retail loan portfolio primarily due to the increase in expected credit losses. It is unclear how many obligors have been and will continue to be adversely affected by the COVID-19 Outbreak, which could have a negative impact on the ability of obligors to make timely payments on the receivables and may result in losses on your notes. To the extent the COVID-19 Outbreak or the related economic uncertainty results in increased delinquencies and defaults by obligors due to financial hardship or otherwise, TMCC may implement a range of responsive actions with respect to obligors and the related receivables. For example, in response to the COVID-19 Outbreak, and for a limited period of time, the servicer temporarily suspended outbound collection activities in states with state-wide stay-at-home orders and repossession activities nationwide, and offered additional extensions to obligors requesting relief. The servicer has since resumed its standard retail loan extension policies, and it has resumed outbound collection activities and repossession activities where legally permissible to do so. For additional information, see “The Sponsor, Administrator and Servicer—Servicing of Motor Vehicle Retail Installment Sales Contracts” in this prospectus.
Because a pandemic such as the COVID-19 Outbreak has not occurred in recent years, and because it is impacting obligors throughout the United States, TMCC’s historical loss and delinquency experience is unlikely to accurately predict the performance of the receivables.
The COVID-19 Outbreak may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to the ability of obligors to make timely payments on the receivables, used vehicle values, the performance, market value, credit ratings and secondary market liquidity of your notes, and risks of geographic concentration of the obligors. The COVID-19 Outbreak could also adversely affect the ability of the servicer and the other transaction parties to perform their respective obligations under the transaction documents, which could have an adverse effect on the timing and amount of payments on the notes.
Economic developments, geopolitical conditions, public health concerns and other market events may adversely affect the liquidity, performance and market value of your notes.
The United States has in the past experienced, and may in the future experience, a recession or period of economic contraction. During the recession which resulted from the COVID-19 Outbreak, the United States experienced an unprecedented level of unemployment claims, economic volatility, and a decline in consumer confidence and spending. Although the economy has improved in more recent months, it is possible that a higher percentage of obligors will seek protection under bankruptcy or debtor relief laws as a result of financial and economic disruptions related to the COVID-19 Outbreak than is reflected in TMCC’s historical experience. See “—Adverse events arising from the coronavirus outbreak could have an adverse effect on your notes” above. In addition, a deterioration in economic conditions, including elevated unemployment, decreases in home values and lack of available credit may lead to increased delinquency and default rates by obligors, as well as decreased consumer demand for automobiles and declining market values of the automobiles securing the receivables. As a result, delinquencies and credit losses on the receivables could increase, which could result in losses on your notes. In addition, consumer debt levels remain elevated as a result of current economic conditions, and there have been increasing trends in rates of delinquency and default frequency. As consumers assume higher debt levels, delinquencies and losses on the receivables may increase, which could result in losses on your notes.
Events in the global financial markets, including downgrades of sovereign debt, health pandemics, devaluation of currencies by foreign governments and slowing economic growth have in the past caused (and may cause again), a significant reduction in liquidity in the secondary market for asset-backed securities, which could adversely affect the market value of the notes and limit the ability of an investor to sell its notes.
Geopolitical conditions and other market events may impact TMCC and your notes. Restrictive exchange or import controls or other disruptive trade policies, disruption of operations as a result of systemic political or economic instability, adverse changes to tax laws and regulations, social unrest, outbreak of war or expansion of hostilities, health epidemics and other outbreaks, climate-related risk, and acts of terrorism, could each have a material adverse effect on TMCC’s business, results of operations and financial condition.
Any such events could also adversely affect TMCC’s ability to service the receivables and perform its other obligations under the transaction agreements, which could have an adverse effect on your notes.
Additionally, higher future energy and fuel prices could reduce the amount of disposable income that the affected obligors have available to make monthly payments on their automobile finance contracts. Higher energy costs could also cause business disruptions, which could cause unemployment and a deepening economic downturn. Such obligors could potentially become delinquent in making monthly payments or default if they were unable to make payments due to increased energy or fuel bills or unemployment. The issuing entity’s ability to make payments on the notes could be adversely affected if the related obligors were unable to make timely payments.
Delinquencies and losses with respect to automobile finance contracts may increase during the term of your notes. These increases in delinquencies and losses may be related to changes in consumer debt levels, increases in interest rates, a rise in the supply of used vehicles, a decrease in prices of used vehicles or the impact of public health concerns (such as the COVID-19 Outbreak). For delinquency and loss information regarding certain automobile loans originated and serviced by TMCC, you should refer to “Delinquencies, Repossessions and Net Losses” and “Static Pools” in this prospectus. Increased delinquencies and losses may lead to decreased collections on the receivables and the issuing entity may not have sufficient available collections to pay amounts due on the notes on any payment date or to pay any class of the notes in full on the related final scheduled payment date.
The amounts received upon disposition of the financed vehicles may be adversely affected by discount pricing incentives, marketing incentive programs and other used car market factors, which may increase the risk of loss on your notes.
The market for used Toyota or Lexus vehicles could be adversely affected by factors such as governmental action, changes in consumer demand, new vehicle incentive programs, new vehicle pricing, new vehicle sales, styling changes (including future plans for new Toyota and Lexus product introductions), recalls, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, used vehicle supply (such as an overabundance of used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles in the marketplace), the level of current used vehicle values, fuel prices, increased competition, fluctuations in interest rates, decreased or delayed new vehicle production due to the COVID-19 Outbreak, or other health pandemics, shortage of parts, components or raw materials, natural disasters, supply chain or logistic network interruptions or other events and economic conditions generally. Any such adverse change could result in reduced proceeds upon the liquidation or other disposition of financed vehicles, and therefore could result in reduced proceeds on defaulted receivables. If losses on the receivables exceed the credit enhancement available, you may suffer a loss on your investment.
Discount pricing incentives or other marketing incentive programs on new vehicles by Toyota Motor North America, Inc., TMCC or any of their competitors that effectively reduce the prices of new vehicles may have the effect of reducing demand by consumers for used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles. Additionally, the pricing of used vehicles is affected by the supply and demand for those vehicles, which, in turn, is affected by consumer tastes, economic factors (including the price of gasoline), the introduction and pricing of new vehicle models, the actual or perceived quality, safety or reliability of vehicles and other factors. The reduced demand for used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles resulting from discount pricing incentives or other marketing incentive programs introduced by Toyota Motor North America, Inc., TMCC or any of their competitors or other factors may reduce the prices consumers will be willing to pay for used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles, including the vehicles that secure the receivables. In addition, if programs are implemented by the United States government to stimulate the sale of new vehicles, this may have the effect of further reducing the values of used vehicles. As a result, the proceeds received by the issuing entity upon any repossession of financed vehicles may be reduced and may not be sufficient to pay
the receivables. The servicer manages the market for used Toyota and Lexus vehicles through certain programs, but there can be no assurance that such programs will continue to be successful.
Paid-ahead simple interest contracts may affect the weighted average lives of the notes.
If an obligor on a simple interest contract makes a payment on the contract ahead of schedule (for example, because the obligor intends to go on vacation), the weighted average life of the notes could be affected. This is because the additional scheduled payments will be treated as a principal prepayment and applied to reduce the principal balance of the related contract and the obligor will generally not be required to make any scheduled payments during the period for which it was paid ahead. During this paid ahead period, interest will continue to accrue on the principal balance of the contract, as reduced by the application of the additional scheduled payments, but the obligor’s contract would not be considered delinquent during this period. Furthermore, when the obligor resumes his required payments, the payments so paid may be insufficient to cover the interest that has accrued since the last payment by the obligor. This situation will continue until the regularly scheduled payments are once again sufficient to cover all accrued interest and to reduce the principal balance of the contract. The payment by the issuing entity of the paid ahead principal amount on the notes will generally shorten the weighted average lives of the notes. However, depending on the length of time during which a paid ahead simple interest contract is not amortizing as described above, the weighted average lives of the notes may be extended. TMCC’s portfolio of retail installment sales contracts has historically included simple interest contracts which have been paid ahead by one or more scheduled monthly payments. There can be no assurance as to the number of contracts in the issuing entity which may become paid ahead simple interest contracts as described above or the number or the principal amount of the scheduled payments which may be paid ahead.
There may be potential adverse effects on the servicer, the receivables and your notes in the event any Toyota or Lexus models are subject to recalls.
Toyota Motor North America, Inc. periodically conducts vehicle recalls which could include temporary suspensions of sales and production of certain Toyota and Lexus models. Because TMCC’s business is substantially dependent upon the sale of Toyota and Lexus vehicles, such events could adversely affect TMCC’s business. A decline in values of used Toyota and Lexus vehicles would have a negative effect on residual values and return rates which, in turn, could increase credit losses to TMCC. Further, as described below, under “—The regulatory environment in which TMCC operates could have an adverse effect on TMCC, the depositor and the issuing entity, which could result in losses or delays in payments on your notes,” TMCC and its affiliates have been or may continue to become subject to litigation and governmental investigations and have been or may become subject to fines or other penalties. These factors could affect sales of Toyota and Lexus vehicles and, accordingly, could have a negative effect on TMCC’s business, results of operations and financial condition. If the demand for used Toyota or Lexus vehicles decreases due to recalls or other factors, the resale value of the vehicles related to the receivables may also decrease. As a result, the amount of proceeds received upon the liquidation or other disposition of financed vehicles may decrease. A decrease in the level of sales, including as a result of the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, or a change in standards of regulatory bodies, will have a negative impact on the level of TMCC’s financing volume, voluntary protection products volume, earnings assets and revenues. The credit performance of TMCC’s dealer and consumer lending portfolios may also be adversely affected. In addition, as a result of any recalls, obligors of related receivables may be more likely to be delinquent in or default on payments on their receivables. If any of these events materially affect collections on the receivables, you may experience delays in payments or principal losses on your notes if the available credit enhancement has been exhausted.
The geographic concentration of the obligors and performance of the receivables may increase the risk of loss on your investment.
The concentration of the receivables in specific geographic areas may increase the risk of loss. A deterioration in economic conditions in the states where obligors reside, including those caused by extreme weather conditions and natural disasters, public health concerns (including pandemics) and other similar events could adversely affect the ability and willingness of obligors to meet their payment obligations under the receivables and may consequently affect the delinquency, loss and repossession experience of the issuing entity with respect to the receivables. An improvement in economic conditions could result in prepayments by the obligors of their payment obligations under the receivables. As a result, you may receive principal payments of your notes earlier than anticipated.
As of the cutoff date, TMCC’s records indicate that, based on the mailing addresses of the obligors of the receivables, approximately 26.90% and 13.70% of the aggregate principal balance of the receivables as of the cutoff date was concentrated in California and Texas, respectively. No other state, based on the mailing addresses of the related obligors, accounts for more than 5.00% of the aggregate principal balance of the receivables as of the cutoff date.
Certain obligors’ ability to make timely payments on the receivables, and the condition of the financed vehicles, may be adversely affected by extreme weather conditions, natural disasters, public health concerns and other similar events.
Extreme weather conditions and natural disasters, such as floods, hurricanes, earthquakes, tornadoes and wildfires (including an increase in the frequency of such conditions and disasters as the result of climate change), public health concerns (including pandemics, such as the COVID-19 Outbreak) and other similar events, could result in substantial business disruptions, economic losses, unemployment, travel restrictions and disruptions caused by directives (such as the stay-at-home requirements) intended to limit the spread of COVID-19, and could have a negative effect on general economic conditions, consumer confidence and general market liquidity. As a result of such events, the obligors’ ability to make timely payments could be adversely affected, and the issuing entity’s ability to make payments on the notes could be adversely affected if obligors are unable to make timely payments on the receivables. In addition, any such events may adversely affect the condition of the financed vehicles. No representation or warranty will be made by TMCC or any other entity regarding the condition of any financed vehicle as of the cutoff date or any other date. Under the terms of the receivables, obligors are required to maintain physical damage insurance. However, there can be no assurance that such insurance has been maintained in all cases or would fully cover any damage to the related financed vehicle. For additional information, you should refer to “Transfer and Servicing Agreements—Insurance on Financed Vehicles” in this prospectus. No prediction can be made, and no assurance may be given, as to the effect of extreme weather conditions, natural disasters, public health concerns (including pandemics, such as the COVID-19 Outbreak) and other similar events on the rate of delinquencies, prepayments and/or losses on the receivables or the market value of your notes. See also “—Adverse events arising from the coronavirus outbreak could have an adverse effect on your notes” above.
The rate of depreciation of certain financed vehicles could exceed the amortization of the outstanding principal balance of the loan on those financed vehicles, which may result in losses.
There can be no assurance that the value of any financed vehicle will be greater than the outstanding principal balance of the related receivable. New vehicles normally experience an immediate decline in value after purchase because they are no longer considered new. As a result, it is highly likely that the principal balance of the related receivable will exceed the value of the related vehicle during the earlier years of a receivable’s term. Defaults during these earlier years are likely to result in losses because the proceeds of repossession are less likely to pay the full amount of interest and principal owed on the receivable. The frequency and amount of losses may be greater for receivables with longer terms, because these receivables tend to have a somewhat greater frequency of delinquencies and defaults and because the slower rate of amortization of the principal balance of a longer term receivable may result in a longer period during which the value of the financed vehicle is less than the remaining principal balance of the receivable. See the tables describing the composition of the receivables under the heading “The Receivables” in this prospectus for the percentage of the aggregate principal balance of the receivables as of the cutoff date consisting of receivables with original scheduled payments greater than 60 months. The frequency and amount of losses may also be greater for obligors with little or no equity in their vehicles because the principal balances for such obligors are likely to be greater for similar loan terms and vehicles than for obligors with a more significant amount of equity in the vehicle. Additionally, although the frequency of delinquencies and defaults tends to be greater for receivables secured by used vehicles, the amount of any loss tends to be greater for receivables secured by new vehicles because of the higher rate of depreciation described above.
You may suffer losses due to receivables with low annual percentage rates.
The receivables include receivables that have APRs that are less than the interest rates on your securities. Obligors with higher APR receivables may prepay at a faster rate than obligors with lower APR receivables. Higher rates of prepayments of receivables with higher APRs may result in the issuing entity holding receivables that will generate insufficient collections to cover delinquencies or chargeoffs on the receivables or to make current payments of interest on or principal of your notes. Similarly, higher rates of prepayments of receivables with higher APRs will decrease the amounts available to be deposited in the reserve account, reducing the protection against losses and shortfalls afforded thereby to the notes. For additional information, you should refer to “Prepayment and Yield
Considerations” and the tables describing the distribution of the receivables by APR under “The Receivables” in this prospectus.
Risks Primarily Related to Legal and Regulatory Matters
Receivables that fail to comply with consumer protection laws may be unenforceable, which may result in losses on your investment.
Numerous federal and state consumer protection laws regulate consumer contracts such as the receivables. Also, some of these laws may provide that the assignee of a consumer contract (such as the issuing entity) is liable to the related obligor for any failure of the contract to comply with these laws. If any of the receivables do not comply with one or more of these laws, the servicer may be prevented from or delayed in collecting payments on such receivables, and the issuing entity, as assignee of the related originator, could be held liable for any applicable penalties or damages. If that happens, payments on your notes could be delayed or reduced.
TMCC and the depositor will make representations and warranties relating to the receivables’ compliance with law and the issuing entity’s ability to enforce the contracts. If the depositor breaches any of these representations or warranties, the issuing entity’s sole remedy (other than the indemnification available to the issuing entity as described below) will be to require the depositor to repurchase the related receivable if such breach materially and adversely affects the interest of the issuing entity in such receivable and such breach has not been cured in all material respects within any applicable cure period. TMCC will have a corresponding obligation to repurchase any such receivable from the depositor. TMCC will also indemnify the depositor for any failure of a receivable to have been originated in compliance with all applicable requirements of law, and the depositor’s right to such indemnification will be assigned to the issuing entity. Any failure by TMCC or the depositor to repurchase any affected receivables, or to indemnify the issuing entity, as applicable, could result in delays or reductions in payments on your notes. For additional information, you should refer to “Certain Legal Aspects of the Receivables—Consumer Finance Regulation” and “Repurchases of Receivables” in this prospectus.
The regulatory environment in which TMCC operates could have an adverse effect on TMCC, the depositor and the issuing entity, which could result in losses or delays in payments on your notes.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act,” and its implementing regulations have had and may continue to have broad implications for the consumer financial services industry.
As a provider of finance and voluntary protection products and services, TMCC operates in a highly regulated environment. TMCC is subject to state licensing requirements and state and federal laws and regulations. In addition, TMCC is subject to governmental and regulatory examinations, information gathering requests, and investigations from time to time at the state and federal levels. Compliance with applicable law is costly and can affect TMCC’s results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in laws and regulations could restrict TMCC’s ability to operate its business as currently operated, could impose substantial additional costs or require it to implement new processes, which could adversely affect TMCC’s business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorney or legal fees and costs, restrictions on TMCC’s ability to operate its business, possible revocation of licenses and damage to TMCC’s reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect TMCC’s business, prospects, results of operations or financial condition.
TMCC’s principal consumer finance regulator at the federal level is the Consumer Financial Protection Bureau, or the “CFPB,” which has broad regulatory, supervisory and enforcement authority over TMCC. The CFPB’s supervisory authority allows it, among other things, to conduct comprehensive and rigorous examinations to assess TMCC’s compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to TMCC’s business, products, policies and procedures. The CFPB’s rulemaking authority includes the authority to promulgate rules regarding, among other practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as TMCC, and rules regarding consumer credit reporting practices. The timing and impact of these rules on TMCC’s business remain uncertain. In addition, the CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance, and has questioned the value and increased scrutiny
of the marketing and sale of certain ancillary or add-on products, including products similar to those financed by TMCC or sold through its affiliates.
The CFPB and the Federal Trade Commission, or the “FTC,” may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, the CFPB and the FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to TMCC or the products, services and operations TMCC offers, may require TMCC to cease or alter certain business practices, which could have a material adverse effect on TMCC’s results of operations, financial condition, and liquidity. Supervision and investigations by these agencies may result in monetary penalties, increase TMCC’s compliance costs, require changes in its business practices, affect its competitiveness, impair its profitability, harm its reputation or otherwise adversely affect its business.
At the state level, state regulators are taking a more stringent approach to supervising and regulating providers of financial products and services subject to their jurisdiction. For example, certain states have proposed or enacted rate cap bills that would put limits on the maximum rate of finance charges. As described under “Certain Legal Aspects of the Receivables—Consumer Finance Regulation” and “—Other Federal Regulation” in this prospectus, TMCC may take certain actions relating to certain of the receivables, including modifying their terms or making certain payments to obligors. There can be no assurance that TMCC will take any of these actions or, if it does, whether any of these actions will result in the repurchase of some or all of the affected receivables. For additional information regarding state consumer protection laws and related regulations that may affect TMCC, you should refer to “Certain Legal Aspects of the Receivables—Consumer Finance Regulation” in this prospectus.
If the Federal Deposit Insurance Corporation, or the “FDIC,” were appointed receiver of TMCC, the depositor or the issuing entity under the Orderly Liquidation Authority provisions of the Dodd-Frank Act, the FDIC could repudiate contracts deemed burdensome to the estate, including secured debt. TMCC has structured the transfers of the receivables to the depositor and the issuing entity as a valid and perfected sale under applicable state law and under the U.S. Bankruptcy Code to mitigate the risk of the recharacterization of the sale as a grant of security interest to secure debt of TMCC. Any attempt by the FDIC to recharacterize the transfer of the receivables as a grant of a security interest to secure debt that the FDIC then repudiates would cause delays in payments or losses on the notes. In addition, if the issuing entity were to become subject to the Orderly Liquidation Authority, the FDIC may repudiate the debt of the issuing entity and the noteholders would have a secured claim in the receivership of the issuing entity. Also, if the issuing entity were subject to Orderly Liquidation Authority, the noteholders would not be permitted to accelerate the debt, exercise remedies against the collateral or replace the servicer without the FDIC’s consent for 90 days after the receiver is appointed. As a result of any of these events, delays in payments on the notes would occur and possible reductions in the amount of those payments could occur. For additional information, you should refer to “Certain Legal Aspects of the Receivables—Dodd-Frank Act Orderly Liquidation Authority Provisions” in this prospectus.
No assurances can be given that the liquidation framework for the resolution of “covered financial companies” would not apply to TMCC or its affiliates, including the depositor and the issuing entity. For additional information, you should refer to “Certain Legal Aspects of the Receivables—Dodd-Frank Act Orderly Liquidation Authority Provisions—Potential Applicability to TMCC, the Depositor and the Issuing Entity” in this prospectus.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act was extensive and significant legislation adopted to address the COVID-19 Outbreak, and it includes various provisions intended to help consumers, such as new requirements affecting credit reporting, direct payments to workers, and unemployment relief. Portions of the assistance provided by the CARES Act lapsed by the end of 2020. On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “Appropriations Act”) was signed into law, which included a $900 billion economic stimulus package and renewed certain provisions of the CARES Act, including reauthorizing and providing additional funding for several stimulus programs established by the CARES Act. The Appropriations Act also restored the Federal Pandemic Unemployment Compensation program, which provides an additional $300 per week to individuals collecting traditional unemployment compensation. This benefit was available for weeks of unemployment beginning after December 26, 2020 and ending on March 14, 2021. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”), which included a $1.9 trillion economic stimulus package. The American Rescue Plan Act built upon the CARES Act and the Appropriations Act by extending unemployment benefits through September 6, 2021 (though some states discontinued the additional federal unemployment benefits ahead of this date), providing stimulus checks to certain individuals and families up to
$1,400 per adult and eligible dependent, making the Small Business Administration’s Paycheck Protection Program (the “PPP”) more accessible to businesses and nonprofits, adding additional funding of $7.25 billion to the PPP and providing additional relief to state and local communities.
It is not known how many obligors of the receivables may have been or are receiving benefits under the CARES Act, the Appropriations Act, or the American Rescue Plan Act, or what the effect of any reduction of such benefits may be on the ability of the obligors to meet their payment obligations under the receivables. The potential impact of these acts on TMCC and its affiliates or on the obligors is not yet known. It is possible that compliance with the implementing regulations under such acts may impose costs on, or create operational constraints for, TMCC and may have an adverse impact on the ability of TMCC to effectively service the receivables. Further, Federal, state or local governments, could enact, and in some cases already have enacted, laws, regulations, executive orders or other guidance that allow obligors to stop making scheduled payments on certain obligations for some period of time, require modifications to the related contracts (e.g., waiving accrued interest), or preclude creditors from exercising certain rights or taking certain actions with respect to collateral securing such obligations, including repossession or liquidation of financed vehicles.
Changes to the regulatory environment in which TMCC operates, including, for example, laws or regulations intended to mitigate factors contributing to, or intended to address the potential impacts of, climate change, could have a material adverse effect on TMCC’s business, results of operations and financial condition. Any such changes could also adversely affect TMCC’s ability to service the receivables and perform its other obligations under the transaction agreements, which could have an adverse effect on your notes.
The return on the notes could be reduced by shortfalls due to state laws limiting collections on certain receivables.
Pursuant to federal law and the laws of various states, payments on retail installment sales contracts or installment loans, such as the receivables, by certain members of the military who are on active duty and residents in those states who are called into active duty with the national guard or the reserves by the related governor, will be deferred under certain circumstances. These laws and related regulations may also limit the ability of the servicer to repossess the financed vehicle securing a receivable. As a result of such legislation or regulations, there may be delays or reductions in payment of, and increased losses on the receivables and you may suffer a loss on your notes. We do not know how many receivables may be impacted by such legislation or regulations. For additional information, you should refer to “Certain Legal Aspects of the Receivables—Other Limitations” in this prospectus.
Risks Primarily Related to Servicing
Funds held by the servicer that are intended to be used to make payments on the notes may be exposed to a risk of loss.
The servicer generally may retain all payments and proceeds collected on the receivables during each collection period. The servicer is generally not required to segregate those funds from its own accounts until the funds are deposited in the collection account on or prior to each payment date. Until any collections or proceeds are deposited into the collection account, the servicer will be able to invest those amounts for its own benefit at its own risk. The issuing entity and noteholders are not entitled to any amount earned on the funds held by the servicer. If the servicer does not deposit the funds in the collection account as required on any payment date, the issuing entity may be unable to make the payments owed on your notes.
A servicer default may result in additional costs, increased servicing fees by a substitute servicer or a diminution in servicing performance, including higher delinquencies and defaults, all of which may have an adverse effect on your notes.
If a servicer default occurs, either the indenture trustee or the holders of notes evidencing not less than a majority of the aggregate principal amount of the notes of the controlling class then outstanding, acting together as a single class (excluding for such purposes the aggregate outstanding principal amount of any notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates), may remove the servicer without the consent of the owner trustee or the certificateholders. In the event of the removal of the servicer and the appointment of a successor servicer, we cannot predict the cost of the transfer of servicing to the successor, the ability of the successor to perform the obligations and duties of the servicer under the sale and servicing agreement; or the servicing fees charged by the successor. In addition, the holders of notes evidencing not less than a majority of the aggregate principal amount of the notes of the controlling class then outstanding (excluding for such purposes the aggregate outstanding principal amount of any notes held of record or beneficially owned by TMCC, TAFR LLC or any of
their affiliates), acting together as a single class, have the ability, with some exceptions, to waive defaults by the servicer. Furthermore, the indenture trustee may experience difficulties in appointing a successor servicer and during any transition phase, it is possible that normal servicing activities could be disrupted, resulting in increased delinquencies and/or defaults on the receivables. Additionally, because the servicing fee is based on a percentage of the aggregate outstanding amount of the receivables, the fee the servicer receives each month will be reduced as the size of the pool decreases over time. At some point, if the need arises to obtain a successor servicer, the fee that such successor servicer would earn might not be sufficient to induce a potential successor servicer to agree to service the remaining receivables in the pool, which could result in increased delinquencies and/or defaults on the receivables.
There may be potential adverse effects of credit ratings-related matters on the servicer, which could have an adverse effect on your notes.
Several credit rating agencies rate the long-term corporate credit and/or debt of TMCC and its affiliates. The credit ratings of TMCC depend, in large part, on the existence of the credit support arrangements with Toyota Financial Services Corporation and Toyota Motor Corporation and on the financial condition and results of operations of Toyota Motor Corporation. If these arrangements (or replacement arrangements acceptable to the applicable rating agencies) become unavailable to TMCC, or if the credit ratings of the credit support providers were lowered, TMCC’s credit ratings would be adversely impacted. The cost and availability of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security or obligation.
Credit rating agencies which rate the credit of Toyota Motor Corporation and its affiliates, including TMCC, may qualify or alter ratings at any time. Global economic conditions and other geopolitical factors, including the COVID-19 Outbreak, may directly or indirectly affect such ratings and your notes. Any downgrade in the sovereign credit ratings of the United States or Japan may directly or indirectly have a negative effect on the ratings of Toyota Motor Corporation and TMCC. Downgrades or placement on review for possible downgrades could result in an increase in TMCC’s borrowing costs as well as reduced access to global unsecured debt capital markets. These factors would have a negative impact on TMCC’s competitive position, results of operations and financial condition, which could affect the ability of the servicer to collect on the receivables and therefore result in delays in payments or principal losses on your notes if the available credit enhancement has been exhausted.
A security breach or a cyber-attack affecting TMCC could adversely affect TMCC’s business, results of operations and financial condition, which could have an adverse effect on your notes.
TMCC collects and stores certain personal and financial information from customers, employees, and other third parties. Security breaches or cyber-attacks involving TMCC’s systems or facilities, or the systems or facilities of third-party providers, could expose TMCC to a risk of loss of personal information of customers, employees and third parties or other confidential, proprietary or competitively sensitive information, business interruptions, regulatory scrutiny, actions and penalties, litigation, reputational harm, a loss of confidence, and other financial and non-financial costs, all of which could potentially have an adverse impact on TMCC’s future business with current and potential customers, results of operations and financial condition.
TMCC relies on encryption and other information security technologies licensed from third parties to provide security controls necessary to help in securing online transmission of confidential information pertaining to customers, employees and other aspects of TMCC’s business. Advances in information system capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology that TMCC uses to protect sensitive data. A party who is able to circumvent TMCC’s security measures by methods such as hacking, fraud, trickery or other forms of deception could misappropriate proprietary information or cause interruption in TMCC’s operations. TMCC may be required to expend capital and other resources to protect against such security breaches or cyber-attacks or to remediate problems caused by such breaches or attacks. TMCC’s security measures are designed to protect against security breaches and cyber-attacks, but TMCC’s failure to prevent such security breaches and cyber-attacks could subject TMCC to liability, decrease TMCC’s profitability and damage TMCC’s reputation. Even if a failure of, or interruption in, TMCC’s systems or facilities is resolved timely or an attempted cyber incident or other security breach is successfully avoided or thwarted, it may require TMCC to expend substantial resources or to take actions that could adversely affect customer satisfaction or behavior and expose TMCC to reputational harm.
TMCC could also be subjected to cyber-attacks that could result in slow performance and loss or temporary unavailability of TMCC’s information systems. Information security risks have increased because of new
technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, terrorists, and others. In addition, TMCC may have increased cyber-security risks and increased vulnerability to security breaches and other information technology disruptions as a result of the COVID-19 Outbreak and increased remote work arrangements. TMCC may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. The occurrence of any of these events could have a material adverse effect on TMCC’s business, results of operations and financial condition, could adversely affect TMCC’s ability to service the receivables and perform its other obligations under the transaction agreements, and could have an adverse effect on your notes.
TMCC’s enterprise data practices, including the collection, use, sharing, and security of personal and financial information of TMCC’s customers, employees, and third-party individuals, are subject to increasingly complex, restrictive, and punitive regulations.
Under current laws, the failure to maintain compliant data practices could result in consumer complaints and regulatory inquiry, resulting in civil or criminal penalties, as well as brand impact or other harm to TMCC’s business. In addition, increased consumer sensitivity to real or perceived failures in maintaining acceptable data practices could damage TMCC’s reputation and deter current and potential customers from using TMCC’s products and services. For example, well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. For example, some states have enacted and others are considering enacting data protection regimes that grant consumers broad new rights including access to, deletion of, and limiting the sharing of personal information that is collected by businesses and requiring regulated entities to establish measures to identify, manage, secure, track, produce, update and delete personal information. In some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for certain violations of these laws and regulations. These types of laws and regulations could prohibit or significantly restrict financial services providers such as TMCC from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or could restrict TMCC’s use of personal data when developing or offering products or services to customers. These restrictions could inhibit TMCC’s development or marketing of certain products or services, or increase the costs of offering them to customers. Because many of these laws are new, there is little clarity as to their interpretation, as well as a lack of precedent for the scope of enforcement. In addition, these laws are state specific and have specific details that are not uniform state-to-state. The cost of compliance with these laws and regulations will be high and is likely to increase in the future. Any failure or perceived failure to comply with applicable privacy or data protection laws and regulations could result in requirements to modify or cease certain operations or practices, significant liabilities or fines, penalties or other sanctions, which could adversely affect TMCC’s ability to service the receivables and perform its other obligations under the transaction agreements, and could have an adverse effect on your notes.
A failure or interruption of TMCC’s information systems, including in connection with any consolidation of or change in servicing operations, could have an adverse effect on your notes.
TMCC relies on its own information systems and third-party information systems to manage its operations, which creates meaningful operational risk for TMCC. Any failure or interruption of TMCC’s information systems or the third-party information systems on which it relies as a result of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, security breaches, acts of vandalism, computer viruses, malware, ransomware, misplaced or lost data, or other events could disrupt TMCC’s normal operating procedures, damage its reputation and have an adverse effect on TMCC’s business, results of operations and financial condition, which could adversely affect TMCC’s ability to service the receivables and perform its other obligations under the transaction agreements, and could have an adverse effect on your notes. These operations risks may be increased as a result of remote work arrangements due to the COVID-19 Outbreak. From time to time, TMCC may update its servicing systems in order to improve operating efficiency, update technology and enhance customer services. For example, TMCC is in the process of implementing a new core servicing system to replace its legacy core servicing system, which includes building a new enterprise integration platform that also accommodates downstream systems. In connection with any such updates, TMCC may experience limited disruptions in servicing activities both during and following roll-out of the new servicing systems or platforms caused by, among other things, periods of system down-time and periods devoted to user training. These and other implementation related difficulties may contribute
to higher delinquencies. It is not possible to predict with any degree of certainty all of the potential adverse consequences that may be experienced, and there can also be no assurance that any such disruptions in servicing activities will not adversely affect TMCC’s ability to service the receivables, which could have an adverse effect on your notes.
Risks Primarily Related to Bankruptcy and Insolvency of Transaction Parties and Perfection of Security Interests
The bankruptcy of TMCC or the depositor could result in losses or delays in payments on your notes.
If TMCC or the depositor were to become subject to bankruptcy proceedings, you could experience losses or delays in the payments on your notes. TMCC will sell the receivables to the depositor, and the depositor will in turn sell the receivables to the issuing entity. However, if TMCC or the depositor were to become subject to a bankruptcy proceeding, the court in the bankruptcy proceeding could conclude that TMCC or the depositor effectively still owns the receivables by concluding that the sale to the depositor by TMCC or the sale to the issuing entity by the depositor was not a “true sale” or that the issuing entity should be consolidated with TMCC or the depositor for bankruptcy purposes. If a court were to reach this conclusion, you could experience losses or delays in payments on the notes as a result of, among other things:
| • | an “automatic stay” which prevents secured creditors from exercising remedies against a debtor in bankruptcy without permission from the court and provisions of the U.S. Bankruptcy Code that permit substitution of collateral in certain circumstances; |
| • | certain tax or government liens on TMCC’s or the depositor’s property (that arose prior to the transfer of a receivable to the issuing entity) having a prior claim on collections before the collections are used to make payments on your notes; and |
| • | the fact that neither the issuing entity nor the indenture trustee has a perfected security interest in (a) one or more of the vehicles securing the receivables or (b) any cash collections held by TMCC or the depositor at the time TMCC or the depositor were to become the subject of a bankruptcy proceeding. |
The depositor will take steps in structuring the transactions described in this prospectus to minimize the risk that a court would consolidate the issuing entity with the depositor for bankruptcy purposes or conclude that the sale of receivables to the issuing entity was not a “true sale.” For additional information, you should refer to “Certain Legal Aspects of the Receivables—Certain Bankruptcy Considerations” in this prospectus.
The bankruptcy of the issuing entity could result in losses or delays in payments on your notes.
If the issuing entity were to become subject to bankruptcy proceedings, you could experience losses or delays in the payments on your notes as a result of, among other things, an “automatic stay,” which prevents secured creditors from exercising remedies against a debtor in bankruptcy without permission from the applicable court, and provisions of the U.S. Bankruptcy Code that permit substitution of collateral in limited circumstances.
The insolvency or bankruptcy of the servicer could delay the appointment of a successor servicer or reduce payments on your notes.
In the event of default by the servicer resulting solely from certain events of insolvency or the bankruptcy of the servicer, the indenture trustee could neither appoint a successor servicer nor prevent the servicer from appointing a sub-servicer, as the case may be, without the consent of the bankruptcy trustee or the bankruptcy court, and delays in the collection of payments on the receivables may occur. Any delay in the collection of payments on the receivables may delay or reduce payments to noteholders.
The issuing entity’s interests in financed vehicles may be unenforceable or defeated.
The certificates of title for vehicles financed by TMCC name TMCC as the secured party. The certificates of title for financed vehicles under contracts assigned to the issuing entity will not be amended to identify the issuing entity as the new secured party because it would be administratively burdensome to do so. However, financing statements showing the transfer to the issuing entity of TMCC’s and the depositor’s interest in the receivables and the transfer to the indenture trustee of the issuing entity’s interest in the receivables will be filed with the appropriate governmental authorities. TMCC, as servicer, will retain the documentation for the receivables and the certificates of title. Because of these arrangements, another person could acquire an interest in the receivables and the financed vehicles that is judged by a court of law to be superior to the issuing entity’s or the indenture trustee’s interest. Examples of these persons are other creditors of the obligor, a subsequent purchaser of a financed vehicle or another lender who finances the vehicle. Some of the ways this could happen are described under “Certain Legal Aspects of
the Receivables” in this prospectus. In some circumstances, either the depositor or the servicer will be required to purchase receivables if a security interest superior to the claims of others has not been properly established and maintained. The details of this obligation are described under “Repurchases of Receivables” in this prospectus.
If the servicer does not maintain control of the receivables evidenced by electronic contracts, the issuing entity may not have a perfected interest in those receivables.
As described in “The Sponsor, Administrator and Servicer—Electronic Contracts and Electronic Contracting” in this prospectus, for some receivables, TMCC acquires possession of the related contracts from dealers and converts them to electronic form and maintains control of the electronic copies through TMCC’s own technology system. Other receivables may be originated electronically through a third-party custodian using the third-party custodian’s technology system. Both of these technology systems are designed to enable TMCC to perfect its interest in the receivables evidenced by electronic contracts by satisfying the Uniform Commercial Code’s requirements for “control” of electronic chattel paper. TMCC will obtain “control” of an electronic contract if (a) there is a “single authoritative copy” of the electronic contract that is readily distinguishable from all other copies and which identifies TMCC as the owner, (b) all other copies of the electronic contract indicate that they are not the “authoritative copy” of the electronic contract, (c) any revisions to the authoritative copy of the electronic contract are readily identifiable as either authorized or unauthorized revisions, and (d) authorized revisions of the electronic contract cannot be made without TMCC’s participation. However, it is possible that another person could acquire an interest in an electronic contract that is superior to TMCC’s interest (and accordingly, the issuing entity’s interest). This could occur if TMCC ceases to have “control” over the electronic contract that is maintained by TMCC or on behalf of TMCC by the third-party custodian and another party purchases that electronic contract (without knowledge that such purchase violates TMCC’s rights in the electronic contract) and obtains “control” over the electronic contract. TMCC also could lose control over an electronic contract if through fraud, forgery, negligence or error, or as a result of a computer virus or a failure of or weakness in TMCC’s or the third-party custodian’s technology system, as applicable, a person other than TMCC were able to modify or duplicate the authoritative copy of the contract.
TMCC and the depositor will represent that TMCC has a perfected interest in the receivables to the extent evidenced by electronic contracts by means of control and that the interest has been transferred to the depositor and thereafter to the issuing entity. Although TMCC will perfect its assignment of its interest in the electronic contracts to the issuing entity and the indenture trustee by filing financing statements, the fact that TMCC’s interest in the receivables may not be perfected by control may affect the priority of the issuing entity’s interest in the receivables. The issuing entity’s interest in the receivables could be junior to another party with a perfected security interest in the inventory of the originating dealer.
There can be no assurances that the third-party’s technology system will perform as represented to the servicer in maintaining the systems and controls required to provide assurance that TMCC maintains control over an electronic contract. In that event, there may be delays in obtaining copies of the electronic contract or confirming ownership and control of the electronic contract. Additionally, there is a risk that the systems employed by TMCC or the third-party to maintain control of the electronic contracts may not be sufficient as a matter of law to give TMCC (and accordingly, the issuing entity) a perfected interest in the receivables evidenced by electronic contracts.
From time to time, the receivables evidenced by electronic contracts may be amended, including, without limitation, by extensions of the final maturity date. To the extent any of those amendments is evidenced in tangible form, TMCC and the depositor will represent that TMCC has a perfected interest in the receivables (consisting of the electronic contract and tangible amendment) by possession of the tangible amendment and control of the electronic contract.
As a result of the foregoing, TMCC (and accordingly, the issuing entity) may not have a perfected interest in certain receivables or its interest, although perfected, could be junior to that of another party. Either circumstance could affect TMCC’s ability on behalf of the issuing entity to repossess and sell the underlying financed vehicles. Therefore, you may be subject to delays in payment on your notes and you may incur losses on your investment in the notes.
General Risks Relating to the Transaction
The notes are not suitable investments for all investors.
The notes are not a suitable investment for any investor that requires a regular or predictable schedule of payments or payment on specific dates. The notes are complex investments that should be considered only by sophisticated investors. We suggest that only investors who, either alone or with their financial, tax and legal advisors, have the expertise to analyze the prepayment, reinvestment and default risks, the tax consequences of an investment and the interaction of these factors should consider investing in the notes.
The absence of a secondary market for the notes or a lack of liquidity in the secondary markets could limit your ability to resell the notes or adversely affect the market value of your notes.
The notes will not be listed on any securities exchange. Therefore, to sell your notes, you must first locate a willing purchaser. The underwriters may, but are not obligated to, provide a secondary market for the notes and even if the underwriters make a market in the notes, the underwriters may stop making offers at any time. In addition, the prices offered, if any, may not reflect prices that other potential purchasers would be willing to pay, were they to be given the opportunity.
Recent major disruptions in the global financial markets resulting from the COVID-19 Outbreak have limited secondary market liquidity for asset-backed securities such as the notes, so there can be no assurance that you will be able to sell your notes at favorable prices or at all. Periods of illiquidity could continue and affect the secondary market, thereby adversely affecting the value of your notes and limiting your ability to locate a willing purchaser of your notes. Furthermore, the global financial markets are experiencing increased volatility due to uncertainty surrounding the level and sustainability of the sovereign debt of various countries. Concerns regarding sovereign debt may spread to other countries at any time. There can be no assurance that these uncertainties will not lead to further disruption of the credit markets in the United States. Accordingly, you may not be able to sell your notes when you want to do so or you may be unable to obtain the price that you wish to receive for your notes and, as a result, you could suffer a loss on your investment.
The ratings for the notes may be lowered or withdrawn at any time and do not consider the suitability of the notes for you.
The ratings assigned to the class A notes by any rating agency will be based on, among other things, the adequacy of the assets of the issuing entity, any credit enhancement and any other information such rating agency considers material to such determination. The rating considers only the likelihood that the issuing entity will pay interest on time and will ultimately pay principal in full or make full distributions of note balances. Ratings on the class A notes do not address the timing of distributions of principal on the notes prior to their applicable final scheduled payment date. The ratings do not consider the prices of the notes or their suitability to a particular investor. The ratings assigned to the class A notes may be lowered or withdrawn at any time. If any rating agency changes its rating or withdraws its rating, no one has an obligation to provide additional credit enhancement or to restore the original rating.
Withdrawal or downgrading of the initial ratings of the notes will, and any adverse changes to a rating may, affect the prices for the notes upon resale, and the payment of rating agency fees by the sponsor may present a conflict of interest.
A security rating is not a recommendation to buy, sell or hold securities. Similar ratings on different types of securities do not necessarily mean the same thing. To the extent the notes are rated by any rating agency, any such rating agency may change its ratings of the notes if that rating agency believes that circumstances have changed. Any subsequent change in a rating will likely affect the price that a subsequent purchaser would be willing to pay for the notes and your ability to resell your notes.
The depositor expects that the class A notes will receive ratings from two nationally recognized statistical rating organizations, or NRSROs, hired by the sponsor to rate the class A notes. Ratings initially assigned to the class A notes will be paid for by the sponsor. The sponsor is not aware that any other NRSRO, other than the NRSROs hired by the sponsor to rate the class A notes, has assigned ratings on the notes. Securities and Exchange Commission rules state that the payment of fees by the sponsor, the issuing entity or an underwriter to rating agencies to issue or maintain a credit rating on asset-backed securities is a conflict of interest for rating agencies. In the view of the Securities and Exchange Commission, this conflict is particularly acute because arrangers of asset-backed securities transactions provide repeat business to the rating agencies. Under Securities and Exchange Commission rules, information provided by the sponsor or the underwriters to a hired NRSRO for the purpose of
assigning or monitoring the ratings on the notes is required to be made available to each non-hired NRSRO in order to make it possible for such non-hired NRSROs to assign unsolicited ratings on the notes. An unsolicited rating could be assigned at any time, including prior to the closing date, and none of the depositor, the sponsor, the underwriters or any of their affiliates will have any obligation to inform you of any unsolicited ratings assigned to the notes and such parties may be aware of such unsolicited ratings. NRSROs, including the hired rating agencies, may have different methodologies, criteria, models and requirements. If any non-hired NRSRO assigns an unsolicited rating on the notes, there can be no assurance that such rating will not be lower than the ratings provided by the hired rating agencies, which could adversely affect the market value of your notes and/or limit your ability to resell your notes. In addition, if the sponsor fails to make available to the non-hired NRSROs any information provided to any hired rating agency for the purpose of assigning or monitoring the ratings on the notes, a hired rating agency could withdraw its ratings on the notes, which could adversely affect the market value of your notes and/or limit your ability to resell your notes. Furthermore, Congress or the Securities and Exchange Commission may determine that any NRSRO that assigns ratings to the notes no longer qualifies as a nationally recognized statistical rating organization for purposes of the federal securities laws and that determination may also have an adverse effect on the market price of the notes. Potential investors in the notes are urged to make their own evaluation of the creditworthiness of the receivables and the credit enhancement on the notes, and not to rely solely on the ratings on the notes.
Retention of some or all of one or more classes of the notes may reduce the liquidity of such classes of notes.
Approximately, but not less than, 5% (by aggregate initial principal amount) of each of the class A-1 notes, the class A-2 notes, the class A-3 notes and the class A-4 notes will be retained initially by the depositor. However, to the extent not necessary to satisfy Regulation RR, the EU Securitization Regulation or the UK Securitization Regulation, as described under “The Sponsor, Administrator and Servicer––Credit Risk Retention” in this prospectus, any such retained notes may subsequently be sold directly, including through a placement agent, or through underwriters, in one or more negotiated transactions or otherwise at varying prices to be determined at the time of sale. If any retained notes are subsequently sold in the secondary market, demand for and the market price of notes already in the market could be adversely affected. Additionally, if any retained notes are subsequently sold, the voting power of the noteholders of the outstanding notes may be diluted.
Because the notes are in book-entry form, your rights can only be exercised indirectly.
Because the notes will be issued in book-entry form, you will be required to hold your interest in the notes through The Depository Trust Company in the United States, or Clearstream Banking, société anonyme or the Euroclear Bank SA/NV, as operator for the Euroclear System or their successors or assigns. Transfers of interests in the notes within The Depository Trust Company, Clearstream Banking, société anonyme or the Euroclear System must be made in accordance with the usual rules and operating procedures of those systems. So long as the notes are in book-entry form, you will not be entitled to receive a definitive note representing your interest. The notes will remain in book-entry form except in the limited circumstances described under “Description of the Notes—Book-Entry Registration” in this prospectus. Unless and until the notes cease to be held in book-entry form, the indenture trustee will not recognize you as a “noteholder,” as the term is used in the indenture. As a result, you will only be able to exercise the rights of noteholders indirectly through The Depository Trust Company (if in the United States) and its participating organizations, or Clearstream Banking, société anonyme or the Euroclear Bank SA/NV, as operator for the Euroclear System and their participating organizations. Holding the notes in book-entry form could also limit your ability to pledge your notes to persons or entities that do not participate in The Depository Trust Company, Clearstream Banking, société anonyme or the Euroclear System and to take other actions that require a physical certificate representing the notes. Interest and principal on the notes will be paid by the issuing entity to The Depository Trust Company as the record holder of the notes while they are held in book-entry form. The Depository Trust Company will credit payments received from the issuing entity to the accounts of its participants which, in turn, will credit those amounts to noteholders either directly or indirectly through indirect participants. This process may delay your receipt of principal and interest payments from the issuing entity.
THE ISSUING ENTITY
The Toyota Auto Receivables 2022-A Owner Trust (the “Issuing Entity”) is a Delaware statutory trust formed pursuant to the trust agreement, as amended and restated (the “Trust Agreement”), between Toyota Auto Finance Receivables LLC, as depositor (“TAFR LLC” or the “Depositor”), and Wilmington Trust, National Association, as owner trustee (in such capacity, the “Owner Trustee”), and the filing of a certificate of trust with the Secretary of State of the State of Delaware. After its formation, the Issuing Entity will not engage in any activity other than:
(i) acquiring, holding and managing the Receivables described below under “The Receivables” and the other property of the Issuing Entity and proceeds therefrom;
(ii) issuing:
(a) the Class A-1 Asset-Backed Notes in the aggregate initial principal amount of $359,600,000 (the “Class A‑1 Notes”);
(b) the Class A-2 Asset-Backed Notes in the aggregate initial principal amount of $555,450,000 (the “Class A-2 Notes”);
(c) the Class A-3 Asset-Backed Notes in the aggregate initial principal amount of $555,450,000 (the “Class A‑3 Notes”);
(d) the Class A-4 Asset-Backed Notes in the aggregate initial principal amount of $176,540,000 (the “Class A‑4 Notes”);
(e) the Class B Asset-Backed Notes in the aggregate initial principal amount of $42,240,000 (the “Class B Notes”); and
(f) the certificate (the “Certificate”), evidencing an undivided beneficial ownership interest in the Issuing Entity that is subordinate to the interests of the holders of any class of Notes (the “Noteholders”);
(iii) making distributions on the Notes and the Certificate and to the Depositor, the Servicer, the Administrator and any third parties;
(iv) engaging in those other activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith;
(v) subject to compliance with the Transfer and Servicing Agreements, engaging in such other activities as may be required in connection with conservation of the Trust Estate; and
(vi) assigning, granting, transferring, pledging, mortgaging and conveying the Trust Estate pursuant to, and on the terms and conditions described in, the indenture (the “Indenture”) between the Issuing Entity and U.S. Bank National Association, as indenture trustee (in such capacity, the “Indenture Trustee”) and to holding, managing and distributing to the holders of the Certificate (the “Certificateholders”) pursuant to the terms of the Sale and Servicing Agreement any portion of the Trust Estate released from the lien of the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A‑3 Notes and the Class A‑4 Notes are referred to in this prospectus collectively as the “Class A Notes.” The Class A Notes and the Class B Notes are referred to in this prospectus collectively as the “Notes.” The Class B Notes and approximately, but not less than, 5% (by aggregate initial principal amount) of each of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes will be retained initially by the Depositor. However, to the extent not necessary to satisfy Regulation RR, the EU Securitization Regulation or the UK Securitization Regulation, as described under “The Sponsor, Administrator and Servicer––Credit Risk Retention” in this prospectus, any such retained Notes may subsequently be sold directly, including through a placement agent, or through underwriters, in one or more negotiated transactions or otherwise at varying prices to be determined at the time of sale.
The Notes and the Certificate are collectively referred to as the “Securities” and the holders of Securities are referred to as “Securityholders.” Each Note will represent an obligation of, and each Certificate will represent an undivided ownership interest in, the Issuing Entity. Payments in respect of the Certificate will be subordinated to payments in respect of the Notes to the extent described in this prospectus. The Notes are the only securities being offered hereby. The Certificate is not being offered to you in this offering.
The Issuing Entity may not issue securities other than the Notes and Certificate. Except for the Notes, the Issuing Entity is also prohibited from borrowing money or making loans to any other person.
Any amendment to the trust agreement to amend, supplement or modify these permitted activities, or otherwise make any modification that would materially and adversely affect the Noteholders, would require the consent of the holders of not less than a majority of the aggregate outstanding principal amount of the Controlling Class (excluding for such purposes the aggregate outstanding principal amount of any Notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates). For additional information regarding amendments to the trust agreement, see “Transfer and Servicing Agreements—Amendment” in this prospectus.
The Issuing Entity will be structured as a bankruptcy remote, special purpose entity. The Issuing Entity will use the Notes and the Certificate as consideration for the Receivables transferred to the Issuing Entity by the Depositor pursuant to the Sale and Servicing Agreement (the “Sale and Servicing Agreement”). Only the Class A Notes are being offered by this prospectus. The Depositor will deliver the net proceeds from the sale of the Notes to TMCC, the sponsor of this transaction (in such capacity, the “Sponsor”), as consideration for the Receivables transferred to the Depositor by TMCC, pursuant to the Receivables Purchase Agreement (the “Receivables Purchase Agreement”).
TMCC will be appointed to act as the servicer of the Receivables (in such capacity, the “Servicer”). TMCC, as Servicer, will service the Receivables pursuant to the Sale and Servicing Agreement and the Trust Agreement, TMCC, as administrator (in such capacity, the “Administrator”), will perform additional administrative services for the Issuing Entity, the Owner Trustee and the Indenture Trustee pursuant to the Administration Agreement (the “Administration Agreement”). TMCC (or any successor servicer or successor administrator) will be compensated for such services as described under “Transfer and Servicing Agreements––Servicing Compensation and Payment of Expenses” and “–��Administration Agreement” in this prospectus.
Pursuant to agreements between TMCC and authorized Toyota and Lexus vehicle dealers or dealer groups and, to a lesser extent, other domestic and import franchise dealers (collectively, the “Dealers”), each Dealer will be obligated to repurchase from TMCC those contracts that do not meet certain representations and warranties made by the Dealer when sold by the Dealer. These Dealer repurchase obligations are referred to in this prospectus as “Dealer Recourse.” Although the Dealer agreements with respect to the Receivables will not be assigned to the Issuing Entity, the Sale and Servicing Agreement will require that any recovery by TMCC in respect of any Receivable pursuant to any Dealer Recourse be deposited in the Collection Account in satisfaction of TMCC’s repurchase obligations under the Sale and Servicing Agreement. However, the representations and warranties of the Dealers in the Dealer Agreements will not be incorporated in the Transfer and Servicing Agreements and TMCC will not represent or warrant in the Transfer and Servicing Agreements that the representations and warranties of the Dealers in the Dealer Agreements are true and correct. Thus, TMCC will not be obligated to repurchase any Receivables upon a breach of representation or warranty by the related Dealer. The sales by the Dealers of installment sales contracts to TMCC do not generally provide for recourse against the Dealers for unpaid amounts in the event of a default by a retail purchaser of a Financed Vehicle who entered into a retail installment sales contract with a Dealer (each, an “Obligor”) under an installment sales contract, other than in connection with the breach of the foregoing representations and warranties. As of September 30, 2021, there were approximately 1,900 Dealers from whom TMCC has purchased installment sales contracts.
The Notes will be secured by and payable from the property of the Issuing Entity. The property of the Issuing Entity that secures the Notes will include the Receivables and certain monies due or received on such Receivables after the Cutoff Date. The property of the Issuing Entity will also include (i) such amounts as from time to time may be held in one or more accounts established and maintained by the Servicer pursuant to the Sale and Servicing Agreement, as described below; (ii) security interests in the Financed Vehicles and any accessions thereto; (iii) the rights to proceeds with respect to the Receivables under physical damage, theft, credit life, credit disability and similar insurance policies covering the Financed Vehicles or the Obligors, as the case may be; (iv) the right to receive proceeds from any Dealer Recourse; (v) the rights of the Depositor under the Receivables Purchase
Agreement; (vi) the right to realize upon any property (including the right to receive future proceeds of liquidation of Defaulted Receivables) that secured a Receivable and that has been acquired by the Issuing Entity; and (vii) any and all proceeds of the property listed in clauses (i) through (vi). The property of the Issuing Entity is referred to herein as the “Trust Estate.”
The Reserve Account, which belongs to the Depositor, will be established with and maintained by the Indenture Trustee and pledged to the Indenture Trustee to secure payments on the Notes.
The Issuing Entity’s fiscal year end will occur on the 31st day of December each year.
The Issuing Entity’s principal offices are in Wilmington, Delaware, in care of Wilmington Trust, National Association, at the address described below under “The Trustees” in this prospectus.
For additional information regarding permissible activities of or restrictions on the Issuing Entity, you should refer to “Description of the Notes—Indenture—Certain Covenants” in this prospectus. The Issuing Entity will initially be capitalized with the Notes, the Certificate, the yield supplement overcollateralization amount, overcollateralization and the amounts on deposit in the accounts of the Issuing Entity.
CAPITALIZATION OF THE ISSUING ENTITY
The property of the Issuing Entity will include a pool of retail installment sales contracts (the “Receivables”) between Dealers and the Obligors of new and used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles (the “Financed Vehicles”) and all payments due on such Receivables on and after the close of business on November 30, 2021 (the “Cutoff Date”). The Receivables were originated by Dealers in accordance with TMCC’s requirements and subsequently purchased by TMCC. TMCC purchased the Receivables in the ordinary course of business pursuant to Dealer Agreements. The Receivables evidence the indirect financing made available by TMCC to the related Obligors of the Financed Vehicles. Each Receivable creates a valid, subsisting and enforceable first priority security interest in favor of TMCC in the related Financed Vehicle. On or before the date of initial issuance of the Notes (the “Closing Date”), TMCC will sell the Receivables to the Depositor pursuant to the Receivables Purchase Agreement. The Depositor will, in turn, sell the Receivables to the Issuing Entity pursuant to the Sale and Servicing Agreement. For so long as the Notes are outstanding, neither the Depositor nor TMCC may substitute any other retail installment sales contract for any Receivable sold to the Issuing Entity.
The following table illustrates the capitalization of the Issuing Entity as of the Closing Date, as if the issuance and sale of the Notes and the Certificate had taken place on such date:
Class A-1 Notes | $ 359,600,000.00 |
Class A-2 Notes | $ 555,450,000.00 |
Class A-3 Notes | $ 555,450,000.00 |
Class A-4 Notes | $ 176,540,000.00 |
Class B Notes | $ 42,240,000.00 |
Reserve Account Initial Deposit(1) | $ 4,223,204.74 |
Yield Supplement Overcollateralization Amount | $ 86,591,655.96 |
Initial Overcollateralization | |
Total | |
_______________________________________________________________
| (1) | The Reserve Account is pledged to the Indenture Trustee for the benefit of the Noteholders and, although the Issuing Entity does not have rights to the Reserve Account, funds on deposit therein will be applied to payments of the Notes in certain circumstances, as described in this prospectus. |
THE DEPOSITOR
The Depositor was formed in the State of Delaware on December 22, 2000, as a wholly-owned, limited purpose subsidiary of TMCC. The principal executive offices of the Depositor are located at 6565 Headquarters Drive, W2-3D, Plano, Texas 75024-5965, Attn: President, and its telephone number is (469) 486-9020.
The Depositor was organized primarily for the purpose of acquiring installment sales contracts similar to the Receivables and associated rights from TMCC, selling the Receivables and installment sales contracts similar to the Receivables to issuing entities, causing the issuance of securities similar to the Notes and the Certificate and
engaging in related transactions. Initially, the Depositor will also own the Certificate issued by the Issuing Entity. The Depositor’s limited liability company agreement limits its activities to the purposes indicated above and to any activities incidental to and necessary for such purposes (including repurchase obligations with respect to Warranty Receivables). Other than the obligation to obtain the consent of the Certificateholder with respect to amendments to the Trust Agreement or other consent rights given to the holder of the residual interest in the Issuing Entity, the Depositor will have no ongoing duties with respect to the Issuing Entity.
The limited liability company agreement of the Depositor includes requirements for independent directors, extensive corporate separateness covenants and restrictions on its permitted corporate functions (including on its ability to borrow money or incur debts), all of which are designed to prevent the consolidation of the assets of the Depositor with those of any of TMCC, any of its affiliates or of the Issuing Entity in the event of a bankruptcy or insolvency proceeding of TMCC, such other affiliated entity or the Issuing Entity.
THE SPONSOR, ADMINISTRATOR AND SERVICER
TMCC was incorporated in California in 1982, and commenced operations in 1983. The address of TMCC’s principal executive offices is 6565 Headquarters Drive, Plano, Texas 75024-5965. TMCC is wholly-owned by Toyota Financial Services International Corporation, a California corporation, which is a wholly-owned subsidiary of Toyota Financial Services Corporation, a Japanese corporation (“TFSC”). TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation (“TMC”), a Japanese corporation. TFSC manages TMC’s worldwide financial services operations. TMCC is marketed under the brands of Toyota Financial Services, Lexus Financial Services and Mazda Financial Services.
TMCC provides a variety of finance and voluntary vehicle and payment protection products and services to Dealers and their customers in the United States of America (excluding Hawaii) (the “U.S.A.”) and Puerto Rico. The Dealers will originate, and TMCC will purchase, the Receivables in the ordinary course of business pursuant to dealer agreements (the “Dealer Agreements”). TMCC’s products and services fall primarily into the following categories:
| • | Finance Operations – TMCC acquires retail installment sales contracts from Dealers in the U.S.A. and Puerto Rico (“retail contracts”) and leasing contracts accounted for as operating leases (“lease contracts”) from Dealers in the U.S.A. TMCC also provides dealer financing, including wholesale financing, working capital loans, revolving lines of credit and real estate financing to Dealers in the U.S.A. and Puerto Rico. |
| • | Voluntary Protection Operations – Through Toyota Motor Insurance Services, Inc., a wholly-owned subsidiary, and its insurance company subsidiaries (collectively referred to as “TMIS”), TMCC provides marketing, underwriting, and claims administration for voluntary vehicle and payment protection products sold by Dealers in the U.S.A. TMCC’s voluntary vehicle and payment protection products include vehicle service, guaranteed auto protection, prepaid maintenance, excess wear and use, tire and wheel protection, key replacement protection and used vehicle limited warranty contracts (“voluntary protection products”). TMIS also provides coverage and related administrative services to certain of TMCC’s affiliates in the U.S.A. |
TMCC acquires retail and lease contracts from dealers, and markets its voluntary protection products to dealers through three regional dealer service centers (“DSCs”) located in Chandler, Arizona (serving the West region), Plano, Texas (serving the Central region) and Alpharetta, Georgia (serving the East region). The dealer lending function is centralized at the DSC located in Plano, Texas, and supports the dealers by providing wholesale financing and other dealer financing activities such as business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements.
TMCC currently services contracts through three regional customer service centers (“CSCs”) located throughout the U.S. The CSCs support customer account servicing functions such as collections, lease terminations, and administration of both retail and lease contract customer accounts. The Central region CSC also supports voluntary protection operations by providing contract and claims administrative services. On March 24, 2021, TMCC announced that it will restructure its customer service operations to better serve its customers, by relocating and streamlining the customer service operations and investing in new technology. Over the next two years, TMCC will move its three regional CSCs to be co-located with regional DSCs.
On April 1, 2020, TMCC began providing private label finance services to third-party automotive and mobility companies commencing with the provision of services to Mazda Motor of America, Inc. (“Mazda”). TMCC currently offers exclusive private label automotive retail, lease, and dealer financing products and services marketed under the brand Mazda Financial Services to Mazda customers and dealers in the United States. On August 1, 2020, TMCC launched a full suite of voluntary protection products under the name of Mazda Protection Products (MPP). The agreement with Mazda is for an initial term of approximately five years.
Credit Risk Retention
U.S. Risk Retention. The risk retention regulations in Regulation RR of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require the Sponsor, either directly or through its majority-owned affiliates, to retain an economic interest in the credit risk of the Receivables (the “U.S. Retained Interest”) until the latest of two years from the Closing Date, the date the Pool Balance is one-third or less of the initial Pool Balance, or the date the aggregate outstanding principal amount of the Notes is one-third or less of the aggregate initial principal amount of the Notes. The retention of at least 5% of each class of Notes and the Certificate by the Sponsor or a majority-owned affiliate of the Sponsor satisfies the requirements for an “eligible vertical interest” under Regulation RR.
The Class B Notes, the Certificate and approximately, but not less than, 5% (by aggregate initial principal amount) of each of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes will be retained initially by the Depositor.
The Depositor is a wholly-owned affiliate of TMCC and it will initially retain the U.S. Retained Interest. The Sponsor will agree that it will not, and will cause the Depositor and each affiliate of the Sponsor not to, sell, transfer, finance or hedge the U.S. Retained Interest, except to the extent permitted by Regulation RR.
The material terms of the Notes are described in “Description of the Notes” and “Payments to Noteholders,” including under “—Priority of Payments,” “—Payments After Occurrence of Event of Default Resulting in Acceleration” and “— Credit and Cash Flow Enhancement.” The Certificate represents the equity or residual interest in the Issuing Entity and the right to receive amounts that remain after the Issuing Entity makes full payment of interest on and principal of the Notes payable on a given Payment Date, required deposits to the Reserve Account on that Payment Date and other required payments.
EU and UK Risk Retention. On the Closing Date, TMCC will covenant and agree, with reference to EU Securitization Rules and the UK Securitization Rules as in effect and applicable on January 19, 2022, that it will:
(a) in its capacity as an “originator” (as such term is defined in the EU Securitization Regulation and the UK Securitization Regulation) retain, on an ongoing basis, a material net economic interest of not less than 5% of the nominal value of each of the tranches sold or transferred to investors within the meaning of paragraph 3(a) of Article 6 of the EU Securitization Regulation and paragraph 3(a) of Article 6 of the UK Securitization Regulation (the “SR Retained Interest”), by retaining, either directly or indirectly through the Depositor (its wholly-owned subsidiary that is a special purpose entity and not an operating company), at least 5% (by aggregate initial principal amount) of each class of the Notes;
(b) not sell, transfer or otherwise surrender all or part of the rights, benefits or obligations arising from the SR Retained Interest or subject it to any credit risk mitigation or hedging, except to the extent permitted by the EU Securitization Rules and the UK Securitization Rules;
(c) not change the retention option or method of calculating its SR Retained Interest while any of the Notes are outstanding, except in accordance with the EU Securitization Rules and the UK Securitization Rules;
(d) confirm its continued compliance with its agreements described in paragraphs (a), (b) and (c) above by making such confirmation to the Servicer for inclusion in each monthly servicer statement to be delivered or made available to Noteholders as described under “Description of the Notes—Reports to Securityholders” or upon the request of the Issuing Entity in the event of (x) a material change in the performance of the Notes or the risk characteristics of the Notes or of the Receivables and (y) a breach of the obligations of any party to the Transfer and Servicing Agreements; and
(e) promptly notify the Issuing Entity if it fails to comply with its agreements described in paragraphs (a), (b) and (c) above.
Article 6(1) of the EU Securitization Regulation and Article 6(1) of the UK Securitization Regulation each provide that an entity shall not be considered an "originator" within the meaning thereof if it has been established or operates for the sole purpose of securitizing exposures. In this regard, see, in particular, the beginning of this section “The Sponsor, Administrator and Servicer”.
With regards to the Sponsor's credit-granting criteria and process, see “The Sponsor, Administrator and Servicer—Underwriting of Motor Vehicle Retail Installment Sales Contracts” and “—Servicing of Motor Vehicle Retail Installment Sales Contracts” in this prospectus.
The securitization transaction described in this prospectus is not being structured to ensure compliance by any person with the transparency requirements in Article 7 of the EU Securitization Regulation or Article 7 of the UK Securitization Regulation. In particular, neither TMCC nor any other party to the transaction described in this prospectus will be required to produce any information or disclosure for purposes of Article 7 of the EU Securitization Regulation or Article 7 of the UK Securitization Regulation, or to take any other action in accordance with, or in a manner contemplated by, such articles.
Each prospective investor in the Notes that is or may be subject to the EU Securitization Rules, the UK Securitization Rules or any other current or future comparable legal, regulatory or other requirements should consult with its own legal, accounting and other advisors, and its national regulator, in determining the extent to which the covenants and agreements of TMCC set forth above, and the information to be provided in the monthly servicer statements to be made available to Noteholders on an ongoing basis, as described under “Description of the Notes—Reports to Securityholders” in this prospectus, are sufficient for the purpose of complying with the EU Securitization Rules, the UK Securitization Rules or any such other applicable legal, regulatory or other requirements.
None of TMCC, its affiliates nor any other party to the transactions described in this prospectus: (a) makes any representation that the agreement by TMCC to retain the SR Retained Interest, as described above, or the information to be provided in the monthly servicer statements to be made available to Noteholders on an ongoing basis, as described under “Description of the Notes—Reports to Securityholders” in this prospectus, are or will be sufficient in all circumstances for purposes of any person’s compliance with the EU Securitization Rules, the UK Securitization Rules and any corresponding national measures that may be relevant, or with any other applicable legal, regulatory or other requirements, or that the structure of the Notes, TMCC (including its agreement to retain the SR Retained Interest) and the transactions described herein are otherwise compliant with the EU Securitization Rules, the UK Securitization Rules or any other applicable legal, regulatory or other requirements; (b) will have any liability to any person with respect to any deficiency in any such agreement or any such information, or with respect to any person’s failure or inability to comply with the EU Securitization Rules, the UK Securitization Rules and any corresponding national measures that may be relevant, or with any other applicable legal, regulatory or other requirements (other than, in each case, any liability arising under a Transaction Document as a result of a breach by such person of such Transaction Document); or (c) will have any obligation to enable any person to comply with the EU Securitization Rules, the UK Securitization Rules and any corresponding national measures that may be relevant, or with any other applicable legal, regulatory or other requirements, or any other obligation with respect to the EU Securitization Rules or the UK Securitization Rules (other than, in each case, the specific obligations undertaken and representations made by TMCC in that regard under the applicable Transfer and Servicing Agreements).
For more information regarding the EU Securitization Rules and the UK Securitization Rules, see “EU Securitization Regulation and UK Securitization Regulation” in this prospectus.
Underwriting of Motor Vehicle Retail Installment Sales Contracts
TMCC purchases retail installment sales contracts secured by new or used cars, crossover utility vehicles, light-duty trucks and sport utility vehicles from Dealers located throughout the U.S.A. and Puerto Rico. Dealers originate these Receivables in accordance with TMCC’s requirements as specified in existing agreements between TMCC and the Dealers. The Receivables are purchased in accordance with TMCC’s underwriting guidelines.
TMCC matches interest rates with customer risk as defined by credit bureau scores and other factors for a range of price and risk combinations. Rates vary based on customer credit experience, contract term, loan-to-value and collateral, including whether a new or used vehicle is financed. In addition, special rates may apply as a result
of promotional activities or exceptions granted by TMCC on a case-by-case basis, in each case in accordance with TMCC’s underwriting guidelines. TMCC reviews and adjusts interest rates based on competitive and economic factors and distributes the rates to Dealers.
Dealers transmit customer credit applications electronically through TMCC’s online system for credit acquisition. The customer may submit a credit application directly to TMCC’s website, in which case, the credit application is sent to the Dealer of the customer’s choice and is considered by TMCC for preapproval. Upon receipt of the credit application, TMCC’s loan origination system automatically requests a credit bureau report from one of the major credit bureaus. TMCC uses a proprietary credit scoring system to evaluate an applicant’s risk profile. Factors used by the credit scoring system (based on the applicant’s credit history) include the contract term, ability to pay, amount financed relative to the value of the vehicle to be financed and credit bureau attributes, such as number of trade lines, utilization ratio, and number of credit inquiries.
Applications received from Dealers include the applicant’s name, address, residential status, source and amount of monthly income and amount of monthly rent or mortgage payment. Applications received from consumers also include the applicant’s name, address, residential status, source and amount of monthly income and amount of monthly rent or mortgage payment. TMCC calculates the payment-to-income ratio for an applicant by dividing the related monthly payment by the gross monthly income and other monthly income of the applicant and any co-applicant as submitted to TMCC in the related credit application. In limited cases, the submitted income amount may be adjusted through TMCC’s income verification process.
TMCC’s loan origination system first reviews the application for compliance with key TMCC credit policies (such as OFAC, social security, fraud, identity theft and address discrepancies). It then aggregates and sends the application’s credit profile characteristics (full credit history information) and deal structure information (payment-to-income ratios, loan-to-value ratio, contract term and new versus used status), along with the VantageScore®, to a decision engine where an internal (TMCC) credit score is computed for the application.
Credit applications are subject to systematic evaluation. TMCC’s loan origination system evaluates each application to determine if it qualifies for automatic approval or decline without manual intervention (“auto-decisioning”) using specific requirements, including internal credit score and other application characteristics. Typically, the highest quality credit applications are approved automatically and the lowest quality credit applications are automatically declined.
Credit analysts (working in TMCC’s field operations) approve or decline all credit applications that are not auto-decisioned and may also approve an application that has been the subject of an automated decline. Failure to be automatically approved through auto-decisioning does not mean that an application does not meet TMCC’s underwriting guidelines. A credit analyst decisions applications based on an evaluation that considers an applicant’s creditworthiness and projected ability to meet the monthly payment obligation, which is derived, among other things, from the amount financed and the contract term. A credit analyst will verify information contained in the credit application if the application presents an elevated level of credit risk. TMCC’s proprietary scoring system assists the credit analyst in the credit review process.
The system calculates and assigns a payment probability and a credit grade. To calculate the payment probability, key data from credit bureaus are combined with data from customer applications, including ratios such as vehicle payment-to-income and loan-to-value. These and other factors are weighted by a statistically validated credit scoring process to produce the payment probability and credit grade. The credit analyst’s final credit decision is made based upon the degree of credit risk perceived by the credit analyst after assessing the strengths and weaknesses of the application.
Credit analysts are assigned approval levels for maximum amount financed, maximum percentage advanced, payment-to-income ratio, and maximum term. Senior personnel with appropriate approval authority may approve applications that have not been approved by a credit analyst or were not originally approved by a credit analyst. Purchasing standards are not strict limits or requirements and may be overridden for a number of compensating reasons determined in the judgment of the analyst or more senior personnel with appropriate approval authority evaluating the application, including, but not limited to, demonstrated ability to pay, strong credit history, and prior favorable TMCC financing experience with the applicant. Applications approved by senior personnel with appropriate approval authority are made in accordance with TMCC’s underwriting guidelines.
When a customer application for credit is approved, the Dealer is required to submit specific contract documentation in accordance with TMCC procedures. When a customer application is denied, or is the subject of a
counteroffer, by TMCC, an Equal Credit Opportunity Act adverse action notice is sent to the customer specifying the reasons for such denial or counteroffer.
TMCC regularly reviews and analyzes its portfolio of Receivables to evaluate the effectiveness of its underwriting guidelines and purchasing criteria. If external economic factors, credit losses or delinquency experience, market conditions or other factors change, TMCC may adjust its underwriting guidelines and purchasing criteria in order to change the asset quality of its portfolio or to achieve other goals and objectives.
TMCC’s retail installment sales contracts require Obligors to possess physical damage insurance and to provide evidence of such insurance upon TMCC’s request. The terms of each Receivable allow, but do not require, TMCC to obtain any such coverage on behalf of the Obligor. In accordance with its normal servicing procedures, TMCC currently does not obtain insurance coverage on behalf of the Obligor.
Electronic Contracts and Electronic Contracting
Beginning in 2011, TMCC began to engage a number of Dealers in the United States in electronic contracting, under which the related contracts are evidenced by an electronic record and are electronically signed by the related Obligors (the “Original Electronic Contracts”). TMCC has contracted with a third-party to facilitate the process of creating and storing Original Electronic Contracts. The third-party’s technology system permits transmission, storage, access and administration of Original Electronic Contracts and is comprised of proprietary and third-party software, hardware, network communications equipment, lines and services, computer servers, data centers, support and maintenance services, security devices and other related technology materials that enable electronic contracting in the automobile retail industry. Through use of the third-party’s system, a Dealer originates electronic retail installment sales contracts and then transfers these electronic contracts to TMCC.
For Receivables that are not originated electronically, TMCC typically acquires possession, directly or through a third-party, of retail installment sales contracts assigned by Dealers to TMCC, and causes such retail installment sales contracts to be converted into electronic form, and TMCC maintains control of the electronic copies (“Converted Electronic Contracts”) through TMCC’s technology system that permits storage, access and administration of these Converted Electronic Contracts.
Both TMCC’s system for Converted Electronic Contracts and the third-party system for Original Electronic Contracts use a combination of technological and administrative features that are designed to (i) designate a single copy of the record or records comprising an electronic contract as being the single authoritative copy of the Receivable, (ii) manage access to and the expression of the authoritative copy, (iii) identify TMCC as the owner of record of the authoritative copy and (iv) in the case of Original Electronic Contracts, provide a means for transferring record ownership of, and the exclusive right of access to, the authoritative copy from the current owner of record to a successor owner of record.
Servicing of Motor Vehicle Retail Installment Sales Contracts
TMCC is the Servicer of the Receivables. Each of the three CSCs services open finance contracts using the same servicing system and procedures. TMCC manages third-party vendor relationships responsible for the bankruptcy administration and post-charge-off recovery and liquidation activities, certain administrative activities, customer service activities, and pre-charge-off collections with support from the service centers. TMCC considers an Obligor to be past due if less than 90% of a regularly scheduled payment is received by the due date. TMCC uses an online collection and auto dialer system that prioritizes collection efforts and signals TMCC collections personnel to make contact with delinquent Obligors. In the event of a default by an Obligor under a retail installment sales contract, some jurisdictions require that the Obligor be notified of the default and be given a time period within which to cure the default prior to repossession. TMCC engages a third-party vendor to mail the majority of such cure notices to customers at 45 days past due. In certain limited circumstances, the required cure notices are sent directly to the customers by the service centers. In response to the COVID-19 Outbreak, the Servicer temporarily suspended outbound collection activities in states with state-wide stay-at-home orders for a period of time, but it has since resumed these activities where legally permissible to do so.
TMCC also uses a behavioral-based collection strategy to minimize risk of loss and employs various collection methods based on behavioral scoring models (which analyze borrowers’ payment performance, vehicle valuation and credit bureau scores to predict future payment behavior). In accordance with its Customary Servicing Practices, TMCC may offer to Obligors with temporary financial hardships due date changes, extensions and
payment deferrals over the course of the contract. Extensions and deferral approvals are based on specific business rules and risk-based scoring for each account.
TMCC generally determines whether to commence repossession efforts after a Receivable is approximately 80 days past due. Repossessed vehicles are held for sale to comply with statutory requirements and then sold at private auctions, unless public auctions are required by state law. Any unpaid amounts remaining after the repossessed vehicle is sold, or after taking the full balance charge‑off, are pursued by TMCC to the extent practical and legally permissible. For additional information, you should refer to “Certain Legal Aspects of the Receivables—Deficiency Judgments and Excess Proceeds” in this prospectus. Any surplus amounts remaining, after recovery fees, disposition costs, and other expenses have been paid and after any reserve charge-backs, dealer guarantees and optional product refunds have been credited to the customer’s account, are refunded to the customers. Refunds of surplus amounts are administered by the service centers. Collections of post-sale deficiencies and full-balance charge-offs are handled by third-party vendors and the service centers. TMCC’s policy is to charge‑off a finance contract in its servicing system as soon as disposition of the vehicle has been completed, sales proceeds have been received, and optional product refunds have been applied, when applicable. However, TMCC may in some circumstances charge-off a finance contract prior to repossession. In the case of uncollectible accounts, charge-off of a finance contract will occur prior to and without repossession. When repossession and disposition of the collateral has not been completed, TMCC’s policy is to charge‑off the account as soon as TMCC determines that the vehicle cannot be recovered, but not later than when the account is 120 days delinquent. However, the service centers will continue to collect or pursue recovery of the vehicle until the related contract is up to 190 days past due. In response to the COVID-19 Outbreak, the Servicer temporarily suspended repossession activities nationwide, but it has since resumed repossession activities where legally permissible to do so.
As described in the Sale and Servicing Agreement, the Servicer is generally obligated to manage, service, administer and make collections on the Receivables with reasonable care, using the same degree of skill and attention that the Servicer exercises with respect to comparable automotive receivables that it services for itself or others (“Customary Servicing Practices”). As part of its Customary Servicing Practices, the Servicer may implement new programs, whether on an intermediate, pilot or permanent basis, or on a regional or nationwide basis, or modify its standards, policies and procedures as long as, in each case, the Servicer implements such programs or modifies its standards, policies and procedures in respect of comparable assets it services for itself in the ordinary course of business. For example, the Servicer from time to time grants deferrals, extensions and other administrative relief to customers living in areas affected by natural disasters. In addition, in response to the COVID-19 Outbreak and for a limited period of time, the Servicer offered payment relief options to customers impacted by the COVID-19 Outbreak, including extensions, as described under “Risk Factors—Risks Primarily Related to the Receivables and Economic Conditions—Adverse events arising from the coronavirus outbreak could have an adverse effect on your notes” in this prospectus. The Servicer has since resumed its standard retail loan extension policies, which includes up to 60 days of payment extensions available to customers experiencing financial hardship, including unemployment or reduced earnings, as a result of the COVID-19 Outbreak.
An extension is the process of moving one or more scheduled payments to the end of the receivable’s term (thereby extending the maturity date of the related contract). Consistent with its Customary Servicing Practices, the Servicer does not consider an extended Receivable to be delinquent in respect of any scheduled payments that would otherwise have been due during the related extension period. There was a significant increase in extensions as a result of the COVID-19 Outbreak, although the Servicer has observed a decrease in the volume of requests for extensions in recent months.
As also described in the Sale and Servicing Agreement, the Servicer may, in accordance with its Customary Servicing Practices, waive any late payment charge or any other fees or charges that may be collected in the ordinary course of servicing the Receivables. In addition, to the extent provided in the Sale and Servicing Agreement, the Servicer will also be authorized to offer and grant extensions, rebates or adjustments on a Receivable in accordance with its Customary Servicing Practices, without the prior consent of the Owner Trustee, Indenture Trustee or any registered holder of the Securities, subject to the terms described under “Transfer and Servicing Agreements—Servicing Procedures” in this prospectus.
TMCC, in its capacity as Servicer, began servicing operations in 1983. In addition to servicing retail installment sales contracts similar to the Receivables, TMCC also services vehicle leases, dealer loans and other products and services.
TMCC has been engaged in purchasing finance contracts from authorized Toyota dealers in the U.S. since 1983, and has seen its managed portfolio of retail installment sales contracts grow to approximately $65.2 billion as of September 30, 2021.
The tables below under “Delinquencies, Repossessions and Net Losses” in this prospectus show TMCC’s servicing experience for its entire portfolio of retail installment sales contracts on automobiles, including contracts sold in securitizations, that TMCC continues to service, as further described under “Delinquencies, Repossessions and Net Losses” in this prospectus.
The Servicer is permitted to appoint a sub-servicer or engage a third-party to perform all or a portion of its servicing obligations at the Servicer’s expense. For example, TMCC has contracted with third parties to retrieve titles with respect to the Receivables, make collections on TMCC’s behalf and perform certain vehicle repossession functions. Such an appointment does not relieve the Servicer of its obligations or liability for servicing and administering the Receivables in accordance with the provisions of the Sale and Servicing Agreement.
Under its current servicing practices, the Servicer will modify the terms of any Receivable impacted by the Servicemembers Civil Relief Act, as amended (the “SCRA”), and will be obligated to purchase any such modified Receivable by depositing an amount equal to the remaining outstanding Principal Balance of such Receivable into the Collection Account.
The Servicer has a contract modification program pursuant to which the Servicer may enter into an amendment to the loan contract with an Obligor whose Receivable relates to a new or used vehicle that meets certain criteria, in order to extend the term of such Receivable, thereby increasing the number of Scheduled Payments remaining on such Receivable, and re-amortize the loan to reduce monthly payments. Such extensions are generally only available to Obligors if a default, breach, violation, delinquency or event permitting acceleration under the terms of such Receivable has occurred or, in the judgment of the Servicer, is imminent. The maximum term of such an amendment is 12 months added to the original term to maturity of the related contract regardless of whether prior deferments were granted. However, a Receivable will not be amended if the original contract term is greater than 72 months. In addition, if any amendment under this contract modification program has the effect of extending the maturity of the related Receivable beyond the end of the Collection Period preceding the Class B Final Scheduled Payment Date, the Servicer will be obligated to purchase such Receivable, as described under “Transfer and Servicing Agreements—Servicing Procedures” in this prospectus.
In December 2016, the Servicer implemented another contract modification program designed to increase the likelihood of collections from Obligors with final payments that are higher than their regular Scheduled Payments, generally as the result of prior extensions, due date changes or late payments in respect of the related Receivable. Under this program, the maturity date of the related Receivable may be extended by up to 12 months and interest will not accrue during the extension period. This program is only available to Obligors with fewer than two remaining Scheduled Payments, whose final Scheduled Payment is greater than $500 or at least twice the amount of their regular Scheduled Payment and who meet certain other criteria for program eligibility. Although the Servicer is not currently offering this program to Obligors, the Servicer may make the program available to Obligors again in the future. If this final payment amendment program is made available to the Obligors of any Receivables, the Servicer will be obligated to purchase those Receivables, as described under “Transfer and Servicing Agreements—Servicing Procedures” in this prospectus.
Securitization Experience
TMCC utilizes the asset-backed securities markets as a complement to its core unsecured funding programs, to secure an alternate source of liquidity, and to gain access to a unique investor base. TMCC currently maintains a shelf registration statement on Form SF-3 (the “Registration Statement”), with the Depositor listed as the registrant, with the Securities and Exchange Commission (the “SEC”) relating to the issuance of securities secured by retail installment sales contracts.
TMCC indirectly originates all Receivables in each asset pool to be securitized in the ordinary course of its business. For additional information regarding the selection criteria used in selecting the asset pool to be securitized, you should refer to “The Receivables” in this prospectus. TMCC engages one of the underwriters to assist in structuring the transaction based on the forecasted cash flows of the pool and to determine class sizes and average lives based on current market conditions.
Since it began sponsoring securitization trusts in 1993, TMCC, in its capacity as Sponsor, has sponsored 57 securitization trusts backed by retail installment sales contracts which have issued approximately $77.3 billion of registered securities and approximately $5.5 billion of unregistered securities to date, none of which have defaulted, experienced any events of default or failed to pay principal in full at maturity.
In addition to securitizing retail installment sales contracts similar to the Receivables, since 1993, TMCC has sponsored other securitization entities backed by pools of automobile leases which have issued more than $3.0 billion of registered securities and approximately $2.6 billion of unregistered securities to date, none of which have defaulted, experienced any trigger, events of default or failed to pay principal in full at maturity.
THE TRUSTEES
Wilmington Trust, National Association (“WTNA”) (will be the Owner Trustee under the Trust Agreement. WTNA is a national banking association with trust powers incorporated under the federal laws of the United States. The Owner Trustee’s principal place of business is located at 1100 North Market Street, Wilmington, Delaware 19890. WTNA is an affiliate of Wilmington Trust Company and both WTNA and Wilmington Trust Company are subsidiaries of M&T Bank Corporation. Since 1998, Wilmington Trust Company has served as trustee in numerous asset-backed securities transactions.
WTNA is subject to various legal proceedings that arise from time to time in the ordinary course of business. WTNA does not believe that the ultimate resolution of any of these proceedings will have a materially adverse effect on its services as Owner Trustee.
WTNA has provided the above information for purposes of complying with Regulation AB. Other than the above two paragraphs, WTNA has not participated in the preparation of, and is not responsible for, any other information contained in this prospectus.
The following eleven paragraphs are disclosures received from U.S. Bank National Association (“U.S. Bank”), a national banking association, which will act as Indenture Trustee, registrar and paying agent under the Indenture.
U.S. Bancorp, with total assets exceeding $567 billion as of September 30, 2021, is the parent company of U.S. Bank, the fifth largest commercial bank in the United States. As of September 30, 2021, U.S. Bancorp operated over 2,200 branch offices in 26 states. A network of specialized U.S. Bancorp offices across the nation provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses, and institutions.
U.S. Bank has one of the largest corporate trust businesses in the country with office locations in 48 domestic and 2 international cities. The Indenture will be administered from U.S. Bank’s corporate trust office located at 190 South LaSalle Street, 7th Floor, Chicago, Illinois 60603.
U.S. Bank has provided corporate trust services since 1924. As of September 30, 2021, U.S. Bank was acting as trustee with respect to over 115,000 issuances of securities with an aggregate outstanding principal balance of over $5.1 trillion. This portfolio includes corporate and municipal bonds, mortgage-backed and asset-backed securities and collateralized debt obligations.
The Indenture Trustee shall make each monthly statement available to the Noteholders via the Indenture Trustee’s internet website at https://pivot.usbank.com. Noteholders with questions may direct them to the Indenture Trustee’s bondholder services group at (800) 934-6802.
As of September 30, 2021, U.S. Bank (and its affiliate U.S. Bank Trust National Association) was acting as indenture trustee, registrar and paying agent on 161 issuances of automobile receivable-backed securities with an outstanding aggregate principal balance of approximately $65,911,000,000.
U.S. Bank has made a strategic decision to reposition its corporate trust business by transferring substantially all of its corporate trust business to its affiliate, U.S. Bank Trust Company, National Association (“U.S. Bank Trust Company”), a non-depository trust company. U.S. Bank expects to transition its duties under the Indenture and the other applicable transaction documents to U.S. Bank Trust Company in the future, subject to compliance with the relevant transfer provisions in such transaction documents. Upon succeeding to U.S. Bank as
Indenture Trustee, U.S. Bank Trust Company will administer the Indenture and the other applicable transaction documents from the same location and using the same systems and employees as U.S. Bank has for this and other applicable Toyota Auto Receivables Owner Trust transactions of the Depositor. Upon such transfer, the Indenture Trustee will maintain the Collection Account and the Reserve Account in the name of the Indenture Trustee at U.S. Bank.
U.S. Bank and other large financial institutions have been sued in their capacity as trustee or successor trustee for certain residential mortgage backed securities (“RMBS”) trusts. The complaints, primarily filed by investors or investor groups against U.S. Bank and similar institutions, allege the trustees caused losses to investors as a result of alleged failures by the sponsors, mortgage loan sellers and servicers to comply with the governing agreements for these RMBS trusts. Plaintiffs generally assert causes of action based upon the trustees’ purported failures to enforce repurchase obligations of mortgage loan sellers for alleged breaches of representations and warranties, notify securityholders of purported events of default allegedly caused by breaches of servicing standards by mortgage loan servicers and abide by a heightened standard of care following alleged events of default.
U.S. Bank denies liability and believes that it has performed its obligations under the RMBS trusts in good faith, that its actions were not the cause of losses to investors, that it has meritorious defenses, and it has contested and intends to continue contesting the plaintiffs’ claims vigorously. However, U.S. Bank cannot assure you as to the outcome of any of the litigation, or the possible impact of these litigations on the trustee or the RMBS trusts.
On March 9, 2018, a law firm purporting to represent fifteen Delaware statutory trusts (the “DSTs”) that issued securities backed by student loans (the “Student Loans”) filed a lawsuit in the Delaware Court of Chancery against U.S. Bank in its capacities as indenture trustee and successor special servicer, and three other institutions in their respective transaction capacities, with respect to the DSTs and the Student Loans. This lawsuit is captioned The National Collegiate Student Loan Master Trust I, et al. v. U.S. Bank National Association, et al., C.A. No. 2018-0167-JRS (Del. Ch.) (the “NCMSLT Action”). The complaint, as amended on June 15, 2018, alleged that the DSTs have been harmed as a result of purported misconduct or omissions by the defendants concerning administration of the trusts and special servicing of the Student Loans. Since the filing of the NCMSLT Action, certain Student Loan borrowers have made assertions against U.S. Bank concerning special servicing that appear to be based on certain allegations made on behalf of the DSTs in the NCMSLT Action.
U.S. Bank has filed a motion seeking dismissal of the operative complaint in its entirety with prejudice pursuant to Chancery Court Rules 12(b)(1) and 12(b)(6) or, in the alternative, a stay of the case while other prior filed disputes involving the DSTs and the Student Loans are litigated. On November 7, 2018, the Court ruled that the case should be stayed in its entirety pending resolution of the first-filed cases. On January 21, 2020, the Court entered an order consolidating for pretrial purposes the NCMSLT Action and three other lawsuits pending in the Delaware Court of Chancery concerning the DSTs and the Student Loans, which remains pending.
U.S. Bank denies liability in the NCMSLT Action and believes it has performed its obligations as indenture trustee and special servicer in good faith and in compliance in all material respects with the terms of the agreements governing the DSTs and that it has meritorious defenses. It has contested and intends to continue contesting the plaintiffs’ claims vigorously.
The Owner Trustee, the Indenture Trustee and any of their respective affiliates may hold the Notes in their own names or as pledgees. For the purpose of meeting the legal requirements of certain jurisdictions or in other circumstances set forth in the Trust Agreement, the Administrator and the Owner Trustee acting jointly (or in some instances, the Owner Trustee acting alone) and the Indenture Trustee will have the power to appoint co-trustees or separate trustees of all or any part of the Issuing Entity. In the event of such an appointment, all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee or the Indenture Trustee, as applicable, will be conferred or imposed upon the Owner Trustee or the Indenture Trustee, as applicable, and each such separate trustee or co-trustee jointly, or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee, as applicable, will be incompetent or unqualified to perform certain acts, singly upon such separate trustee or co-trustee who will exercise and perform such rights, powers, duties and obligations solely at the direction of the Owner Trustee or the Indenture Trustee, as applicable.
The Owner Trustee’s or the Indenture Trustee’s liability in connection with the issuance and the sale of the Securities is limited solely to the express obligations described in the Trust Agreement, the Sale and Servicing Agreement or the Indenture, as applicable. The Owner Trustee may resign at any time by giving written notice
thereof to the Depositor, the Servicer and the Indenture Trustee, and the Indenture Trustee may resign at any time by providing written notice of its resignation to the Issuing Entity. If the Owner Trustee or Indenture Trustee resigns, the Servicer or the Administrator, respectively, will be obligated to appoint a successor thereto. The Administrator may also remove the Owner Trustee or the Indenture Trustee if either (i) ceases to be eligible to continue as such under the Trust Agreement or the Indenture, as the case may be, (ii) becomes legally unable to act, (iii) is adjudged bankrupt or insolvent or (iv) a receiver or other public officer takes charge of the Owner Trustee or the Indenture Trustee, as applicable, or their respective property. In such circumstances, the Servicer or the Administrator, as applicable, will be obligated to promptly appoint a successor Owner Trustee or Indenture Trustee, respectively. Any resignation or removal of the Owner Trustee or Indenture Trustee and appointment of a successor thereto will not become effective until acceptance of the appointment by such successor. If no successor Owner Trustee has been so appointed or has accepted such appointment within 30 days after the giving of such notice of resignation, the resigning Owner Trustee may petition any court of competent jurisdiction for the appointment of a successor Owner Trustee. If a successor Indenture Trustee does not take office within 30 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Administrator or the holders of a majority of the aggregate outstanding principal amount of the Controlling Class may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee.
The Depositor, the Servicer and their respective affiliates may maintain normal commercial banking relations with the Owner Trustee, the Indenture Trustee and their respective affiliates. The Trust Agreement and the Indenture will provide that the Issuing Entity will pay the fees and expenses of the Owner Trustee and the Indenture Trustee, respectively, in connection with their duties under the Trust Agreement and Indenture, respectively. The Administrator will agree, in the Administration Agreement, to pay the fees and expenses of the Owner Trustee and the Indenture Trustee, to the extent such amounts are not paid by the Issuing Entity in accordance with the terms of the Sale and Servicing Agreement or the Indenture. The Trust Agreement will further provide that the Owner Trustee will be entitled to indemnification by the Issuing Entity for, and will be held harmless against, any loss, liability or expense incurred by the Owner Trustee not resulting from its own willful misconduct, bad faith or gross negligence (other than by reason of a breach of any of its representations or warranties to be described in the Trust Agreement). The Indenture will further provide that the Indenture Trustee will be entitled to indemnification by the Issuing Entity for, and will be held harmless against, any loss, liability or expense incurred in connection with the administration of the Issuing Entity and the performance of its duties (including reasonable attorneys’ fees and fees and expenses incurred in the enforcement of the Issuing Entity’s obligations) under the Sale and Servicing Agreement, the Trust Agreement, the Indenture, the Receivables Purchase Agreement and the Administration Agreement (collectively, the “Transfer and Servicing Agreements”) not resulting from its own willful misconduct, bad faith or negligence. The Indenture Trustee will notify the Issuing Entity and the Administrator promptly of any claim for which it may seek indemnity; provided, that, failure by the Indenture Trustee to provide such notification will not relieve the Issuing Entity or the Administrator of its obligations under the Indenture if no prejudice to the Issuing Entity or the Administrator will have resulted from such failure. Neither the Issuing Entity nor the Administrator need reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee’s own willful misconduct, negligence or bad faith.
TMCC will agree to promptly pay to the Indenture Trustee and the Owner Trustee the amount of any fees, expenses and indemnification amounts not otherwise paid or reimbursed to it by the Issuing Entity on any Payment Date; provided that the Indenture Trustee and the Owner Trustee will be obligated to reimburse TMCC for any such amounts to the extent such Trustee subsequently receives payment or reimbursement in respect thereof from the Issuing Entity.
Duties of the Owner Trustee and Indenture Trustee
The Owner Trustee will make no representations as to the validity or sufficiency of the Trust Agreement, the Notes or the Certificate (other than the authentication of the Certificate) or of any Receivables or related documents and is not accountable for the use or application by the Depositor or the Servicer of any funds paid to the Depositor or the Servicer in respect of the Notes, the Certificate or the Receivables, or the investment of any monies by the Servicer before those monies are deposited into the Collection Account. The Owner Trustee will not independently verify information concerning the Receivables. The Owner Trustee will be required to perform only those duties specifically required of it under the Trust Agreement. Generally, those duties will be limited to the receipt of the various certificates, reports or other instruments required to be furnished to the Owner Trustee under the Trust Agreement, in which case it will only be required to examine them to determine whether they conform to the requirements of the Trust Agreement. The Owner Trustee will not be charged with knowledge of a failure by the
Servicer to perform its duties under the Trust Agreement or Sale and Servicing Agreement, or the breach of any representations made with respect to the Receivables, unless the Owner Trustee obtains actual knowledge of such failure or breach as will be specified in the Trust Agreement.
The Owner Trustee will not be required to perform any of the obligations of the Issuing Entity under the Transfer and Servicing Agreements or the Asset Representations Review Agreement that are required to be performed by:
| • | the Servicer under the Sale and Servicing Agreement; |
| • | the Administrator under the Trust Agreement, the Administration Agreement or the Indenture; |
| • | the Depositor under the Receivables Purchase Agreement or the Trust Agreement; or |
| • | the Indenture Trustee under the Indenture. |
In addition, the Owner Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Trust Agreement or to make any investigation of matters arising under the Trust Agreement or to institute, conduct or defend any litigation under the Trust Agreement or in relation thereto at the request, order or direction of any Certificateholder, unless that Certificateholder has offered to the Owner Trustee security or indemnity reasonably satisfactory to the Owner Trustee against the costs, expenses and liabilities that may be incurred by the Owner Trustee in connection with the exercise of those rights.
The Indenture Trustee will make no representations as to the validity or sufficiency of the Indenture, the Notes (other than the execution and authentication thereof) or of any Receivables or related documents, and will not be accountable for the use or application by the Sponsor or the Servicer of any funds paid to the Sponsor or the Servicer in respect of the Notes, or the Receivables, or the investment of any monies by the Servicer before such monies are deposited into the Collection Account. If no Event of Default has occurred and is continuing, the Indenture Trustee will be required to perform only those duties specifically required of it under the Indenture. Generally, those duties will be limited to the receipt of the various certificates, reports or other instruments required to be furnished to the Indenture Trustee under the Indenture, in which case it will only be required to examine them to determine whether they conform to the requirements of the Indenture. The Indenture Trustee will not be charged with knowledge of a failure by the Servicer to perform its duties under the Trust Agreement or Sale and Servicing Agreement or of TMCC to perform its duties under the Administration Agreement, unless the Indenture Trustee obtains actual knowledge of such failure as will be specified in the Indenture.
If required under the Trust Indenture Act of 1939, as amended (the “TIA”), the Indenture Trustee will be required to mail (within 60 days after each December 31, beginning with December 31, 2022) to all Noteholders a brief report relating to its eligibility and qualification to continue as Indenture Trustee under the Indenture and other information relating to the Receivables. For additional information regarding such reports, you should refer to “Description of the Notes—Indenture” in this prospectus.
The Indenture Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture or the other Transfer and Servicing Agreements or to institute, conduct or defend any litigation under the Indenture or in relation to the Indenture or the other Transfer and Servicing Agreements at the request, order or direction of any of the Noteholders pursuant to such agreements, other than to fulfill the specific duties and obligations required to be performed by it in connection with (i) the asset representations review procedures described below under “Asset Representations Review” and (ii) the dispute resolution procedures described below under “Repurchases of Receivables—Dispute Resolution,” unless such Noteholders have offered to the Indenture Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that may be incurred therein or thereby. No Noteholder will have any right under the Indenture to institute any proceeding with respect to the Indenture, except pursuant to the dispute resolution procedures described below under “Repurchases of Receivables—Dispute Resolution,” unless such holder previously has given to the Indenture Trustee written notice of the occurrence of an Event of Default and (i) the Event of Default arises from the Servicer’s failure to remit payments when due or (ii) the holders of the Controlling Class (excluding for such purposes the aggregate outstanding principal amount of any Notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates), evidencing not less than 25% of the voting interests of such Controlling Class, have made written request upon the Indenture Trustee to institute such proceeding in its own name as the Indenture Trustee under the Indenture and have offered to the Indenture Trustee security or indemnity reasonably satisfactory to it and the
Indenture Trustee for 30 days has neglected or refused to institute any such proceedings. For additional information, you should refer to “Description of the Notes—Indenture” in this prospectus.
Neither the Indenture Trustee nor the Owner Trustee will have any obligation or responsibility to monitor or enforce the Sponsor’s compliance with any risk retention requirements.
FEES AND EXPENSES
The table below sets forth the fees and expenses payable on each Payment Date, unless otherwise specified in this prospectus.
| Party | Amount |
Servicer(1) | (i) One-twelfth of 1.00% multiplied by the outstanding Principal Balance of the Receivables as of the first day of the related Collection Period or, in the case of the first Payment Date, two-twelfths of 1.00% multiplied by the outstanding Principal Balance of the Receivables as of the Cutoff Date (the “Servicing Fee”), plus (ii) any investment earnings on amounts on deposit in the Collection Account and all late fees, extension fees and other administrative fees and expenses or similar charges allowed by applicable law with respect to the Receivables received by the Servicer during the related Collection Period (the “Supplemental Servicing Fee”). |
Indenture Trustee(2) | An annual fee equal to $5,000, payable on the Payment Date occurring in January of each year, commencing in January 2023. |
Owner Trustee(2) | An annual fee equal to $3,000, payable on the Payment Date occurring in January of each year, commencing in January 2023. |
Asset Representations Reviewer(2) | An annual fee equal to $5,000 per annum, payable on the Payment Date occurring in January of each year, commencing in January 2023. In the event of an Asset Representations Review, the Asset Representations Reviewer will also be entitled to receive a fee equal to $200 for each Receivable reviewed by it. |
| (1) | To be paid before any amounts are distributed to Noteholders. The Administrator will be entitled to a monthly administration fee, which will be paid to it by the Servicer from the Total Servicing Fee. |
| (2) | Fees, expenses and indemnification amounts payable to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer prior to the payment of any amounts to Noteholders are subject to an aggregate cap equal to $300,000 in any calendar year prior to the occurrence of an Event of Default under the Indenture that results in the acceleration of the maturity of the Notes. |
ASSET REPRESENTATIONS REVIEWER
General
Clayton Fixed Income Services LLC (“Clayton”), a Delaware limited liability company, will serve as asset representations reviewer (the “Asset Representations Reviewer”) pursuant to the terms of an asset representations review agreement (the “Asset Representations Review Agreement”) among the Asset Representations Reviewer, the Issuing Entity, the Servicer and the Administrator. The Asset Representations Reviewer is not and will not be affiliated with any of TMCC, the Depositor, the Issuing Entity, the Servicer, the Administrator, the Indenture Trustee, the Owner Trustee or any of their respective affiliates, and has not been, and may not be an affiliate of any person that was engaged by TMCC or any underwriter of the Notes to perform any due diligence on the Receivables prior to the Closing Date.
Clayton is a wholly-owned subsidiary of Covius Services, LLC, and with its affiliates has provided independent due diligence loan review and servicer oversight services since 1989. Clayton has been engaged as the asset representations reviewer on more than 450 auto and equipment loan, lease and dealer floorplan and credit card securitization transactions since 2015.
Clayton and its affiliates are leading providers of targeted due diligence reviews of securitized assets and policies and procedures of originators and servicers to assess compliance with representations and warranties, regulatory and legal requirements, investor guidelines and settlement agreements. Clayton and its affiliates have
performed over 12 million loan reviews and provided ongoing oversight on over $2 trillion of securitization transactions on behalf of investors, sponsors, issuers and originators, including government sponsored enterprises and other governmental agencies. These services have been performed primarily on residential mortgage loan and residential mortgage-backed security transactions, although Clayton and its affiliates have also performed these services for transactions involving auto loans, credit cards, commercial mortgage loans, student loans, timeshare loans and boat and recreational vehicle loans.
In addition to any fees payable to the Asset Representations Reviewer by the Issuing Entity, the Asset Representations Reviewer will also be entitled to reimbursement or payment by the Issuing Entity for all costs, expenses and indemnification amounts incurred by it in connection with the performance of its duties under the Asset Representations Review Agreement. TMCC will agree to promptly pay to the Asset Representations Reviewer the amount of any fees, expenses and indemnification amounts not otherwise paid or reimbursed to it by the Issuing Entity on any Payment Date pursuant to the priorities described under “Payments to Noteholders— Priority of Payments” in this prospectus; provided that the Asset Representations Reviewer will be obligated to reimburse TMCC for any such amounts to the extent it subsequently receives payment or reimbursement in respect thereof from the Issuing Entity.
Resignation and Removal
The Asset Representations Reviewer may not resign unless it determines it is legally unable to perform its obligations under the Asset Representations Review Agreement and there is no reasonable action that it could take to make the performance of its obligations under the Asset Representations Review Agreement permitted under applicable law. If the Asset Representations Reviewer breaches any of its representations, warranties, covenants or agreements under the Asset Representations Review Agreement, becomes the subject of a bankruptcy or similar proceeding, or no longer satisfies the applicable eligibility criteria, the Issuing Entity may remove the Asset Representations Reviewer and terminate its obligations under the Asset Representations Review Agreement. The Issuing Entity will be obligated to engage a successor asset representations reviewer after any such resignation or removal. No resignation or removal of the Asset Representations Reviewer will be effective, and the Asset Representations Reviewer will continue to perform its obligations under the Asset Representations Review Agreement, until a successor asset representations reviewer has accepted its engagement for such purpose.
If the Asset Representations Reviewer resigns or is removed, the Asset Representations Reviewer is obligated to pay the reasonable expenses of transitioning its obligations under the Asset Representations Review Agreement and preparing the successor asset representations reviewer to assume its obligations under the Asset Representations Review Agreement. To the extent expenses incurred in connection with the replacement of the Asset Representations Reviewer are not paid by the Asset Representations Reviewer that is being replaced, the Issuing Entity will be responsible for the payment of such expenses. Any resignation, removal, replacement or substitution of the Asset Representations Reviewer, or the appointment of a new asset representations reviewer, will be reported by the Administrator in the Form 10-D related to the Collection Period in which such change occurs, together with a description of the circumstances surrounding the change and, if applicable, information regarding the new asset representations reviewer.
Indemnity and Liability
The Asset Representations Reviewer will not be liable to any person or entity for any action taken, or not taken, in good faith under the Asset Representations Review Agreement or for errors in judgment. However, the Asset Representations Reviewer will be liable for its willful misconduct, bad faith or negligence in performing its obligations under the Asset Representations Review Agreement. The Asset Representations Reviewer and its officers, directors, employees and agents will be indemnified by the Issuing Entity for all costs, expenses, losses, damages and liabilities resulting from the performance of its obligations under the Asset Representations Review Agreement (including the fees and expenses of defending itself against any loss, damage or liability), but excluding any cost, expense, loss, damage or liability resulting from (i) the Asset Representations Reviewer’s willful misconduct, bad faith or negligence or (ii) the Asset Representations Reviewer’s breach of any of its representations or warranties in the Asset Representations Review Agreement. The Asset Representations Reviewer will indemnify each of the Issuing Entity, the Servicer, the Owner Trustee and the Indenture Trustee and their respective directors, officers, employees and agents for all fees, expenses, losses, damages and liabilities resulting from (a) the willful misconduct, bad faith or negligence of the Asset Representations Reviewer in performing its obligations under the Asset Representations Review Agreement or (b) the Asset Representations Reviewer’s breach of any of its
representations or warranties in the Asset Representations Review Agreement (including the reasonable attorneys’ fees and fees and expenses incurred in the enforcement of the Asset Representation Reviewer’s obligations).
AFFILIATIONS AND CERTAIN RELATIONSHIPS
The Issuing Entity, the Depositor and Toyota Financial Services Securities USA Corporation (“TFSS USA”) are affiliates of TMCC (which is the Sponsor, the Servicer and the Administrator). There is not currently, and there was not during the past two years, any material business relationship, agreement, arrangement, transaction or understanding that is or was entered into outside the ordinary course of business or is or was on terms other than would be obtained in an arm’s length transaction with an unrelated third-party, among any of the Depositor, the Issuing Entity, TFSS USA and the Sponsor. As of the date of this prospectus, the Indenture Trustee is an affiliate of U.S. Bancorp Investments, Inc., one of the Underwriters.
None of the Depositor, Sponsor, the Issuing Entity or any of their affiliates have, within the past two years, entered into any business relationship, agreement, arrangement, transaction or understanding with any of the Underwriters, Indenture Trustee, Owner Trustee or the Asset Representations Reviewer that would be material to an investor’s understanding of the Notes and that is outside the ordinary course of business or is on terms other than would be obtained in an arm’s length transaction with an unrelated third-party.
THE RECEIVABLES
The Receivables will be purchased by the Issuing Entity as of the Cutoff Date. The Receivables will have been originated by Dealers in accordance with TMCC’s requirements and subsequently purchased by TMCC. The Receivables evidence the indirect financing made available by TMCC to the related Obligors in connection with the purchase by such Obligors of the Financed Vehicles. On or before the Closing Date, TMCC will sell the Receivables to the Depositor pursuant to the Receivables Purchase Agreement. The Depositor will, in turn, sell the Receivables to the Issuing Entity pursuant to the Sale and Servicing Agreement. During the term of the Sale and Servicing Agreement, neither the Depositor nor TMCC may substitute any other retail installment sales contract for any Receivable sold to the Issuing Entity.
The Receivables were purchased by TMCC from Dealers in the ordinary course of business pursuant to Dealer Agreements. TMCC purchases Receivables originated in accordance with its credit standards which are based upon the vehicle buyer’s ability and willingness to repay the obligation as well as the value of the vehicle being financed, as described under “The Sponsor, Administrator and Servicer—Underwriting of Motor Vehicle Retail Installment Sales Contracts” in this prospectus.
The Receivables were selected from TMCC’s portfolio of car, crossover utility vehicle, light-duty truck and sport utility vehicle retail installment sales contracts that met several criteria. These criteria require that each Receivable satisfies the criteria below. No selection procedures believed by the Depositor to be adverse to the Noteholders will be used in selecting the Receivables.
Each Receivable will provide for the allocation of payments according to the simple interest method (“Simple Interest Receivables”). Payments on Simple Interest Receivables will be applied first to interest accrued through the date immediately preceding the date of payment and then to unpaid principal. Accordingly, if an Obligor pays an installment before its due date, the portion of the payment allocable to interest for the Interest Period will be less than if the payment had been made on the due date, the portion of the payment applied to reduce the Principal Balance will be correspondingly greater, and the Principal Balance will be amortized more rapidly than scheduled. Conversely, if an Obligor pays an installment after its due date, the portion of the payment allocable to interest for the Interest Period will be greater than if the payment had been made on the due date, the portion of the payment applied to reduce the Principal Balance will be correspondingly less, and the Principal Balance will be amortized more slowly than scheduled, in which case a larger portion of the Principal Balance may be due on the final payment date for the related Receivable. No adjustment to the scheduled monthly payments is made in the event of early or late payments, although in the case of late payments the Obligor may be subject to a late charge.
The statistical information concerning the Receivables presented throughout this prospectus is based on the Receivables as of the Cutoff Date. As of the Cutoff Date, the Receivables had an aggregate Principal Balance of $1,775,873,551.06.
TMCC and the Depositor will represent and warrant that the Receivables satisfy certain representations and warranties, as described below under “Repurchases of Receivables.” In addition, the Receivables were selected by TMCC from its portfolio of car, crossover utility vehicle, light-duty truck and sport utility vehicle retail installment sales contracts using certain selection criteria. Pursuant to such selection criteria, as of the Cutoff Date and as of the Closing Date (unless one specific date is otherwise stated below), each Receivable:
•
| falls within the range of: | |
| | remaining Principal Balance as of the Cutoff Date | $250.00 to $100,000.00 |
| | original Principal Balance | $1,000.00 to $110,000.00 |
| | APR | 0.00% to 24.00% |
| | original number of monthly payments (“Scheduled Payments”) | 12 to 72 payments |
| | remaining number of Scheduled Payments as of the Cutoff Date | 4 to 68 payments |
•
| as of the Cutoff Date, had a FICO® score of at least 620; and | |
•
| as of the Cutoff Date, does not relate to a vehicle as to which the related obligor is an employee of TMCC or any of its affiliates. |
No selection procedures believed by TMCC to be adverse to Noteholders have been used in selecting the Receivables from qualifying retail installment sales contracts owned by TMCC. Except as described in the first bullet-point above, the Receivables were not selected on the basis of their APRs.
72,197 Receivables, having an aggregate Principal Balance of approximately $1,649,880,379.80 (representing approximately 92.91% of the aggregate Principal Balance of the Receivables as of the Cutoff Date) are evidenced by electronic contracts.
Based on the mailing addresses of the Obligors, the Receivables have been originated in 49 States and the District of Columbia. Except in the case of any breach of representations and warranties by the related Dealer, the Receivables generally do not provide for recourse against the originating Dealer. The composition, and the distributions by APR, geographic distribution, remaining Principal Balance, original number of Scheduled Payments, remaining number of Scheduled Payments and FICO® score of the Receivables as of the Cutoff Date are as described in the following tables. The characteristics in the following tables related to the term of the Receivables and the vehicle type may not match the asset-level data included as an exhibit to Form ABS-EE as the result of differences between the methods of calculating the term of the Receivables for the purpose of presenting statistical information concerning the Receivables in this prospectus and for the purpose of presenting asset-level data in Form ABS-EE.
Composition of the Receivables as of the Cutoff Date
Total Principal Balance | $1,775,873,551.06 |
Number of Receivables | 77,985 |
Average Principal Balance | $22,771.99 |
Range of Principal Balances | $258.95 - $98,242.11 |
Average Original Amount Financed | $29,669.73 |
Range of Original Amounts Financed | $2,317.44 - $109,734.46 |
Weighted Average APR(1) | 3.27% |
Range of APRs | 0.00% - 17.74% |
Weighted Average Original Number of Scheduled Payments(1) | 65.83 payments |
Range of Original Number of Scheduled Payments | 12 - 72 payments |
| Percentage of Total Principal Balance Consisting of Receivables with Original Scheduled Payments Greater Than 60 Months | 54.48% |
Weighted Average Remaining Number of Scheduled Payments(1) | 54.55 payments |
Range of Remaining Number of Scheduled Payments | 4 - 68 payments |
Weighted Average FICO® score(1) (2) | 765 |
Range of FICO® scores(2) | 620 - 900 |
_______________________________________________________________
| (1) | Weighted by Principal Balance as of the Cutoff Date. |
| (2) | FICO® is a federally registered servicemark of Fair Isaac Corporation. |
The following are additional characteristics of the Receivables as of the Cutoff Date, in each case as a percentage of the aggregate Principal Balance of the Receivables as of the Cutoff Date:
New vehicles | 72.66% |
Used vehicles | 27.34% |
Cars | 32.03% |
Crossover utility vehicles(1) | 47.20% |
Light-duty trucks | 13.77% |
Sport utility vehicles(1) | 7.01% |
Toyota vehicles | 82.76% |
Lexus vehicles | 17.24% |
Hybrid electric vehicles | 15.35% |
Plug-in hybrid electric vehicles | 1.38% |
Fuel cell electric vehicles | 0.36% |
_______________________________________________________________
| (1) | Vehicles categorized in this table as “crossover utility vehicles” are included in the category of “sport utility vehicles” or “minivans” in the summary characteristics for each securitization prior to Toyota Auto Receivables 2021-B Owner Trust securitization included in Annex B, and vehicles categorized as “minivans” in the summary characteristics for each securitization prior to Toyota Auto Receivables 2021-B Owner Trust securitization included in Annex B are categorized in this table as “crossover utility vehicles.” |
Distribution of the Receivables as of the Cutoff Date by APR
| Range of APRs | | Number of Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date Aggregate Principal Balance | | | Percentage of Cutoff Date Aggregate Principal Balance | |
0.00 - 0.99% | | | 16,553 | | | | 21.23 | % | | $ | 368,991,668.98 | | | | 20.78 | % |
1.00 - 1.99% | | | 11,528 | | | | 14.78 | | | | 289,896,854.01 | | | | 16.32 | |
2.00 - 2.99% | | | 12,364 | | | | 15.85 | | | | 296,257,785.47 | | | | 16.68 | |
3.00 - 3.99% | | | 12,190 | | | | 15.63 | | | | 278,432,337.11 | | | | 15.68 | |
4.00 - 4.99% | | | 10,084 | | | | 12.93 | | | | 220,722,362.12 | | | | 12.43 | |
5.00 - 5.99% | | | 7,132 | | | | 9.15 | | | | 151,428,522.19 | | | | 8.53 | |
6.00 - 6.99% | | | 2,960 | | | | 3.80 | | | | 63,959,711.12 | | | | 3.60 | |
7.00 - 7.99% | | | 1,959 | | | | 2.51 | | | | 41,208,451.72 | | | | 2.32 | |
8.00 - 8.99% | | | 965 | | | | 1.24 | | | | 19,582,750.55 | | | | 1.10 | |
9.00 - 9.99% | | | 886 | | | | 1.14 | | | | 18,408,694.98 | | | | 1.04 | |
10.00 - 10.99% | | | 413 | | | | 0.53 | | | | 8,365,389.85 | | | | 0.47 | |
11.00 - 11.99% | | | 383 | | | | 0.49 | | | | 7,975,472.01 | | | | 0.45 | |
12.00 - 12.99% | | | 218 | | | | 0.28 | | | | 4,552,521.06 | | | | 0.26 | |
13.00 - 13.99% | | | 137 | | | | 0.18 | | | | 2,555,408.25 | | | | 0.14 | |
14.00 - 14.99% | | | 115 | | | | 0.15 | | | | 1,995,703.61 | | | | 0.11 | |
15.00 - 15.99% | | | 66 | | | | 0.08 | | | | 1,107,406.48 | | | | 0.06 | |
16.00 - 16.99% | | | 21 | | | | 0.03 | | | | 272,676.65 | | | | 0.02 | |
17.00 - 17.99% | | | | | | | | | | | | | | | | |
Total(1): | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | Percentages may not add to 100% due to rounding. |
Distribution of the Receivables as of the Cutoff Date by Geographic Distribution(1)
| Geographic Distribution | | Number of
Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date
Aggregate
Principal Balance | | | Percentage of Cutoff
Date Aggregate
Principal Balance | |
Alabama | | | 180 | | | | 0.23 | % | | $ | 5,227,067.33 | | | | 0.29 | % |
Alaska | | | 144 | | | | 0.18 | | | | 3,765,690.23 | | | | 0.21 | |
Arizona | | | 2,276 | | | | 2.92 | | | | 53,950,311.23 | | | | 3.04 | |
Arkansas | | | 842 | | | | 1.08 | | | | 19,620,849.94 | | | | 1.10 | |
California | | | 20,081 | | | | 25.75 | | | | 477,716,979.21 | | | | 26.90 | |
Colorado | | | 1,612 | | | | 2.07 | | | | 38,160,186.21 | | | | 2.15 | |
Connecticut | | | 1,071 | | | | 1.37 | | | | 21,533,073.89 | | | | 1.21 | |
Delaware | | | 269 | | | | 0.34 | | | | 5,401,791.41 | | | | 0.30 | |
District of Columbia | | | 154 | | | | 0.20 | | | | 3,448,924.43 | | | | 0.19 | |
Florida | | | 1,382 | | | | 1.77 | | | | 37,081,794.21 | | | | 2.09 | |
Georgia | | | 527 | | | | 0.68 | | | | 14,991,117.87 | | | | 0.84 | |
Idaho | | | 314 | | | | 0.40 | | | | 6,770,138.39 | | | | 0.38 | |
Illinois | | | 3,631 | | | | 4.66 | | | | 80,335,398.60 | | | | 4.52 | |
Indiana | | | 801 | | | | 1.03 | | | | 17,451,067.59 | | | | 0.98 | |
Iowa | | | 409 | | | | 0.52 | | | | 8,830,462.87 | | | | 0.50 | |
Kansas | | | 479 | | | | 0.61 | | | | 10,549,095.24 | | | | 0.59 | |
Kentucky | | | 771 | | | | 0.99 | | | | 15,877,295.26 | | | | 0.89 | |
Louisiana | | | 997 | | | | 1.28 | | | | 22,346,570.51 | | | | 1.26 | |
Maine | | | 271 | | | | 0.35 | | | | 5,017,880.92 | | | | 0.28 | |
Maryland | | | 2,584 | | | | 3.31 | | | | 57,557,452.09 | | | | 3.24 | |
Massachusetts | | | 2,279 | | | | 2.92 | | | | 42,167,720.03 | | | | 2.37 | |
Michigan | | | 510 | | | | 0.65 | | | | 10,224,798.34 | | | | 0.58 | |
Minnesota | | | 853 | | | | 1.09 | | | | 16,493,975.85 | | | | 0.93 | |
Mississippi | | | 711 | | | | 0.91 | | | | 16,381,233.85 | | | | 0.92 | |
Missouri | | | 979 | | | | 1.26 | | | | 20,259,503.63 | | | | 1.14 | |
Montana | | | 243 | | | | 0.31 | | | | 5,253,825.01 | | | | 0.30 | |
Nebraska | | | 348 | | | | 0.45 | | | | 7,331,006.15 | | | | 0.41 | |
Nevada | | | 1,274 | | | | 1.63 | | | | 34,370,494.26 | | | | 1.94 | |
New Hampshire | | | 593 | | | | 0.76 | | | | 10,382,056.63 | | | | 0.58 | |
New Jersey | | | 2,753 | | | | 3.53 | | | | 59,085,243.06 | | | | 3.33 | |
New Mexico | | | 254 | | | | 0.33 | | | | 6,107,660.70 | | | | 0.34 | |
New York | | | 2,596 | | | | 3.33 | | | | 54,432,910.74 | | | | 3.07 | |
North Carolina | | | 528 | | | | 0.68 | | | | 14,138,969.12 | | | | 0.80 | |
North Dakota | | | 61 | | | | 0.08 | | | | 1,203,048.89 | | | | 0.07 | |
Ohio | | | 1,390 | | | | 1.78 | | | | 29,361,950.17 | | | | 1.65 | |
Oklahoma | | | 595 | | | | 0.76 | | | | 13,691,076.96 | | | | 0.77 | |
Oregon | | | 1,158 | | | | 1.48 | | | | 23,866,317.92 | | | | 1.34 | |
Pennsylvania | | | 3,728 | | | | 4.78 | | | | 77,218,479.91 | | | | 4.35 | |
Rhode Island | | | 343 | | | | 0.44 | | | | 6,118,025.63 | | | | 0.34 | |
South Carolina | | | 231 | | | | 0.30 | | | | 6,202,976.95 | | | | 0.35 | |
South Dakota | | | 60 | | | | 0.08 | | | | 1,254,821.49 | | | | 0.07 | |
Tennessee | | | 1,083 | | | | 1.39 | | | | 24,951,286.91 | | | | 1.41 | |
Texas | | | 10,107 | | | | 12.96 | | | | 243,298,002.07 | | | | 13.70 | |
Utah | | | 317 | | | | 0.41 | | | | 7,506,540.17 | | | | 0.42 | |
Vermont | | | 410 | | | | 0.53 | | | | 7,507,827.48 | | | | 0.42 | |
Virginia | | | 2,700 | | | | 3.46 | | | | 61,978,169.55 | | | | 3.49 | |
Washington | | | 1,722 | | | | 2.21 | | | | 41,747,988.16 | | | | 2.35 | |
West Virginia | | | 515 | | | | 0.66 | | | | 11,608,721.77 | | | | 0.65 | |
Wisconsin | | | 697 | | | | 0.89 | | | | 12,318,192.22 | | | | 0.69 | |
Wyoming | | | | | | | | | | | | | | | | |
Total(2): | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | Based solely on the mailing addresses of the Obligors. |
| (2) | Percentages may not add to 100% due to rounding. |
Distribution of the Receivables as of the Cutoff Date by Remaining Principal Balance
| Remaining Principal Balance | | Number of Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date Aggregate Principal Balance | | | Percentage of Cutoff Date Aggregate Principal Balance | |
0.01 - 2,499.99 | | | 1,255 | | | | 1.61 | % | | $ | 2,054,397.21 | | | | 0.12 | % |
2,500.00 - 4,999.99 | | | 2,845 | | | | 3.65 | | | | 10,778,381.95 | | | | 0.61 | |
5,000.00 - 9,999.99 | | | 7,103 | | | | 9.11 | | | | 54,312,791.80 | | | | 3.06 | |
10,000.00 - 14,999.99 | | | 10,158 | | | | 13.03 | | | | 128,503,090.65 | | | | 7.24 | |
15,000.00 - 19,999.99 | | | 12,919 | | | | 16.57 | | | | 226,888,803.67 | | | | 12.78 | |
20,000.00 - 24,999.99 | | | 13,321 | | | | 17.08 | | | | 299,180,684.55 | | | | 16.85 | |
25,000.00 - 29,999.99 | | | 10,977 | | | | 14.08 | | | | 300,966,039.94 | | | | 16.95 | |
30,000.00 - 34,999.99 | | | 7,876 | | | | 10.10 | | | | 254,691,124.65 | | | | 14.34 | |
35,000.00 - 39,999.99 | | | 5,086 | | | | 6.52 | | | | 189,589,385.51 | | | | 10.68 | |
40,000.00 - 44,999.99 | | | 3,003 | | | | 3.85 | | | | 127,027,737.09 | | | | 7.15 | |
45,000.00 - 49,999.99 | | | 1,623 | | | | 2.08 | | | | 76,577,600.32 | | | | 4.31 | |
50,000.00 - 54,999.99 | | | 943 | | | | 1.21 | | | | 49,274,471.45 | | | | 2.77 | |
55,000.00 - 59,999.99 | | | 390 | | | | 0.50 | | | | 22,263,311.88 | | | | 1.25 | |
60,000.00 - 64,999.99 | | | 214 | | | | 0.27 | | | | 13,328,066.30 | | | | 0.75 | |
65,000.00 - 69,999.99 | | | 107 | | | | 0.14 | | | | 7,203,267.47 | | | | 0.41 | |
70,000.00 - 74,999.99 | | | 57 | | | | 0.07 | | | | 4,102,545.80 | | | | 0.23 | |
75,000.00 - 79,999.99 | | | 28 | | | | 0.04 | | | | 2,162,522.59 | | | | 0.12 | |
80,000.00 - 84,999.99 | | | 29 | | | | 0.04 | | | | 2,388,951.79 | | | | 0.13 | |
85,000.00 or greater | | | | | | | | | | | | | | | | |
Total(1): | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | Percentages may not add to 100% due to rounding. |
Distribution of the Receivables as of the Cutoff Date by Original Number of Scheduled Payments
Original Number
of Scheduled Payments | | Number of Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date Aggregate Principal Balance | | | Percentage of Cutoff Date Aggregate Principal Balance | |
1 - 12 | | | 7 | | | | 0.01 | % | | $ | 30,403.55 | | | | * | |
13 - 24 | | | 153 | | | | 0.20 | | | | 1,217,425.44 | | | | 0.07 | % |
25 - 36 | | | 1,608 | | | | 2.06 | | | | 19,622,108.84 | | | | 1.10 | |
37 - 48 | | | 2,750 | | | | 3.53 | | | | 36,938,661.57 | | | | 2.08 | |
49 - 60 | | | 34,136 | | | | 43.77 | | | | 750,480,622.30 | | | | 42.26 | |
61 - 72 | | | | | | | | | | | | | | | | |
Total(1): | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | Percentages may not add to 100% due to rounding. |
| * | Represents a number greater than 0.000% but less than 0.005%. |
Distribution of the Receivables as of the Cutoff Date by Remaining Number of Scheduled Payments
Remaining Number
of Scheduled Payments | | Number of Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date Aggregate Principal Balance | | | Percentage of Cutoff Date Aggregate Principal Balance | |
1 - 12 | | | 2,693 | | | | 3.45 | % | | $ | 9,402,835.88 | | | | 0.53 | % |
13 - 24 | | | 3,922 | | | | 5.03 | | | | 31,272,831.54 | | | | 1.76 | |
25 - 36 | | | 5,989 | | | | 7.68 | | | | 81,045,768.71 | | | | 4.56 | |
37 - 48 | | | 13,498 | | | | 17.31 | | | | 266,120,409.91 | | | | 14.99 | |
49 - 60 | | | 30,089 | | | | 38.58 | | | | 748,923,333.80 | | | | 42.17 | |
61 - 72 | | | | | | | | | | | | | | | | |
Total(1): | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | Percentages may not add to 100% due to rounding. |
Distribution of the Receivables as of the Cutoff Date by FICO® Score Range(1)
FICO® Score Range(1) | | Number of Receivables | | | Percentage of Total Number of Receivables | | | Cutoff Date Aggregate Principal Balance | | | Percentage of Cutoff Date Aggregate Principal Balance | |
620 - 650 | | | 2,588 | | | | 3.32 | % | | $ | 64,789,368.21 | | | | 3.65 | % |
651 - 700 | | | 9,554 | | | | 12.25 | | | | 233,859,463.89 | | | | 13.17 | |
701 - 750 | | | 20,122 | | | | 25.80 | | | | 466,859,537.28 | | | | 26.29 | |
751 - 800 | | | 19,567 | | | | 25.09 | | | | 438,600,264.62 | | | | 24.70 | |
801 - 850 | | | 17,593 | | | | 22.56 | | | | 386,730,284.16 | | | | 21.78 | |
Greater than or equal to 851 | | | | | | | | | | | | | | | | |
Total(2): | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
________________________________________________________________
| (1) | FICO® is a federally registered servicemark of Fair Isaac Corporation. |
| (2) | Percentages may not add to 100% due to rounding. |
Asset-Level Data for the Receivables
The Depositor prepared asset-level data for the Receivables and filed it with the SEC prior to the filing of this prospectus on exhibits to Form ABS-EE (such asset-level data, the “Initial Asset-Level Data”). The Initial Asset-Level Data is incorporated by reference into this prospectus. The Initial Asset-Level Data contains detailed information concerning each Receivable, including data regarding its origination characteristics, contract terms, characteristics of the related Financed Vehicle and Obligor, contract and payment activity, servicing activity and status. Investors should carefully review the Initial Asset-Level Data.
The Servicer will also prepare asset-level data with respect to the Receivables for each Collection Period and file it with the SEC on exhibits to Form ABS-EE at or before the time of filing the related Form 10-D. The exhibits to each Form ABS-EE filed by or on behalf of the Issuing Entity after the filing of this prospectus will be incorporated by reference into the related Form 10-D.
POOL UNDERWRITING
As described in “The Sponsor, Administrator and Servicer—Underwriting of Motor Vehicle Retail Installment Sales Contracts” in this prospectus, under TMCC’s origination process, credit applications are evaluated when received and are either automatically approved, automatically declined or forwarded for review by a TMCC credit analyst with appropriate approval authority. The credit analyst decisions applications based on an evaluation that considers an applicant’s creditworthiness and may consider an applicant’s projected ability to meet the monthly obligation, which is derived from the amount financed, the term, and the assigned contractual interest rate. 54,199 Receivables, having an aggregate Principal Balance of approximately $1,237,837,756.19 (representing approximately 69.70% of the aggregate Principal Balance of the Receivables as of the Cutoff Date) were automatically approved, while 23,786 Receivables, having an aggregate Principal Balance of approximately $538,035,794.87 (representing approximately 30.30% of the aggregate Principal Balance of the Receivables as of the Cutoff Date) were evaluated and approved by a TMCC credit analyst with appropriate authority in accordance with TMCC’s written underwriting guidelines. TMCC determined that whether a Receivable was accepted automatically by TMCC’s electronic credit decision system or was accepted following review by a TMCC credit analyst was not indicative of the related Receivable’s quality.
REVIEW OF POOL ASSETS
In connection with the offering of the Notes, the Depositor has performed a review of the Receivables and the disclosures regarding the Receivables included in this prospectus, including the Initial Asset-Level Data (such disclosures, collectively, the “Rule 193 Information”). This review was designed and effected to provide the Depositor with reasonable assurance that the Rule 193 Information is accurate in all material respects. The Depositor consulted with, and was assisted by, responsible personnel of TMCC in performing the review. This review consisted of a review of TMCC underwriting guidelines and the eligibility and characteristics of the Receivables, as well as a review of the disclosure describing such underwriting guidelines, and the eligibility and characteristics of the Receivables in this prospectus. Certain of the information included in the Initial Asset-Level Data was also reviewed for consistency with the descriptions of the Receivables in this prospectus.
As part of the review of the Receivables, TMCC and the Depositor identified the Rule 193 Information to be covered by the review and identified the review procedures for each portion of such Rule 193 Information. Descriptions in this prospectus under “The Sponsor, Administrator and Servicer—Underwriting of Motor Vehicle Retail Installment Sales Contracts” consisting of factual information regarding TMCC underwriting guidelines were reviewed and approved by TMCC management to ensure the accuracy of such descriptions. Additionally, members of TMCC’s Treasury group consulted with internal counsel, as well as external counsel, with respect to the descriptions of the legal and regulatory provisions that may materially and adversely affect the performance of the Receivables or payments on the Notes.
TMCC selected a random sample of 150 receivables (the “Sample”) from a pool of 87,864 receivables (the “Sample Pool”) owned by TMCC as of November 30, 2021 that satisfied, on its system, the selection criteria set forth in the sixth paragraph under “The Receivables” above. All of the receivables included in the Sample are included in the pool of Receivables described in this prospectus. The characteristics of the Receivables do not differ materially from the characteristics of the receivables in the Sample Pool. TMCC also tested the accuracy of the data contained in TMCC’s data tape. The data tape is an electronic record maintained by TMCC, which includes certain attributes of the Receivables and the receivables in the Sample Pool. TMCC reviewed the receivable files for the Sample to confirm that the following 21 data points conformed to the applicable information on the data tape, within certain tolerance bands: account number, contract date, original principal balance, original interest rate, interest rate as of the Cutoff Date, interest rate for the December 2021 scheduled monthly payment, monthly payment amount, first payment due date, maturity date at origination, vehicle identification number, vehicle make, vehicle model, model year, state of origination, new or used, original term, FICO® score, co-obligor status, delinquency status, repossession/bankruptcy status, and lienholder or assignee of security interest notation on title-related documentation. No variances between the data points reviewed and the data tape were found. TMCC also compared the statistical information contained in the table entitled “Composition of the Receivables as of the Cutoff Date” under “The Receivables” above to data contained in, or derived from, the data tape. Specifically, statistical information relating to the Receivables was recalculated using the applicable information on the data tape.
In addition to this review, the Depositor’s review of the Receivables and the Rule 193 Information, including the Initial Asset-Level Data, is further supported by TMCC compliance procedures used in the day-to-day operation of its business. These procedures include financial reporting controls required by the Sarbanes-Oxley Act, regular internal audits of key business functions, including credit decisioning, servicing and systems processing, testing controls to verify compliance with procedures and quality assurance reviews for credit decisions and securitization processes. In addition, TMCC has a network of computer applications which capture and maintain information about the Receivables. These computer systems are subject to change control processes, automated controls testing and control review programs to determine whether systems controls are operating effectively.
Portions of the review of the characteristics of, and statistical information with respect to, the Sample and the Receivables, were performed with the assistance of third parties engaged by TMCC. TMCC and the Depositor determined the nature, extent and timing of the review and the sufficiency of the assistance provided by the third parties for purposes of its review. The Depositor had ultimate authority and control over, and assumes all responsibility for, the review and the findings and conclusions of the review. The Depositor attributes all finding and conclusions of the review to itself.
After undertaking the review described above, the Depositor has found and concluded that it has reasonable assurance that the Rule 193 Information, including the Initial Asset-Level Data, is accurate in all material respects.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Described below is information concerning TMCC’s experience with respect to its portfolio of new and used car, crossover utility vehicle, light-duty truck and sport utility vehicle retail installment sales contracts which it has funded and is servicing, including contracts that have been securitized.
The data presented in the following tables are for illustrative purposes only. There is no assurance that TMCC’s delinquency, credit loss and repossession experience with respect to car, crossover utility vehicle, light-duty truck and sport utility vehicle retail installment sales contracts in the future, or the experience of the Issuing Entity with respect to the Receivables, will be similar to that described below.
Delinquency and credit losses are significantly influenced by the combined impact of a number of factors, including, but not limited to, general economic conditions (including unemployment rates, fuel and energy prices and interest rates), consumer debt levels, the used vehicle market, purchase quality mix, contract term length,
unenforceable or defeated security interests and operational changes affecting TMCC, which have the potential to adversely affect delinquencies and credit losses by disrupting TMCC’s normal operations during the operational change process.
The following tables show TMCC’s servicing experience for its entire portfolio of retail installment sales contracts on automobiles, including contracts sold in securitizations that TMCC continues to service. The percentages in the tables below have not been adjusted to eliminate the effect of the growth of TMCC’s portfolio. Accordingly, the delinquency, repossession and net loss percentages would be expected to be higher than those shown for any group of Receivables that are isolated for any period or periods of time and the delinquency, repossession and net loss data measured the activity only for that isolated group over the periods indicated, as will be the case for the Receivables. If the credit losses on the Receivables included in the Issuing Entity are greater than the historical credit loss experience listed below, the yield to holders of the Notes could be adversely affected. See also “Risk Factors—Risks Primarily Related to the Receivables and Economic Conditions—Adverse events arising from the coronavirus outbreak could have an adverse effect on your notes” and “Risk Factors—Risks Primarily Related to the Nature of the Notes and the Structure of the Transaction—Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you” in this prospectus.
Managed Portfolio
Historical Delinquency Experience(1)
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Outstanding Contracts(2) | | | 3,253,701 | | | | 3,179,160 | | | | 3,237,181 | | | | 3,142,143 | | | | 3,097,464 | | | | 3,158,375 | | | | 3,181,143 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Accounts Past Due in the following categories | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days | | | 38,476 | | | | 34,306 | | | | 27,476 | | | | 40,205 | | | | 38,498 | | | | 37,044 | | | | 36,396 | |
60 - 89 days | | | 10,515 | | | | 10,582 | | | | 7,223 | | | | 11,604 | | | | 9,576 | | | | 9,464 | | | | 8,018 | |
Over 89 days | | | 9,394 | | | | 9,781 | | | | 8,500 | | | | 12,219 | | | | 8,240 | | | | 8,063 | | | | 7,633 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Delinquencies as a Percentage of Contracts Outstanding(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
30 - 59 days | | | 1.18 | % | | | 1.08 | % | | | 0.85 | % | | | 1.28 | % | | | 1.24 | % | | | 1.17 | % | | | 1.14 | % |
60 - 89 days | | | 0.32 | % | | | 0.33 | % | | | 0.22 | % | | | 0.37 | % | | | 0.31 | % | | | 0.30 | % | | | 0.25 | % |
Over 89 days | | | 0.29 | % | | | 0.31 | % | | | 0.26 | % | | | 0.39 | % | | | 0.27 | % | | | 0.26 | % | | | 0.24 | % |
___________________
| (1) | The historical delinquency data reported in this table includes all retail installment sales contracts purchased by TMCC, excluding those purchased by a subsidiary of TMCC in Puerto Rico. The historical delinquency data reported in this table also includes contracts that have been sold but are still being serviced by TMCC. |
| (2) | Number of contracts outstanding at end of period. |
| (3) | The period of delinquency is based on the number of days payments are contractually past due. A payment is deemed to be past due if less than 90% of such payment is made. |
Managed Portfolio
Net Loss and Repossession Experience(1)
(Dollars In Thousands)
| | | For the Six Months Ended September 30, | | | For the Fiscal Years Ended March 31, | |
| | | | | | | | | | | | | | | | | | | | | | |
Principal Balance Outstanding(2) | | $ | 65,191,408 | | | $ | 59,838,978 | | | $ | 62,833,053 | | | $ | 56,265,888 | | | $ | 53,236,380 | | | $ | 52,760,041 | | | $ | 50,759,341 | |
Average Principal Balance Outstanding(3) | | $ | 64,012,230 | | | $ | 58,052,433 | | | $ | 59,549,471 | | | $ | 54,751,134 | | | $ | 52,998,211 | | | $ | 51,759,691 | | | $ | 50,238,127 | |
| Number of Contracts Outstanding | | | 3,253,701 | | | | 3,179,160 | | | | 3,237,181 | | | | 3,142,143 | | | | 3,097,464 | | | | 3,158,375 | | | | 3,181,143 | |
Average Number of Contracts Outstanding(3) | | | 3,245,441 | | | | 3,160,652 | | | | 3,189,662 | | | | 3,119,804 | | | | 3,127,920 | | | | 3,169,759 | | | | 3,172,166 | |
Number of Repossessions(4) | | | 12,370 | | | | 11,727 | | | | 28,423 | | | | 34,899 | | | | 35,694 | | | | 38,580 | | | | 45,883 | |
| Number of Repossessions as a Percent of the Number of Contracts Outstanding | | | 0.76 | %(7) | | | 0.74 | %(7) | | | 0.88 | % | | | 1.11 | % | | | 1.15 | % | | | 1.22 | % | | | 1.44 | % |
| Number of Repossessions as a Percent of the Average Number of Contracts Outstanding | | | 0.76 | %(7) | | | 0.74 | %(7) | | | 0.89 | % | | | 1.12 | % | | | 1.14 | % | | | 1.22 | % | | | 1.45 | % |
Gross Charge-Offs(5) | | $ | 82,632 | | | $ | 112,327 | | | $ | 278,833 | | | $ | 352,213 | | | $ | 323,962 | | | $ | 351,634 | | | $ | 395,109 | |
Recoveries(6) | | $ | 31,193 | | | $ | 20,679 | | | $ | 47,917 | | | $ | 49,191 | | | $ | 48,871 | | | $ | 49,567 | | | $ | 49,474 | |
Net Losses | | $ | 51,439 | | | $ | 91,648 | | | $ | 230,916 | | | $ | 303,022 | | | $ | 275,091 | | | $ | 302,067 | | | $ | 345,635 | |
| Net Losses as a Percentage of Principal Balance Outstanding | | | 0.16 | %(7) | | | 0.31 | %(7) | | | 0.37 | % | | | 0.54 | % | | | 0.52 | % | | | 0.57 | % | | | 0.68 | % |
| Net Losses as a Percentage of Average Principal Balance Outstanding | | | 0.16 | %(7) | | | 0.32 | %(7) | | | 0.39 | % | | | 0.55 | % | | | 0.52 | % | | | 0.58 | % | | | 0.69 | % |
____________________
| (1) | The net loss and repossession data reported in this table includes all retail installment sales contracts purchased by TMCC, excluding those purchased by a subsidiary of TMCC in Puerto Rico. The net loss and repossession data reported in this table also includes contracts that have been sold but are still being serviced by TMCC. |
| (2) | Principal Balance Outstanding includes payoff amount for simple interest contracts and net principal balance for actuarial contracts. Actuarial contracts do not comprise any of the Receivables. |
| (3) | Average of the principal balance or number of contracts outstanding as of the beginning and end of the indicated periods. |
| (4) | Includes bankrupt repossessions but excludes bankruptcies. |
| (5) | Amount charged off is the net remaining principal balance, including earned but not yet received finance charges, repossession expenses and unpaid extension fees, less any proceeds from the liquidation of the related vehicle. Also includes dealer reserve charge‑offs. |
| (6) | Includes all recoveries from post‑disposition monies received on previously charged‑off contracts including any proceeds from the liquidation of the related vehicle after the related charge‑off. Also includes recoveries for dealer reserve charge‑offs and dealer reserve chargebacks. |
ASSET REPRESENTATIONS REVIEW
The Asset Representations Reviewer will perform a review of certain Receivables for compliance with representations and warranties made by TMCC and the Depositor about the Receivables in the applicable Transfer and Servicing Agreements (an “Asset Representations Review”) if:
| • | a Delinquency Trigger occurs; and |
| • | the required amount of Noteholders vote to direct an Asset Representations Review. |
A “Delinquency Trigger” will occur if the aggregate Principal Balance of 60-Day Delinquent Receivables as a percentage of the aggregate Principal Balance of Receivables as of the end of a Collection Period exceeds the Delinquency Trigger Percentage for that Collection Period set by TMCC as described below.
A “60-Day Delinquent Receivable” is, for any date of determination, a Receivable for which payment of at least 90% of the required payment has not been received by the Servicer by the payment due date on or immediately preceding 60 days prior to such date of determination. Charged off Receivables are not considered delinquent Receivables and therefore are not included in the Delinquency Trigger calculation. TMCC does not treat a charged off Receivable as a delinquent Receivable because the related vehicle is no longer in the possession of the related Obligor and any loss would have been realized.
Upon the occurrence of a Delinquency Trigger, the Servicer will promptly send a notice to the Administrator, the Indenture Trustee, each Noteholder and clearing agency (which notice will be forwarded to the related Note Owners), which notice will describe the occurrence of the Delinquency Trigger and the rights of the Noteholders regarding an Asset Representations Review (including a description of the method by which Noteholders and Note Owners may contact the Indenture Trustee in order to request a formal Noteholder vote). The Administrator will also include such descriptions in the Issuing Entity’s Form 10-D filing for the Collection Period in which the Delinquency Trigger occurs.
If Noteholders and Verified Note Owners (as defined below) holding at least 5% of the aggregate outstanding principal amount of the Notes, other than Notes held by the Sponsor, the Servicer, or any affiliate of either (“Requesting Noteholders”), request a formal Noteholder vote by contacting the Indenture Trustee within 90 days of the date of the Form 10-D in which the occurrence of a Delinquency Trigger has been reported, then the Administrator will include in the Issuing Entity’s Form 10-D filing for the Collection Period in which such request occurred a statement that sufficient Requesting Noteholders are requesting a full vote of Noteholders and Note Owners to commence an Asset Representations Review. If the requesting party is a record Noteholder, no further verification of ownership will be required. If the requesting party is a Note Owner, then the Note Owner must include with its request to the Indenture Trustee a written certification that it is a Note Owner, together with one of the following additional forms of documentation of the requesting party’s status as a Note Owner:
| • | a letter from a broker dealer that is acceptable to the Indenture Trustee or Administrator, as applicable; or |
| • | any other form of documentation that is acceptable to the Indenture Trustee or Administrator, as applicable. |
Any Note Owner who provides the required certification and documentation is referred to herein as a (“Verified Note Owner”). While Verified Note Owners may request a formal Noteholder vote without acting through their respective DTC participants, in a formal Noteholder vote Note Owners may vote only through their respective DTC Participants. For more information on the policies and procedures applicable to book-entry Notes, refer to “Description of the Notes—Book-Entry Registration” in this prospectus.
The related Form 10-D filing will specify the means by which Noteholders and Note Owners may make their votes known to the Indenture Trustee and will also specify the voting deadline (not earlier than 150 days from the date of the Form 10-D filing that first reported the occurrence of the Delinquency Trigger) that will be used to calculate whether the requisite amount of Noteholders have cast affirmative votes to direct the Indenture Trustee to notify the Asset Representations Reviewer to commence an Asset Representations Review. If, by that voting deadline, (i) votes have been cast by Noteholders holding at least 5% of the aggregate outstanding principal amount
of the Notes (excluding, for the purpose of each such calculation of the requisite percentage of Noteholders, any Notes held by the Sponsor, the Servicer or any affiliate of either) and (ii) affirmative votes in favor of an Asset Representations Review have been cast by Noteholders representing at least a majority of the aggregate outstanding principal amount of the Notes held by voting Noteholders, then the Indenture Trustee will send a notice to the Asset Representations Reviewer, the Administrator and the Servicer informing them that the requisite Noteholders have directed the Asset Representations Reviewer to perform a review of all Receivables that are 60 days or more delinquent (the “ARR Receivables”) for the purpose of determining whether such Receivables were in compliance with the representations and warranties made by TMCC and the Depositor about the Receivables in the applicable Transfer and Servicing Agreements. The Form 10-D filing for the Collection Period in which the Indenture Trustee sent the foregoing notice to the Asset Representations Reviewer will specify that the requisite Noteholders have directed an Asset Representations Review.
However, if by the voting deadline date set forth in the related Form 10-D, (i) votes were not cast by Noteholders holding at least 5% of the aggregate outstanding principal amount of the Notes (excluding, for the purpose of each such calculation of the requisite percentage of Noteholders, any Notes held by the Sponsor, the Servicer or any affiliate of either) or (ii) affirmative votes have not been cast by Noteholders representing at least a majority of the aggregate outstanding principal amount of the Notes held by voting Noteholders, then no Asset Representations Review will occur for that occurrence of the Delinquency Trigger.
Within 60 days of the delivery of notice by the Indenture Trustee to the Asset Representations Reviewer, the Administrator and the Servicer that the Asset Representations Reviewer is to proceed with an Asset Representations Review, the Servicer will give the Asset Representations Reviewer access to the information necessary for it to perform a review of the ARR Receivables, as described below. The Asset Representations Reviewer will be obligated to complete its review within 60 days after receiving access to such information, provided that such deadline will be extended for an additional 30 days in respect of any ARR Receivable in respect of which additional information was required by the Asset Representations Reviewer for the purpose of completing the related review. The review procedures for each ARR Receivable will consist of tests designed to determine whether such ARR Receivable was or was not in compliance with the representations and warranties made regarding such ARR Receivable in the applicable Transfer and Servicing Agreements. The Asset Representations Reviewer will determine whether each such test was passed or failed; however, the Asset Representations Reviewer will have no obligation to determine whether a Delinquency Trigger has occurred or whether the required percentage of Noteholders has voted to direct a review, to determine which Receivables are to be the subject of a review, to obtain or confirm the validity of the information to be reviewed, to obtain missing or insufficient review information, or to take any action or cause any other party to take any action to enforce any remedies for breaches of representations or warranties. The Asset Representations Reviewer will only be required to perform the specific tests enumerated in the Asset Representations Review Agreement, and will not be obligated to perform additional procedures on any ARR Receivable other than as specified therein. However, the Asset Representations Reviewer may, in its discretion, perform other tests that it deems reasonable and appropriate in determining whether the ARR Receivables were in compliance with the representations and warranties made by TMCC and the Depositor about the Receivables in the Transfer and Servicing Agreements as of the Cutoff Date, and may provide additional information about any ARR Receivable that it determines in good faith to be material to the related review. If the Servicer notifies the Asset Representations Reviewer that an ARR Receivable was paid in full or repurchased from the pool before a review report is delivered, the Asset Representations Reviewer will terminate the tests of that ARR Receivable and the review of that ARR Receivable will be considered complete.
The Sale and Servicing Agreement will provide that the Servicer will render reasonable assistance, including granting access to copies of any underlying documents and Receivable files, to the Asset Representations Reviewer to facilitate the performance of a review of all ARR Receivables in order to verify compliance with the representations and warranties made to the Issuing Entity by TMCC and the Depositor. The Servicer will provide the Asset Representations Reviewer with access to the related Receivables and all other relevant documents related to each ARR Receivable. The Servicer may redact these materials to remove any personally identifiable customer information, but will use commercially reasonable efforts not to change the meaning of these materials or their usefulness to the Asset Representations Reviewer in connection with its review.
The Asset Representations Reviewer will report its findings and conclusions to the Issuing Entity, the Servicer, the Administrator, the Indenture Trustee, TMCC and the Depositor after completion of the Asset Representations Review, but in any event, no later than five days after completion of the Asset Representations Review. The ultimate determination as to whether the compliance or non-compliance of any representation constitutes a breach of the applicable agreement will not be made by the Asset Representations Reviewer, but by
TMCC and the Depositor, as described below. The related Form 10-D filed for the Issuing Entity will include a summary of the Asset Representations Reviewer’s report, so that Noteholders and Note Owners can form their own views of whether they consider any non-compliance of any representation to be a breach of the applicable agreement and, if so, what actions they intend to take. The Form 10-D will also specify the means by which Noteholders and Verified Note Owners may notify the Indenture Trustee, TMCC and the Depositor in writing that they consider any non-compliance of any representation to be a breach of the applicable agreement, or may request in writing that a Receivable be repurchased. If a Noteholder or a Verified Note Owner notifies the Indenture Trustee in writing that it considers any non-compliance of any representation to be a breach of the applicable agreement, or requests in writing that a Receivable be repurchased, the Indenture Trustee will forward that written notice to TMCC and the Depositor.
Apart from the obligation of the Indenture Trustee to fulfill the specific duties and obligations required to be performed by it in connection with (i) the asset representations review procedures, as described herein under “Asset Representations Review,” and (ii) the dispute resolution procedures, as described below under “Repurchases of Receivables—Dispute Resolution,” the Indenture Trustee will not have any obligation to pursue or otherwise be involved in resolving any repurchase request, including any such request that is the subject of a dispute resolution proceeding, unless it is directed to do so by Noteholders representing not less than a majority of the principal amount of the Notes of the Controlling Class then outstanding (excluding for such purposes the aggregate outstanding principal amount of any Notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates), acting together as a single class, and such Noteholders have offered to the Indenture Trustee security or indemnity reasonably satisfactory to it against the reasonable costs, expenses, disbursements, advances and liabilities that might be incurred by it, its agents and its counsel in compliance with such direction.
TMCC and the Depositor will evaluate any report of the Asset Representations Reviewer, and any repurchase request received from the Indenture Trustee, any Noteholder, any Verified Note Owner or any other party to any of the transaction documents. After receiving and reviewing a report of the Asset Representations Reviewer, or any such repurchase request, the Depositor will have the sole ability to determine if there was non-compliance with any representation or warranty made by it that constitutes a breach, and whether to repurchase the related Receivable from the Issuing Entity, and TMCC will have the sole ability to determine if there was non-compliance with any representation or warranty made by it that constitutes a breach, and whether to repurchase the related Receivable from the Depositor. None of the Indenture Trustee, the Owner Trustee, the Asset Representations Reviewer, the Depositor, the Sponsor or the Servicer is otherwise obligated to monitor the Receivables or otherwise to investigate the accuracy of the representations and warranties with respect to the Receivables. The transaction documents require that any breach of the representations and warranties must materially and adversely affect the Issuing Entity’s interests in a Receivable before the TMCC or the Depositor would be required to repurchase the Receivable.
Delinquency Trigger
The “Delinquency Trigger Percentage” will equal 4.65%.
TMCC developed the Delinquency Trigger Percentage by considering the 60-Day Delinquent Receivables rate observed in each Collection Period (through and including the Collection Period related to the December 2021 Payment Date) of its public securitization transactions since 2010. TMCC observed the highest monthly 60-Day Delinquent Receivables rate from these transactions and applied a multiple of 5.0x to the maximum 60-Day Delinquent Receivables rate and rounded to the nearest 0.05%. This multiple corresponds generally to the multiple of expected cumulative net losses on the pool of Receivables shortly before the Notes would realize the first dollar loss. By aligning this multiple with the maximum level of credit losses that the Notes can withstand without a loss, TMCC believes the Delinquency Trigger Percentage provides an appropriate early warning threshold at the point when Noteholders may benefit from an Asset Representations Review.
TMCC believes that the Delinquency Trigger Percentage is appropriate based on (1) its review of TMCC’s other transactions, which have not experienced significant historical 60-Day Delinquent Receivables, (2) the relatively stable economic period for these transactions and (3) the expectation that the 5.0x multiple would generate a Delinquency Trigger Percentage that would be met shortly before any losses on the Notes would occur.
For the prior pools of receivables that were securitized by TMCC included in Annex B, the 60-Day Delinquent Receivables rate has ranged from 0.01% to 0.93% (through and including the Collection Period related to the December 2021 Payment Date).
REPURCHASES OF RECEIVABLES
TMCC and the Depositor (each, a “Seller”), pursuant to the Receivables Purchase Agreement and the Sale and Servicing Agreement, respectively, will represent and warrant with respect to each Receivable, that as of the Cutoff Date and as of the Closing Date (or as of such other date specified below):
| • | it was originated in the United States by a Dealer for the retail sale of the related Financed Vehicle in the ordinary course of such Dealer’s business, it has been fully and properly executed or electronically authenticated by the parties thereto, it has been purchased by TMCC from such Dealer under an existing agreement with TMCC, and it has been validly assigned by such Dealer to TMCC; |
| • | as of the Closing Date, TMCC has, or has started procedures that will result in TMCC having, a perfected, first priority security interest in the related Financed Vehicle, which security interest was validly created and is assignable to the related transferee; |
| • | it provides for scheduled monthly payments that fully amortize the amount financed by maturity (except for minimally different payments in the first or last month in the life of the Receivable) and it provides for a finance charge or yield interest at its APR, in either case calculated based on the simple interest method; |
| • | it allows for prepayment without penalty; |
| • | to the Seller’s knowledge, it complied in all material respects at the time it was originated with all requirements of applicable federal, state and local laws, and regulations thereunder; |
| • | it is on a form contract containing customary and enforceable provisions that includes rights and remedies allowing the holder to enforce the obligation and realize on the related Financed Vehicle and represents the legal, valid and binding payment obligation in writing of the related Obligor, enforceable by the holder thereof in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors’ rights in general and by general principles of equity and consumer protection laws, regardless of whether such enforceability is considered in a proceeding in equity or at law; |
| • | it is not due from the United States or any state or local government, or from any agency, department or instrumentality of the United States or any state or local government; |
| • | as of the Cutoff Date, it has not been satisfied, nor has the related Financed Vehicle been released in whole or in part from the lien granted by the such Receivable; |
| • | as of the Cutoff Date, no material provision of the Receivable has been amended, modified or waived in a manner that is prohibited by the provisions of the Sale and Servicing Agreement; |
| • | to the Seller’s knowledge, as of the Closing Date, it is not subject to any right of rescission, setoff, counterclaim or defense, nor has any such right been asserted or threatened with respect to such Receivable; |
| • | except for payment delinquencies that have been continuing for a period of not more than 29 days, no payment default under the terms of any Receivable exists as of the Cutoff Date; |
| • | the related Financed Vehicle has not been repossessed without reinstatement as of the Cutoff Date; |
| • | the terms of such Receivable require the related Obligor to obtain and maintain physical damage insurance covering the related Financed Vehicle in accordance with TMCC’s normal requirements, and the related Financed Vehicle was not subject to force-placed insurance; |
| • | immediately prior to the transfer and assignment contemplated by the related Transfer and Servicing Agreement, the Seller thereof had good and marketable title to such Receivable free and clear of all liens and rights of others (other than pursuant to the Transfer and Servicing Agreements) and, immediately upon the transfer and assignment thereof, the purchaser thereof will have good and marketable title to such Receivable, free and clear of all liens and rights of others (other than pursuant to the Transfer and Servicing Agreements); |
| • | it has not been originated in, and is not subject to the laws of, any jurisdiction under which the sale, transfer and assignment of such Receivable under the applicable Transfer and Servicing Agreement or the pledge of such Receivable under the Indenture are unlawful, void or voidable, and the terms of such Receivable do not limit the right of the owner of such Receivable to sell such Receivable; and |
| • | (A) it is being serviced by TMCC as of the Closing Date; (B) as of the Cutoff Date, it is secured by a new or used car, crossover utility vehicle, light-duty truck or sport utility vehicle; (C) it was no more than 29 days past due as of the Cutoff Date; and (D) as of the Cutoff Date, it was not noted in the records of TMCC or the Servicer as being the subject of a bankruptcy proceeding or insolvency proceeding. |
By the last day of the second month following the discovery by or notice to the Depositor of a breach of any representation or warranty of the Depositor that materially and adversely affects the interests of the Issuing Entity in any Receivable, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the Seller as to the facts stated therein, unless the breach is cured in all material respects, the Depositor will repurchase such Receivable (a “Warranty Receivable”) from the Issuing Entity and, pursuant to the Receivables Purchase Agreement, TMCC will purchase such Warranty Receivable from the Depositor at a price equal to the unpaid Principal Balance owed by the Obligor in respect of such Receivable as of the last day of the related Collection Period, plus interest thereon at a rate equal to the related APR up to and including the last day of the related Collection Period (the “Warranty Purchase Payment”). This repurchase obligation will constitute the sole remedy (other than the indemnification available to the Issuing Entity as described below) available to the Noteholders, the Indenture Trustee or the Issuing Entity for any such uncured breach by the Depositor. The obligation of the Depositor to repurchase a Warranty Receivable will not be conditioned on performance by TMCC of its obligation to purchase such Warranty Receivable from the Depositor pursuant to the Receivables Purchase Agreement.
The transaction documents for prior pools of Receivables securitized by the Sponsor also contain covenants requiring the repurchase of Receivables for breach of a related representation or warranty. TMCC, as securitizer, discloses, in a report on Form ABS-15G, all fulfilled and unfulfilled repurchase requests for securitized Receivables that were the subject of a demand to repurchase. For the three years ended September 30, 2021, there was no activity to report with respect to any demand to repurchase Receivables underlying a securitization sponsored by TMCC. TMCC (CIK Number: 0000834071) filed its most recent corresponding report on Form ABS-15G with the SEC on February 12, 2021. For additional information about obtaining a copy of the report, you should refer to “Where You Can Find More Information About Your Notes” in this prospectus.
In the Sale and Servicing Agreement, the Servicer will covenant that, except as otherwise contemplated in the Sale and Servicing Agreement, (i) it will not release any Financed Vehicle from the security interest granted in the related Receivable except (a) in the event of payment in full or payment in full less a deficiency which the Servicer would not attempt to collect in accordance with its Customary Servicing Practices by or on behalf of the Obligor thereunder, (b) in connection with repossession of such Financed Vehicle by the Servicer or (c) as may be required by an insurer in order to receive proceeds from any insurance policy covering such Financed Vehicle; (ii) it will do nothing to impair the rights of the Securityholders in the Receivables and (iii) it will not amend any Receivable such that the total number of Scheduled Payments, the Amount Financed (as defined in the Sale and Servicing Agreement) or the APR is altered or the maturity of a Receivable is extended beyond the Final Scheduled Maturity Date. By the last day of the second Collection Period following the Collection Period in which the Servicer discovers or receives notice from the Owner Trustee, on behalf of the Issuing Entity, of a breach of any such covenant that materially and adversely affects the interest of the Issuing Entity in a Receivable, the Servicer, unless the breach is cured in all material respects, will purchase the Receivable (an “Administrative Receivable”) from the Issuing Entity at a price equal to the unpaid Principal Balance owed by the Obligor in respect of such Receivable as of the last day of the related Collection Period, plus interest thereon at a rate equal to the related APR up to and including the last day of the related Collection Period (the “Administrative Purchase Payment”). This purchase obligation will constitute the sole remedy (other than the indemnification available to the Issuing Entity as described below) available to the Securityholders, the Issuing Entity, the Indenture Trustee or the Owner Trustee for any such uncured breach by the Servicer.
In the Receivables Purchase Agreement, TMCC will agree to indemnify the Depositor for any failure of a Receivable to have been originated in compliance with all applicable requirements of law. In the Sale and Servicing Agreement, the depositor’s right to such indemnification will be assigned to the Issuing Entity.
Dispute Resolution
The Sale and Servicing Agreement provides that if the Owner Trustee or any Noteholder or Verified Note Owner requests (by written notice to TMCC or the Depositor), that a Receivable be repurchased due to an alleged breach of a representation or warranty as described above, and the request has not been fulfilled or otherwise resolved to the reasonable satisfaction of the requesting party within 180 days of the receipt of such request by TMCC or the Depositor (which, if sent by a Noteholder or Verified Note Owner to the Indenture Trustee, will be forwarded by the Indenture Trustee to TMCC and the Depositor), then the requesting party has the right to refer the matter, at its discretion, to either mediation (including non-binding arbitration) or third-party binding arbitration held in New York, New York, on the following terms, or to institute a legal proceeding. Dispute resolution to resolve repurchase requests will be available regardless of whether Noteholders and Verified Note Owners voted to direct an Asset Representations Review or whether the Delinquency Trigger occurred.
The Depositor will direct the Indenture Trustee to, and the Indenture Trustee will, notify the requesting party of the date when the 180-day period ends without resolution by the appropriate party. The requesting party will be required to provide notice of its choice to mediate, to arbitrate or to institute a legal proceeding to the appropriate party within 30 days after the delivery of such notice of the end of the 180-day period. The Indenture Trustee will have no obligation whatsoever to participate in any dispute resolution, mediation or arbitration nor to determine if a repurchase request has been resolved.
JAMS, an organization providing alternative dispute resolution services, will administer any mediation (including non-binding arbitration) pursuant to its mediation procedures in effect on the Closing Date. The mediator will be impartial, knowledgeable about and experienced with the laws of the State of New York and an attorney specializing in commercial litigation with at least 15 years of experience, and will be appointed from a list of neutrals maintained by JAMS. Upon being supplied a list of at least 10 potential mediators fitting the criteria above by JAMS, each party will have the right to exercise two peremptory challenges within 14 days and to rank the remaining potential mediators in order of preference. JAMS will select the mediator from the remaining attorneys on the list, respecting the preference choices of the parties to the extent possible. The parties will use commercially reasonable efforts to begin the mediation within 30 days of the selection of the mediator and to conclude the mediation within 60 days of the start of the mediation. The fees and expenses of the mediation will be allocated as mutually agreed by the parties as part of the mediation.
Any binding arbitration will be administered by the American Arbitration Association (the “AAA”) pursuant to its commercial arbitration rules and mediation procedures in effect on the Closing Date. The panel will consist of three members. One arbitrator will be appointed by the requesting party within five business days of its notice selecting arbitration, one arbitrator will be appointed by the Depositor within five business days of the requesting party’s appointment, and one arbitrator (who will preside over the panel) will be chosen by the two party-appointed arbitrators within five business days of the second appointment. If any party fails to appoint an arbitrator or the two party-appointed arbitrators fail to appoint the third within the required time periods, then the appointments will be made by AAA. In each such case, each arbitrator will be impartial, knowledgeable about and experienced with the laws of the State of New York and an attorney specializing in commercial litigation with at least 15 years of experience. Each arbitrator will be independent and will abide by the AAA’s code of ethics for arbitrators in commercial disputes in effect as of the Closing Date. Before accepting an appointment, each arbitrator must disclose any circumstances likely to create a reasonable inference of bias or conflict of interest or likely to preclude completion of the hearings within the prescribed time schedule. Any arbitrator may be removed by AAA for cause consisting of actual bias, conflict of interest or other serious potential for conflict.
After consulting with the parties, the panel will devise procedures and deadlines for the arbitration, to the extent not already agreed to by the parties, with the goal of expediting the proceeding and completing the arbitration within 90 days after appointment. The arbitral panel will have the authority to schedule, hear, and determine any and all motions in accordance with New York law, and will do so on the motion of any party. Unless otherwise agreed by the parties, each party to the arbitration will be presumptively limited to four party witness depositions not to exceed five hours, and one set of interrogatories, document requests and requests for admissions, though the panel will have the ability to grant additional discovery based on a determination of good cause after a showing that additional discovery is reasonable and necessary.
The panel will make its final determination no later than 90 days after appointment. The panel will not have the power to award punitive damages or consequential damages. The panel will determine and award the costs of the arbitration and reasonable attorneys’ fees to the parties as determined by the panel in its reasonable discretion. The determination in any binding arbitration will be final and non-appealable and may be enforced in any court of competent jurisdiction. By selecting binding arbitration, the selecting party will give up the right to sue in court, including the right to a trial by jury. No person may bring a putative or certified class action to arbitration.
STATIC POOLS
Attached to this prospectus as Annex B is tabular information that reflects the static pool performance data (including delinquency and cumulative net loss experience) of previous, recent amortizing securitizations of the Sponsor. The static pool information is deemed to be a part of this prospectus and the registration statement of which this prospectus is a part.
The characteristics of the receivables included in the static pool information discussed above, as well as the social, economic and other conditions existing at the time when those receivables were originated and repaid, may vary materially from the characteristics of the Receivables and the social, economic and other conditions existing at the time when the Receivables were originated and those that will exist in the future when the Receivables are required to be repaid. For additional information regarding the receivables included in the Sponsor’s previous, recent amortizing securitizations, you should refer to the summary characteristics for such prior securitizations that are included in Annex B. There is no assurance that the delinquency and loss experience with respect to the Receivables will be similar to the delinquency and loss experience with respect to the receivables described in Annex B to this prospectus.
All references in Annex B to Toyota vehicles refer both to vehicles manufactured under the Toyota brand and to vehicles manufactured under the Scion brand prior to the transition from the Scion brand to the Toyota brand in August 2016.
USE OF PROCEEDS
The Depositor will use the net proceeds from the sale of the Notes to third parties to purchase the Receivables from TMCC pursuant to the Receivables Purchase Agreement and to make a deposit into the Reserve Account.
PREPAYMENT AND YIELD CONSIDERATIONS
For additional information regarding certain maturity and prepayment considerations with respect to the Notes, you should refer to “Risk Factors––Risks Primarily Related to the Nature of the Notes and the Structure of the Transaction––Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you,” “Description of the Notes––Payments of Principal” and “Weighted Average Lives of the Notes” in this prospectus.
Because the rate of payment of principal of each class of Notes depends primarily on the rate of payment (including prepayments) of the Principal Balance of the Receivables, final payment of any class of Notes could occur significantly earlier or later than their respective Final Scheduled Payment Dates. Noteholders will bear the risk of not being able to reinvest principal payments on the Notes at yields equal at least to the yield on their respective Notes. Such reinvestment risk includes the risk that interest rates may be lower at the time such holders received payments from the Issuing Entity than interest rates would otherwise have been had such prepayments not been made or had such prepayments been made at a different time. No prediction can be made as to the rate of prepayments on the Receivables.
Obligors with higher interest rate Receivables may prepay at a faster rate than Obligors with lower interest rate Receivables. Higher rates of prepayments of Receivables with higher APRs may result in the Issuing Entity holding Receivables that will generate insufficient collections to cover delinquencies or chargeoffs on the Receivables or to make current payments of interest on or principal of the Notes. Similarly, higher rates of prepayments of Receivables with higher APRs will decrease the amounts available to be deposited in the Reserve Account, reducing the protection against losses and shortfalls afforded thereby to the Notes. For additional information, you should refer to the table entitled “Distribution of the Receivables as of the Cutoff Date by APR” under “The Receivables” in this prospectus.
Prior to the occurrence of an Event of Default resulting in acceleration of the maturity of the Notes, principal payments will be made on a sequential basis, i.e., principal payments will not be made on the Class A-2 Notes until the principal amount of the Class A-1 Notes is reduced to zero; principal payments will not be made on the Class A-3 Notes until the principal amounts of the Class A-2 Notes are reduced to zero; principal payments will not be made on the Class A-4 Notes until the principal amount of the Class A-3 Notes is reduced to zero; and principal payments will not be made on the Class B Notes until the principal amount of the Class A-4 Notes is reduced to zero. However, upon the occurrence and during the continuation of an Event of Default resulting in acceleration of the maturity of the Notes (and until such acceleration has been rescinded), the Issuing Entity will pay principal of the Notes, first, to the holders of the Class A-1 Notes until the principal amount of the Class A-1 Notes has been reduced to zero, second, pro rata, based upon their respective unpaid principal amounts, to the holders of the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, until the principal amount of each such class of the Notes has been reduced to zero, and third, to the holders of the Class B Notes until the principal amount of the Class B Notes has been reduced to zero. It is expected that final payment of each class of Notes will occur on or prior to their respective Final Scheduled Payment Dates.
Failure to make final payment of any class of Notes on or prior to its respective Final Scheduled Payment Dates will constitute an Event of Default under the Indenture, which may result in an acceleration of payments in respect of classes that have not reached their respective Final Scheduled Payment Dates. However, as the rate of payment of principal of each class of Notes depends on the rate of payment (including prepayments) of the Principal Balance of the Receivables, sufficient funds may not be available to pay each class of Notes in full on or prior to its respective Final Scheduled Payment Dates. If sufficient funds are not available, final payment of any class of Notes could occur later than such dates, and the holders of such Notes could suffer a loss.
The rate of prepayments of the Receivables may be influenced by a variety of economic, social and other factors, and under certain circumstances relating to breaches of representations, warranties or covenants, the Depositor and/or the Servicer will be obligated to repurchase Receivables from the Issuing Entity. A higher than anticipated rate of prepayments will reduce the aggregate Principal Balance of the Receivables more quickly than expected and thereby reduce anticipated aggregate interest payments on the Notes. For additional information, you should refer to “Risk Factors––Risks Primarily Related to the Nature of the Notes and the Structure of the Transaction––Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you” in this prospectus.
Noteholders should consider, in the case of Notes purchased at a discount, the risk that a slower than anticipated rate of principal payments on the Receivables could result in an actual yield that is less than the anticipated yield and, in the case of Notes purchased at a premium, the risk that a faster than anticipated rate of principal payments on the Receivables could result in an actual yield that is less than the anticipated yield.
Certain events (including some that are not within the control of the Issuing Entity) may cause an Event of Default under the Indenture. Certain Events of Default under the Indenture will not result in acceleration of the Notes unless a majority of the holders of the Class A Notes, for so long as the Class A Notes are outstanding, and thereafter, the Class B Notes then outstanding (the “Controlling Class”) (excluding for such purposes the aggregate outstanding principal amount of any Notes held of record or beneficially owned by TMCC, TAFR LLC or any of their affiliates), voting together as a single class, instruct the Indenture Trustee to accelerate the Notes. The holders of any class of Notes may not have sufficient voting interests as of any date to cause or to prevent an acceleration of the Notes. If an Event of Default under the Indenture results in the acceleration of the maturity of the Notes, the Indenture Trustee may liquidate the assets of the Issuing Entity. Liquidation would accelerate payment of all Notes that are then outstanding. If a liquidation occurs close to the date when any class otherwise would have been paid in full, repayment of such class might be delayed while liquidation of the assets is occurring. The Issuing Entity cannot predict the length of time that will be required for liquidation of the assets of the Issuing Entity to be
completed. Even if liquidation proceeds are sufficient to repay the Notes in full, any liquidation that causes principal of a class of Notes to be paid before the related Final Scheduled Payment Date will involve the prepayment risks described under “Risk Factors––Risks Primarily Related to the Nature of the Notes and the Structure of the Transaction––Prepayments on receivables may cause prepayments on the notes, resulting in reduced returns on your investment and reinvestment risk to you” in this prospectus.
The proceeds of any liquidation of the assets of the Issuing Entity may be insufficient to pay in full all accrued interest on and principal of each outstanding class of Notes. All outstanding Notes will be affected by any shortfall in liquidation proceeds.
WEIGHTED AVERAGE LIVES OF THE NOTES
The weighted average lives of the Notes will generally be influenced by the rate at which the Principal Balances of the Receivables are paid, which payment may be in the form of scheduled amortization or prepayments. For this purpose, the term “prepayments” includes prepayments in full, partial prepayments (including those related to rebates of extended warranty contract costs and insurance premiums), liquidations due to default, as well as receipts of proceeds from physical damage, theft, credit life and credit disability insurance policies and repurchases or purchases by the Depositor or TMCC of certain Receivables for breaches of covenants by the Servicer or for breaches of representations and warranties. The term “weighted average life” corresponds to the average amount of time during which each dollar of principal of a Receivable is outstanding.
All of the Receivables will be prepayable at any time without penalty to the Obligor. If full or partial prepayments are received, the actual weighted average lives of the Receivables may be shorter than the scheduled weighted average lives of the Receivables. The rate of prepayment of automotive receivables is influenced by a variety of economic, social and other factors, including the fact that an Obligor generally may not sell or transfer the Financed Vehicle securing a Receivable without the consent of the Servicer. A prepayment may also occur if an Obligor refinances a Receivable. Refinancings may occur more frequently in a declining interest rate environment.
Under certain circumstances, the Depositor or Servicer will be obligated to repurchase Warranty Receivables from the Issuing Entity. For additional information, you should refer to “Repurchases of Receivables” and “Transfer and Servicing Agreements—Servicing Procedures” in this prospectus. In addition, pursuant to agreements between TMCC and the Dealers, each Dealer is obligated to repurchase from TMCC contracts that do not meet certain representations and warranties made by such Dealer (such Dealer repurchase obligations are referred to in this prospectus as “Dealer Recourse”). For additional information, you should refer to “The Issuing Entity” in this prospectus. Such representations and warranties relate primarily to the origination of the contracts and the perfection of the security interests in the related Financed Vehicles, and do not relate to the creditworthiness of the related Obligors or the collectability of such contracts. Although the Dealer Agreements with respect to the Receivables will not be assigned to the Issuing Entity, TMCC’s interest in any Dealer Recourse will be assigned, and the Sale and Servicing Agreement will require that TMCC deposits any recovery in respect of any Receivable pursuant to any Dealer Recourse in the Collection Account. The sales by the Dealers of installment sales contracts to TMCC do not generally provide for recourse against the Dealers for unpaid amounts in the event of a default by an Obligor under such retail installment sales contract, other than in connection with the breach of the foregoing representations and warranties. For additional information, you should refer to “Transfer and Servicing Agreements—Sale and Assignment of Receivables” and “—Servicing Procedures” in this prospectus.
The effective yield on, and average lives of, the Notes will depend on, among other things, the amount of payments (including prepayments) on or in respect of the Receivables and the rate at which such payments are made to such Noteholders. The timing of changes in the rate of payments in respect of the Receivables may also significantly affect an investor’s actual yield to maturity and the average lives of the Notes. A substantial increase in the rate of payments on or in respect of the Receivables (including liquidation or other disposition of Financed Vehicles) may shorten the final maturities of, and may significantly affect the yields on, the Notes.
An investor’s expected yield will be affected by:
| • | the price paid for the Notes, |
| • | the rate of prepayments of the Receivables, and |
| • | the investor’s assumed reinvestment rate. |
These factors do not operate independently, but are interrelated. For example, if prepayments on the related Receivables are slower than anticipated, an investor’s yield may be lower if interest rates are higher than anticipated and higher if interest rates are lower than anticipated. Conversely, if prepayments on the related Receivables are faster than anticipated, an investor’s yield may be higher if interest rates are higher than anticipated and lower if interest rates are lower than anticipated.
Early redemption of the Notes will occur if the Servicer, or any successor to the Servicer, exercises its option to purchase all of the Receivables remaining in the Issuing Entity on any Payment Date on or after the Payment Date when the Pool Balance is equal to or less than 5% of the Pool Balance as of the Cutoff Date. For additional information, you should refer to “Transfer and Servicing Agreements—Termination” in this prospectus. Certain Events of Default could result in liquidation of the assets of the Issuing Entity and acceleration of the Notes. For additional information, you should refer to “Description of the Notes—Indenture—Events of Default; Rights upon Event of Default” in this prospectus.
Any reinvestment risk resulting from the rate of prepayments of the Receivables and the payment of such prepayments to Noteholders will be borne entirely by the Noteholders.
In light of the above considerations, there can be no assurance as to the amount of principal payments to be made on the Notes on each Payment Date, since the amount will depend, in part, on the amount of principal collected on the Receivables during the applicable Collection Period. No prediction can be made as to the actual prepayment experience on the Receivables, and any reinvestment risks resulting from a faster or slower incidence of prepayment of Receivables will be borne entirely by the Noteholders.
Prepayments on automotive Receivables can be measured relative to a prepayment standard or model. The model used in this prospectus, the Absolute Prepayment Model (“ABS”), represents an assumed rate of prepayment each month relative to the original number of Receivables in a pool of Receivables. ABS further assumes that all the Receivables in such a pool are the same size and amortize at the same rate and that each such Receivable will, in each month of its life, either be paid as scheduled or be prepaid in full. For example, in a pool of Receivables originally containing 10,000 Receivables, a 1% ABS rate means that 100 Receivables prepay in full each month. ABS does not purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of Receivables, including the Receivables to be sold to the Issuing Entity on the Closing Date.
As the rate of payment of principal of each class of Notes will depend on the rate of payment (including prepayments) of the Principal Balance of the Receivables, final payment of any class of Notes could occur significantly earlier than the Final Scheduled Payment Date for such class. Reinvestment risk associated with early payment of the Notes of any class will be borne exclusively by the holders of such Notes.
The tables captioned “Percent of Initial Note Principal Amount at Various ABS Percentages” (collectively, the “ABS Tables”) in this prospectus have been prepared on the basis of the characteristics of the Receivables. Each absolute prepayment model table assumes that:
| • | the Receivables prepay in full at the specified constant percentage of the absolute prepayment model monthly, with no defaults, losses or repurchases on any of the Receivables; |
| • | each scheduled monthly payment on the Receivables is made on the last day of each month commencing in December 2021 and each month has 30 days; |
| • | payments on the Notes are made on each Payment Date (and each Payment Date is assumed to be the 15th day of each applicable month) commencing on February 15, 2022; |
| • | the closing date is January 31, 2022; |
| • | the Servicer exercises its option to purchase all of the Receivables and cause a redemption of the Notes when the aggregate Principal Balance of the Receivables is equal to 5% or less of the aggregate Principal Balance of the Receivables as of the Cutoff Date; |
| • | the Servicing Fee for each Payment Date is equal to a rate of 1/12 of 1.00% times the aggregate Principal Balance of the Receivables as of the first day of the related Collection Period; provided that, in the case of the first Payment Date, the Servicing Fee is equal to a rate of 2/12 of 1.00% times the aggregate Principal Balance of the Receivables as of the Cutoff Date; |
| • | the aggregate amount of fees, expenses and indemnification amounts payable to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer on each Payment Date is equal to $1,083.33; provided that, in the case of the first Payment Date, the aggregate amount of such fees, expenses and indemnification amounts payable is equal to $2,166.66; |
| • | interest on the Class A-1 Notes will be calculated on the basis of the actual number of days in the related Interest Period and a 360-day year and interest on the other classes of Notes will be calculated on the basis of a 360-day year of twelve 30-day months; |
| • | the initial outstanding principal amounts of the Class A-1 Notes will be $359,600,000, of the Class A-2 Notes will be $555,450,000, of the Class A-3 Notes will be $555,450,000, of the Class A-4 Notes will be $176,540,000 and of the Class B Notes will be $42,240,000; |
| • | interest accrues on the Class A-1 Notes at 0.38995% per annum, on the Class A-2 Notes at 0.86% per annum, on the Class A-3 Notes at 1.40% per annum, on the Class A-4 Notes at 1.71% per annum and on the Class B Notes at 0.00% per annum; |
| • | no Event of Default has occurred; and |
| • | the Yield Supplement Overcollateralization Amount at each Payment Date is the amount described in the schedule below. |
The Yield Supplement Overcollateralization Amount schedule described below is utilized solely to calculate the weighted average lives and percentages of initial outstanding principal amounts at various absolute prepayment model percentages in the tables below. The actual Yield Supplement Overcollateralization Amount will be calculated for each Payment Date and may differ depending on the Receivables and the actual prepayments and losses on those Receivables with an APR less than the Required Rate. For purposes of the Yield Supplement Overcollateralization Amount schedule described below, the “Required Rate” is assumed to be 5.35%.
| | Yield Supplement Overcollateralization Amount | | | | Yield Supplement Overcollateralization Amount |
| Closing Date | | $86,591,655.96 | | November 2024 | | $12,227,011.53 |
| February 2022 | | $80,396,496.38 | | December 2024 | | $11,150,479.55 |
| March 2022 | | $77,386,387.25 | | January 2025 | | $10,130,679.40 |
| April 2022 | | $74,435,055.59 | | February 2025 | | $9,167,352.54 |
| May 2022 | | $71,542,851.39 | | March 2025 | | $8,260,353.47 |
| June 2022 | | $68,709,966.17 | | April 2025 | | $7,409,480.10 |
| July 2022 | | $65,936,577.93 | | May 2025 | | $6,614,622.52 |
| August 2022 | | $63,222,810.19 | | June 2025 | | $5,875,590.68 |
| September 2022 | | $60,568,688.07 | | July 2025 | | $5,192,271.89 |
| October 2022 | | $57,974,232.90 | | August 2025 | | $4,563,879.69 |
| November 2022 | | $55,439,433.21 | | September 2025 | | $3,988,897.52 |
| December 2022 | | $52,964,042.97 | | October 2025 | | $3,465,119.70 |
| January 2023 | | $50,547,898.67 | | November 2025 | | $2,990,838.74 |
| February 2023 | | $48,190,924.53 | | December 2025 | | $2,564,082.51 |
| March 2023 | | $45,892,959.68 | | January 2026 | | $2,183,161.66 |
| April 2023 | | $43,653,849.09 | | February 2026 | | $1,846,155.11 |
| May 2023 | | $41,473,651.07 | | March 2026 | | $1,550,149.40 |
| June 2023 | | $39,352,424.63 | | April 2026 | | $1,291,530.46 |
| July 2023 | | $37,290,121.18 | | May 2026 | | $1,067,890.14 |
| August 2023 | | $35,286,724.67 | | June 2026 | | $876,247.94 |
| September 2023 | | $33,342,041.88 | | July 2026 | | $711,904.42 |
| October 2023 | | $31,455,834.79 | | August 2026 | | $571,257.76 |
| November 2023 | | $29,628,056.64 | | September 2026 | | $451,018.04 |
| December 2023 | | $27,858,619.69 | | October 2026 | | $347,509.66 |
| January 2024 | | $26,147,547.01 | | November 2026 | | $259,706.52 |
| February 2024 | | $24,494,838.81 | | December 2026 | | $186,946.55 |
| March 2024 | | $22,900,397.84 | | January 2027 | | $128,349.53 |
| April 2024 | | $21,364,110.97 | | February 2027 | | $82,845.98 |
| May 2024 | | $19,885,904.35 | | March 2027 | | $48,893.21 |
| June 2024 | | $18,465,616.07 | | April 2027 | | $25,075.35 |
| July 2024 | | $17,103,142.82 | | May 2027 | | $10,141.03 |
| August 2024 | | $15,798,301.35 | | June 2027 | | $2,536.69 |
| September 2024 | | $14,550,832.02 | | July 2027 | | $0.75 |
| October 2024 | | $13,360,424.43 | | August 2027 | | $0.00 |
For purposes of these absolute prepayment model tables, the Receivables have an assumed cutoff date of the close of business on November 30, 2021. Each absolute prepayment model table indicates the projected weighted average life of each class of Notes and sets forth the percent of the aggregate initial principal amount of each class of Notes that is projected to be outstanding after each of the Payment Dates, shown at various constant absolute prepayment model percentages.
The ABS Tables also assume that the Receivables have been aggregated into 12 hypothetical pools with all of the Receivables within each such pool having the following characteristics and that the level scheduled monthly payment for each of the pools (which is based on its aggregate Principal Balance, weighted average APR, weighted average original number of scheduled payments and weighted average remaining number of scheduled payments as of the assumed cutoff date) will be such that each pool will be fully amortized by the end of its remaining term to maturity.
The 12 hypothetical pools have the following characteristics:
Pool | | Aggregate Principal Balance | | Weighted Average APR | | Weighted Average Original Number of Scheduled Monthly Payments | | Weighted Average Remaining Number of Scheduled Monthly Payments | |
1 | | $ 8,812,991.27 | | 1.558% | | 65 | | 9 | |
2 | | $ 29,206,046.87 | | 1.607% | | 59 | | 19 | |
3 | | $ 70,473,685.89 | | 2.283% | | 57 | | 31 | |
4 | | $ 236,723,837.66 | | 1.741% | | 60 | | 44 | |
5 | | $ 668,326,472.67 | | 2.311% | | 63 | | 54 | |
6 | | $ 497,104,887.61 | | 3.397% | | 72 | | 65 | |
7 | | $ 589,844.61 | | 7.254% | | 64 | | 8 | |
8 | | $ 2,066,784.67 | | 7.124% | | 56 | | 20 | |
9 | | $ 10,572,082.82 | | 6.958% | | 60 | | 32 | |
10 | | $ 29,396,572.25 | | 7.074% | | 65 | | 43 | |
11 | | $ 80,596,861.13 | | 7.231% | | 68 | | 56 | |
12 | | | | 7.462% | | 72 | | 65 | |
| | | | | | | | | | |
The actual characteristics and performance of the Receivables will differ from the assumptions used in constructing the ABS Tables. The assumptions used are hypothetical and have been provided only to give a general sense of how the principal cash flows might behave under varying prepayment scenarios. For example, it is very unlikely that the Receivables will prepay at a constant level of ABS until maturity or that all of the Receivables will prepay at the same level of ABS. Moreover, the diverse terms of Receivables within each of the hypothetical pools could produce slower or faster principal distributions than indicated in the ABS Tables at the various constant percentages of ABS specified, even if the original and remaining terms to maturity of the Receivables are as assumed. Any difference between such assumptions and the actual characteristics and performance of the Receivables, or actual prepayment experience, will affect the percentages of initial amounts outstanding over time and the weighted average lives of each class of Notes.
Percent of Initial Note Principal Amount at Various ABS Percentages(1)
| | | | Class A-1 Notes |
| Payment Date | | | 0.00% | | 0.50% | | 1.00% | | 1.30% | | 1.50% | | 1.80% |
Closing Date | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2022 | | | 80.13 | | 75.10 | | 69.37 | | 65.46 | | 62.51 | | 56.23 |
March 15, 2022 | | | 71.20 | | 63.79 | | 55.37 | | 49.63 | | 45.32 | | 37.28 |
April 15, 2022 | | | 62.86 | | 53.17 | | 42.18 | | 34.72 | | 29.15 | | 19.39 |
May 15, 2022 | | | 54.47 | | 42.61 | | 29.18 | | 20.08 | | 13.33 | | 1.92 |
June 15, 2022 | | | 46.05 | | 32.12 | | 16.36 | | 5.72 | | 0.00 | | 0.00 |
July 15, 2022 | | | 37.58 | | 21.68 | | 3.72 | | 0.00 | | 0.00 | | 0.00 |
August 15, 2022 | | | 29.08 | | 11.30 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
September 15, 2022 | | | 20.55 | | 1.01 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
October 15, 2022 | | | 12.26 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
November 15, 2022 | | | 3.94 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
December 15, 2022 | | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
| | | | | | | | | | | | | | |
Weighted Average Life to Call (Years)(2) | | | 0.39 | | 0.29 | | 0.22 | | 0.19 | | 0.17 | | 0.14 |
Weighted Average Life to Maturity (Years)(2) | | | 0.39 | | 0.29 | | 0.22 | | 0.19 | | 0.17 | | 0.14 |
| | | | | | | | | | | | | | |
____________________
| (1) | Other than the weighted average life to maturity, the numbers in this table were calculated based on the assumption that the Servicer will exercise its clean-up call option to purchase the Receivables. |
| (2) | The weighted average life of a note is determined by (x) multiplying the amount of each principal payment on a note by the number of years from the date of issuance of the note to the related Payment Date, (y) adding the results and (z) dividing the sum by the aggregate initial principal amount of the note. |
Percent of Initial Note Principal Amount at Various ABS Percentages(1)
| | | | Class A-2 Notes |
| Payment Date | | | 0.00% | | 0.50% | | 1.00% | | 1.30% | | 1.50% | | 1.80% |
Closing Date | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 98.62 | | 90.20 |
July 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 94.58 | | 88.85 | | 79.42 |
August 15, 2022 | | | 100.00 | | 100.00 | | 94.34 | | 85.64 | | 79.32 | | 68.91 |
September 15, 2022 | | | 100.00 | | 100.00 | | 86.41 | | 76.89 | | 70.02 | | 58.67 |
October 15, 2022 | | | 100.00 | | 94.19 | | 78.73 | | 68.40 | | 60.97 | | 48.70 |
November 15, 2022 | | | 100.00 | | 87.77 | | 71.16 | | 60.09 | | 52.12 | | 39.01 |
December 15, 2022 | | | 97.13 | | 81.38 | | 63.71 | | 51.93 | | 43.47 | | 29.59 |
January 15, 2023 | | | 91.69 | | 75.04 | | 56.37 | | 43.95 | | 35.03 | | 20.44 |
February 15, 2023 | | | 86.22 | | 68.73 | | 49.14 | | 36.12 | | 26.80 | | 11.57 |
March 15, 2023 | | | 80.72 | | 62.46 | | 42.02 | | 28.47 | | 18.77 | | 2.97 |
April 15, 2023 | | | 75.20 | | 56.23 | | 35.02 | | 20.98 | | 10.95 | | 0.00 |
May 15, 2023 | | | 69.65 | | 50.04 | | 28.14 | | 13.66 | | 3.33 | | 0.00 |
June 15, 2023 | | | 64.08 | | 43.88 | | 21.37 | | 6.50 | | 0.00 | | 0.00 |
July 15, 2023 | | | 58.48 | | 37.77 | | 14.71 | | 0.00 | | 0.00 | | 0.00 |
August 15, 2023 | | | 53.14 | | 31.94 | | 8.36 | | 0.00 | | 0.00 | | 0.00 |
September 15, 2023 | | | 47.79 | | 26.17 | | 2.13 | | 0.00 | | 0.00 | | 0.00 |
October 15, 2023 | | | 42.41 | | 20.43 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
November 15, 2023 | | | 37.01 | | 14.73 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
December 15, 2023 | | | 31.58 | | 9.07 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
January 15, 2024 | | | 26.13 | | 3.44 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
February 15, 2024 | | | 20.65 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
March 15, 2024 | | | 15.15 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
April 15, 2024 | | | 9.62 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
May 15, 2024 | | | 4.06 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
June 15, 2024 | | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
| | | | | | | | | | | | | | |
Weighted Average Life to Call (Years)(2) | | | 1.63 | | 1.34 | | 1.08 | | 0.95 | | 0.87 | | 0.75 |
Weighted Average Life to Maturity (Years)(2) | | | 1.63 | | 1.34 | | 1.08 | | 0.95 | | 0.87 | | 0.75 |
| | | | | | | | | | | | | | |
____________________
| (1) | Other than the weighted average life to maturity, the numbers in this table were calculated based on the assumption that the Servicer will exercise its clean-up call option to purchase the Receivables. |
| (2) | The weighted average life of a note is determined by (x) multiplying the amount of each principal payment on a note by the number of years from the date of issuance of the note to the related Payment Date, (y) adding the results and (z) dividing the sum by the aggregate initial principal amount of the note. |
Percent of Initial Note Principal Amount at Various ABS Percentages(1)
| | | | Class A-3 Notes |
| Payment Date | | | 0.00% | | 0.50% | | 1.00% | | 1.30% | | 1.50% | | 1.80% |
Closing Date | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 94.68 |
May 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 86.67 |
June 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 95.92 | | 78.90 |
July 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 99.52 | | 88.73 | | 71.38 |
August 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 92.83 | | 81.81 | | 64.11 |
September 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 86.31 | | 75.09 | | 57.08 |
October 15, 2023 | | | 100.00 | | 100.00 | | 96.00 | | 79.95 | | 68.56 | | 50.29 |
November 15, 2023 | | | 100.00 | | 100.00 | | 89.99 | | 73.73 | | 62.22 | | 43.76 |
December 15, 2023 | | | 100.00 | | 100.00 | | 84.08 | | 67.68 | | 56.07 | | 37.47 |
January 15, 2024 | | | 100.00 | | 100.00 | | 78.28 | | 61.78 | | 50.11 | | 31.43 |
February 15, 2024 | | | 100.00 | | 97.85 | | 72.59 | | 56.05 | | 44.34 | | 25.64 |
March 15, 2024 | | | 100.00 | | 92.30 | | 67.01 | | 50.47 | | 38.77 | | 20.10 |
April 15, 2024 | | | 100.00 | | 86.79 | | 61.55 | | 45.04 | | 33.39 | | 14.82 |
May 15, 2024 | | | 100.00 | | 81.31 | | 56.19 | | 39.78 | | 28.21 | | 9.80 |
June 15, 2024 | | | 98.48 | | 75.88 | | 50.94 | | 34.68 | | 23.23 | | 5.03 |
July 15, 2024 | | | 92.88 | | 70.48 | | 45.81 | | 29.74 | | 18.44 | | 0.50 |
August 15, 2024 | | | 87.66 | | 65.46 | | 41.03 | | 25.12 | | 13.94 | | 0.00 |
September 15, 2024 | | | 82.49 | | 60.54 | | 36.38 | | 20.67 | | 9.62 | | 0.00 |
October 15, 2024 | | | 77.30 | | 55.64 | | 31.84 | | 16.36 | | 5.49 | | 0.00 |
November 15, 2024 | | | 72.08 | | 50.79 | | 27.40 | | 12.20 | | 1.53 | | 0.00 |
December 15, 2024 | | | 66.83 | | 45.96 | | 23.06 | | 8.18 | | 0.00 | | 0.00 |
January 15, 2025 | | | 61.56 | | 41.18 | | 18.82 | | 4.31 | | 0.00 | | 0.00 |
February 15, 2025 | | | 56.27 | | 36.43 | | 14.68 | | 0.59 | | 0.00 | | 0.00 |
March 15, 2025 | | | 50.95 | | 31.71 | | 10.65 | | 0.00 | | 0.00 | | 0.00 |
April 15, 2025 | | | 45.60 | | 27.03 | | 6.72 | | 0.00 | | 0.00 | | 0.00 |
May 15, 2025 | | | 40.23 | | 22.39 | | 2.90 | | 0.00 | | 0.00 | | 0.00 |
June 15, 2025 | | | 34.84 | | 17.78 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
July 15, 2025 | | | 29.42 | | 13.21 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
August 15, 2025 | | | 24.11 | | 8.78 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
September 15, 2025 | | | 19.79 | | 5.15 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
October 15, 2025 | | | 15.44 | | 1.54 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
November 15, 2025 | | | 11.06 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
December 15, 2025 | | | 6.67 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
January 15, 2026 | | | 2.26 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
February 15, 2026 | | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
| | | | | | | | | | | | | | |
Weighted Average Life to Call (Years)(2) | | | 3.19 | | 2.87 | | 2.47 | | 2.21 | | 2.04 | | 1.78 |
Weighted Average Life to Maturity (Years)(2) | | | 3.19 | | 2.87 | | 2.47 | | 2.21 | | 2.04 | | 1.78 |
____________________
| (1) | Other than the weighted average life to maturity, the numbers in this table were calculated based on the assumption that the Servicer will exercise its clean-up call option to purchase the Receivables. |
| (2) | The weighted average life of a note is determined by (x) multiplying the amount of each principal payment on a note by the number of years from the date of issuance of the note to the related Payment Date, (y) adding the results and (z) dividing the sum by the aggregate initial principal amount of the note. |
Percent of Initial Note Principal Amount at Various ABS Percentages(1)
| | | | Class A-4 Notes |
| Payment Date | | | 0.00% | | 0.50% | | 1.00% | | 1.30% | | 1.50% | | 1.80% |
Closing Date | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2022�� | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 88.00 |
September 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 75.15 |
October 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 63.06 |
November 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 51.72 |
December 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 92.89 | | 41.08 |
January 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 81.55 | | 31.13 |
February 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 70.76 | | 21.87 |
March 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 90.61 | | 60.54 | | 0.00 |
April 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 79.83 | | 50.89 | | 0.00 |
May 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 69.51 | | 41.81 | | 0.00 |
June 15, 2025 | | | 100.00 | | 100.00 | | 97.42 | | 59.67 | | 33.30 | | 0.00 |
July 15, 2025 | | | 100.00 | | 100.00 | | 86.05 | | 50.31 | | 25.36 | | 0.00 |
August 15, 2025 | | | 100.00 | | 100.00 | | 75.21 | | 41.51 | | 18.01 | | 0.00 |
September 15, 2025 | | | 100.00 | | 100.00 | | 66.15 | | 33.99 | | 0.00 | | 0.00 |
October 15, 2025 | | | 100.00 | | 100.00 | | 57.35 | | 26.84 | | 0.00 | | 0.00 |
November 15, 2025 | | | 100.00 | | 93.58 | | 48.81 | | 20.06 | | 0.00 | | 0.00 |
December 15, 2025 | | | 100.00 | | 82.40 | | 40.53 | | 0.00 | | 0.00 | | 0.00 |
January 15, 2026 | | | 100.00 | | 71.31 | | 32.50 | | 0.00 | | 0.00 | | 0.00 |
February 15, 2026 | | | 93.14 | | 60.32 | | 24.75 | | 0.00 | | 0.00 | | 0.00 |
March 15, 2026 | | | 79.13 | | 49.42 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
April 15, 2026 | | | 65.04 | | 38.62 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
May 15, 2026 | | | 50.90 | | 27.91 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
June 15, 2026 | | | 36.70 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
July 15, 2026 | | | 29.83 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
August 15, 2026 | | | 22.92 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
September 15, 2026 | | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
| | | | | | | | | | | | | | |
Weighted Average Life to Call (Years)(2) | | | 4.36 | | 4.14 | | 3.82 | | 3.52 | | 3.27 | | 2.85 |
Weighted Average Life to Maturity (Years)(2) | | | 4.38 | | 4.18 | | 3.84 | | 3.54 | | 3.29 | | 2.87 |
____________________
| (1) | Other than the weighted average life to maturity, the numbers in this table were calculated based on the assumption that the Servicer will exercise its clean-up call option to purchase the Receivables. |
| (2) | The weighted average life of a note is determined by (x) multiplying the amount of each principal payment on a note by the number of years from the date of issuance of the note to the related Payment Date, (y) adding the results and (z) dividing the sum by the aggregate initial principal amount of the note. |
Percent of Initial Note Principal Amount at Various ABS Percentages(1)
| | | | Class B Notes |
| Payment Date | | | 0.00% | | 0.50% | | 1.00% | | 1.30% | | 1.50% | | 1.80% |
Closing Date | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2022 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2023 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
April 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
May 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
June 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
July 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
August 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
September 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
October 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
November 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
December 15, 2024 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
January 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
February 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 |
March 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
April 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
May 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
June 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
July 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
August 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 |
September 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 |
October 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 |
November 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 |
December 15, 2025 | | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 |
January 15, 2026 | | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 |
February 15, 2026 | | | 100.00 | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 |
March 15, 2026 | | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
April 15, 2026 | | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
May 15, 2026 | | | 100.00 | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
June 15, 2026 | | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
July 15, 2026 | | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
August 15, 2026 | | | 100.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
September 15, 2026 | | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
| | | | | | | | | | | | | | |
Weighted Average Life to Call (Years)(2) | | | 4.63 | | 4.38 | | 4.13 | | 3.88 | | 3.63 | | 3.13 |
Weighted Average Life to Maturity (Years)(2) | | | 5.06 | | 4.94 | | 4.65 | | 4.34 | | 4.06 | | 3.48 |
____________________
| (1) | Other than the weighted average life to maturity, the numbers in this table were calculated based on the assumption that the Servicer will exercise its clean-up call option to purchase the Receivables. |
| (2) | The weighted average life of a note is determined by (x) multiplying the amount of each principal payment on a note by the number of years from the date of issuance of the note to the related Payment Date, (y) adding the results and (z) dividing the sum by the aggregate initial principal amount of the note. |
The foregoing tables have been prepared on the basis of the assumptions described above under “Weighted Average Lives of the Notes” (including the assumptions regarding the characteristics and performance of the Receivables, which will differ from the actual characteristics and performance of the Receivables), and should be read in conjunction therewith.
POOL FACTORS AND TRADING INFORMATION
The “Pool Factor” with respect to any class of Notes will be a seven-digit decimal indicating the principal amount of such class of Notes as of the close of business on the Payment Date in such month as a fraction of the respective principal amount thereof as of the Closing Date. The Servicer will compute each Pool Factor each month. Each Pool Factor will initially be 1.0000000 and thereafter will decline to reflect reductions in the principal amount of each class of Notes. Each such principal amount will be computed by allocating payments in respect of the Receivables to principal and interest using the simple interest method. The portion of the principal amount of any class of Notes for a given month allocable to a Noteholder can be determined by multiplying the original denomination of the holder’s Note by the related Pool Factor for that month.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form of which has been filed as an exhibit to the Registration Statement. A copy of the Indenture will be filed as an exhibit to a current report on Form 8-K with the SEC. The following summary describes certain terms of the Notes and the Indenture. The summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Notes and the Indenture.
Payments of Interest
General. Interest on the principal amounts of the Notes will accrue at the respective per annum interest rates described on the front cover of this prospectus (each, an “Interest Rate”) and will be payable to the related Noteholders monthly on the 15th of each month (or, if such date is not a Business Day, on the next succeeding Business Day) (each such date, a “Payment Date”) commencing on February 15, 2022. A “Business Day” is any day except (i) a Saturday or Sunday or (ii) a day on which banks in New York, New York or Wilmington, Delaware are closed. Interest accrued as of any Payment Date but not paid on such Payment Date will be due on the next Payment Date, together with interest on such amount at the applicable Interest Rate (to the extent lawful).
Interest will accrue for the period (i) with respect to the Class A-1 Notes, from and including the Closing Date (in the case of the first Payment Date) or from and including the most recent Payment Date on which interest has been paid to but excluding the following Payment Date and (ii) with respect to the Notes (other than the Class A-1 Notes), from and including the Closing Date (in the case of the first Payment Date) or from and including the 15th day of the most recent calendar month during which interest was paid preceding each Payment Date to but excluding the 15th day of the following calendar month (each an “Interest Period”).
Interest payments on all classes of Class A Notes will have the same priority and will be subordinated to the Total Servicing Fee (which includes any Supplemental Servicing Fee) due to the Servicer and payment or reimbursement of fees, expenses and indemnification amounts required to be paid to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer (which fees, expenses and indemnification amounts may not exceed an aggregate amount equal to $300,000 in any calendar year). Interest payments on the Class B Notes will be subordinated to (i) the Total Servicing Fee (which includes any Supplemental Servicing Fee) due to the Servicer and payment or reimbursement of fees, expenses and indemnification amounts required to be paid to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer (which fees, expenses and indemnification amounts may not exceed an aggregate amount equal to $300,000 in any calendar year, (ii) interest payments on the Class A Notes and (iii) the First Priority Principal Distribution Amount. For additional information, you should refer to “Payments to Noteholders” in this prospectus.
Under certain circumstances, the amount available for interest payments on the Notes could be less than the amount of interest payable on such class of Notes. In such case, with respect to the Class A Notes, each class of Class A Noteholders will receive their pro-rata share (based upon the aggregate amount of such amounts due to such
class of Noteholders) of the aggregate amount available to be paid in respect of interest on the Class A Notes on such Payment Date. For additional information, you should refer to “Payments to Noteholders—Credit and Cash Flow Enhancement” and “Transfer and Servicing Agreements—Payments” in this prospectus.
An Event of Default will occur if the full amount of interest due on any Controlling Class is not paid within five Business Days of the related Payment Date. Upon such an Event of Default, the Indenture Trustee may accelerate the maturity of the Notes and take actions to liquidate the assets of the Issuing Entity and funds on deposit in the accounts of the Issuing Entity. For additional information, you should refer to “Description of the Notes—Indenture—Events of Default; Rights Upon Event of Default” in this prospectus.
Each of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B Notes will bear interest at the applicable fixed per annum interest rate specified on the front cover of this prospectus.
Interest on the outstanding principal amount of the Class A-1 Notes will accrue at the related interest rate during an Interest Period from (and including) the previous Payment Date to (but excluding) the next Payment Date, except that the first Interest Period for the Class A-1 Notes will be from (and including) the Closing Date to (but excluding) the initial Payment Date. Interest on the Class A-1 Notes will be calculated on the basis of the actual number of days elapsed in such Interest Period, but assuming a 360-day year.
Interest on the outstanding principal amount of the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B Notes will accrue at the related interest rate during an Interest Period from (and including) the 15th day of the calendar month preceding a Payment Date to (but excluding) the 15th day of the calendar month in which the Payment Date occurs, except that the first Interest Period for the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B Notes will be from (and including) the Closing Date to (but excluding) February 15, 2022. Interest on the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B Notes for each such Interest Period will be computed on the basis of a 360-day year consisting of twelve 30-day months, irrespective of how many days are actually in that Interest Period.
Payments of Principal
Principal payments will be made to the Noteholders on each Payment Date commencing on February 15, 2022. Payments of interest on the Notes will generally be made prior to payments of principal. For additional information, you should refer to “Payments to Noteholders” in this prospectus.
On each Payment Date, except after an Event of Default resulting in the acceleration of the Notes, from the amounts allocated to the Noteholders to pay principal described in clauses (4), (6) and (8) under “Payments to Noteholders���Priority of Payments” in this prospectus, the Issuing Entity will pay principal of each class of Notes in the following order of priority:
| (1) | to the Class A-1 Notes until the principal amount of the Class A-1 Notes is reduced to zero; then |
| (2) | to the Class A-2 Notes, until the principal amount of the Class A-2 Notes is reduced to zero; then |
| (3) | to the Class A-3 Notes until the principal amount of the Class A-3 Notes is reduced to zero; then |
| (4) | to the Class A-4 Notes until the principal amount of the Class A-4 Notes is reduced to zero; and then |
| (5) | to the Class B Notes until the principal amount of the Class B Notes is reduced to zero. |
If the Notes are declared to be due and payable following the occurrence of an Event of Default, the Issuing Entity will pay principal of all classes of Notes from funds allocated to the Noteholders, first, to the Class A-1 Notes until the principal amount of the Class A-1 Notes is reduced to zero, second, pro rata, based upon their respective unpaid principal amount, to the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes until the principal amount of each such class of the Notes is reduced to zero, and third, to the Class B Notes until the principal amount of the Class B Notes is reduced to zero. For additional information regarding Events of Default, you should refer to “Description of the Notes—Indenture––Events of Default, Rights Upon Event of Default” in this prospectus.
The principal amount of each class of Notes will be due on the respective Final Scheduled Payment Dates indicated on the front cover of this prospectus (the “Class A-1 Final Scheduled Payment Date,” the “Class A-2 Final Scheduled Payment Date,” the “Class A-3 Final Scheduled Payment Date,” the “Class A-4 Final Scheduled Payment Date” and the “Class B Final Scheduled Payment Date,” respectively, and each a “Final Scheduled Payment Date”). The actual date on which the aggregate outstanding principal amount of any class of Notes is paid may be earlier than the respective Final Scheduled Payment Dates described above based on a variety of factors, including those described under “Prepayment and Yield Considerations” and “Weighted Average Lives of the Notes” in this prospectus.
For additional information, you should refer to “Payments to Noteholders—Calculation of Principal Distribution Amounts” and “—Priority of Payments” in this prospectus.
Allocation of Losses
If losses on the Receivables exceed the amount of available credit enhancement, such losses will not be allocated to write down the principal amount of any class of Notes. Instead, the amount available to make payments on the Notes will be reduced to the extent of such losses. If the available credit enhancement is not sufficient to cover all amounts payable on the Notes, Notes having a later Final Scheduled Payment Date generally will bear a greater risk of loss than Notes having an earlier Final Scheduled Payment Date.
Indenture
Modification of Indenture. The Issuing Entity and the Indenture Trustee may, with the consent of the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, execute a supplemental indenture to add provisions to, change in any manner or eliminate any provisions of, the Indenture, or modify (except as provided below) in any manner the rights of the Noteholders. For purposes of determining whether the Noteholders of the requisite percentage of the outstanding amount of the Controlling Class or any class of Notes have given any request, demand, authorization, direction, notice, consent, or waiver under the Indenture or other Transfer and Servicing Agreements, Notes held or owned by the Issuing Entity, any other obligor upon the Notes, TAFR LLC, TMCC or any affiliate of any of the foregoing will be disregarded and deemed not to be “outstanding,” except that, in determining whether the Indenture Trustee will be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Notes that a Trust Officer of the Indenture Trustee actually knows to be so owned will be so disregarded.
The Issuing Entity and the Indenture Trustee may also enter into supplemental indentures with prior notice to the rating agencies engaged by TMCC to rate the Notes (each, a “Rating Agency”) and without obtaining the consent of the Securityholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of such Noteholders; provided, that either (i) an officer’s certificate has been delivered by the Servicer to the Owner Trustee and the Indenture Trustee certifying that such officer reasonably believes that such supplemental indenture will not materially and adversely affect the interest of any such Noteholder or (ii) the Rating Agency Condition with respect to such supplemental indenture has been satisfied. “Rating Agency Condition” means with respect to each Rating Agency and any event or circumstance or proposed amendment or supplement to a Transfer and Servicing Agreement, the satisfaction of either of the following conditions, according to the then-current policies of such Rating Agency: (a) receipt by the Indenture Trustee of written confirmation from such Rating Agency (which, for the avoidance of doubt and without limitation, may be in the form of a letter, a press release or other publication, or a change in such Rating Agency’s published rating criteria to this effect) that such event or circumstance or proposed amendment or supplement will not result in the reduction or withdrawal by such Rating Agency of any rating it currently has assigned to any of the Class A Notes or (b) that such Rating Agency has been given notice of such event or circumstance or proposed amendment or supplement at least ten (10) days (or such lesser number of days acceptable to such Rating Agency) prior to the occurrence of such event or circumstance or proposed amendment or supplement and such Rating Agency has not notified the Indenture Trustee that such event or circumstance or proposed amendment or supplement might or would result in the reduction or withdrawal of the rating it has currently has assigned to any of the Class A Notes.
Additionally, the Issuing Entity and the Indenture Trustee may also enter into supplemental indentures, without obtaining the consent of the Securityholders, but with prior notice to the Rating Agencies, for the purpose of, among other things, correcting or amplifying the description of the collateral, conforming the provisions in the
Indenture to the descriptions thereof contained in this prospectus, evidencing the assumption of the Issuing Entity’s obligations under the Indenture, the Notes and the Certificate, as applicable, by a permitted successor to the Issuing Entity, adding additional covenants of the Issuing Entity for the benefit of the Noteholders, surrendering rights of the Issuing Entity, conveying, or otherwise transferring or pledging, property to or with the Indenture Trustee, evidencing and providing for the appointment of a successor indenture trustee or adding or changing any of the provisions of the Indenture as necessary and permitted to facilitate the administration by more than one indenture trustee, and modifying, eliminating or adding to the provisions of the Indenture in order to comply with the TIA.
Subject to the terms described in the following paragraph, the Issuing Entity and the Indenture Trustee may also, with prior notice to the Rating Agencies, enter into an indenture or indentures supplemental to the indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of such indenture or of modifying in any manner the rights of the Noteholders under such indenture; provided, that holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, have consented to such amendment.
Without the consent of the holder of each such outstanding Note affected thereby, no supplemental indenture will: (i) change the due date of any installment of principal of or interest on any such Note or reduce the principal amount of any such Note, the interest rate specified thereon or the redemption price with respect thereto or change any place of payment where, or the coin or currency in which, any such Note or any interest thereon is payable; (ii) impair the right to bring suit for the enforcement of certain provisions of the Indenture regarding payment; (iii) reduce the percentage of the aggregate amount of the outstanding Notes, the consent of the holders of which is required for any such supplemental indenture or the consent of the holders of which is required for any waiver of compliance with certain provisions of the Indenture or of certain defaults under the Indenture and their consequences as provided for in the Indenture; (iv) modify or alter the provisions of the Indenture regarding the voting of Notes held by the Issuing Entity, any other obligor on such Notes, the Depositor, TMCC or an affiliate of any of them; (v) reduce the percentage of the aggregate outstanding amount of such Notes, the consent of the holders of which is required to direct the Indenture Trustee to sell or liquidate the Trust Estate if the proceeds of such sale would be insufficient to pay the principal amount and accrued but unpaid interest on the outstanding Notes; (vi) decrease the percentage of the aggregate outstanding principal amount of such Notes required to amend the sections of the Indenture which specify the applicable percentage of aggregate outstanding principal amount of the Notes necessary to amend the Indenture or certain other related agreements; or (vii) permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the collateral for such Notes or, except as otherwise permitted or contemplated in such Indenture, terminate the lien of such Indenture on any such collateral or deprive the holder of any such Note of the security afforded by the lien of such Indenture.
Events of Default; Rights Upon Event of Default. With respect to the Notes, an event of default under the Indenture (an “Event of Default”) will consist of: (i) a default for five Business Days or more in the payment of any interest on any Note of the Controlling Class; (ii) a default in the payment of the principal of any such Note on the related Final Scheduled Payment Date; (iii) a default in the observance or performance of any covenant or agreement of the Issuing Entity made in the Indenture which materially and adversely affects interests of the Noteholders and the continuation of any such default for a period of 90 days after written notice of such default is given to the Issuing Entity by the Indenture Trustee or to the Issuing Entity and the Indenture Trustee by the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class; (iv) any representation or warranty made by the Issuing Entity in the Indenture or in any certificate delivered pursuant thereto or in connection therewith having been incorrect in a material respect as of the time made which materially and adversely affects the interests of the Noteholders, and such breach not having been cured within 60 days after written notice of such breach is given to the Issuing Entity by the Indenture Trustee or to the Issuing Entity and the Indenture Trustee by the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class; or (v) certain events of bankruptcy, insolvency, receivership or liquidation of the Issuing Entity (which, if involuntary, remains unstayed and in effect for more than 90 days).
Notwithstanding the foregoing, the amount of principal required to be paid to Noteholders under the Indenture will generally be limited to amounts available to be deposited in the Collection Account. Therefore, the failure to pay principal on a class of Notes generally will not result in the occurrence of an Event of Default until the Final Scheduled Payment Date for such class of Notes. Notwithstanding the foregoing, if a delay in or failure of performance referred to under clauses (i) through (iv) above was caused by force majeure or other similar occurrence, the grace period described in the applicable clause will be extended for a period of 30 calendar days. In addition, as described below, following the occurrence of an Event of Default (other than an Event of Default related
to the failure to make required payments) resulting in an acceleration of the maturity of the Notes, the Indenture Trustee is not required to sell the assets of the Issuing Entity (as described above under “Capitalization of the Issuing Entity” in this prospectus), and the Indenture Trustee may sell the assets of the Issuing Entity only after meeting requirements specified in the Indenture. Under those circumstances, even if the maturity of the Notes has been accelerated, there may not be any funds to pay the principal owed on the Notes.
If an Event of Default should occur and is continuing, the Indenture Trustee or holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, may declare the principal of such Notes to be immediately due and payable. Such declaration may be rescinded by the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, if:
| (i) | the Issuing Entity has paid or deposited with the Indenture Trustee a sum sufficient to pay: |
| (A) | all payments of principal of and interest on the Notes and all other amounts that would then be due on such Notes if the Event of Default giving rise to such acceleration had not occurred; and |
| (B) | all sums paid by the Indenture Trustee under the Indenture or the Owner Trustee under the Trust Agreement and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and the Owner Trustee and their respective agents and counsel; and |
| (ii) | all Events of Default, other than the nonpayment of the principal or interest of the Notes that has become due solely by such acceleration, have been cured or waived. |
If the Notes are due and payable following an Event of Default, the Indenture Trustee may institute proceedings to collect amounts due, exercise remedies as a secured party, including foreclosure or sale of the Trust Estate or elect to have the Issuing Entity maintain possession of the Trust Estate and continue to apply proceeds from the Trust Estate as if there had been no declaration of acceleration. However, the Indenture Trustee is prohibited from selling the Trust Estate following an Event of Default, other than a default in the payment of any principal on the Final Scheduled Payment Date of a Note or a default for five Business Days or more in the payment of any interest on any Note of the Controlling Class, unless (i) the holders of all such outstanding Notes of the Controlling Class consent to such sale, (ii) the proceeds of such sale are sufficient to pay in full the principal of and the accrued interest on the outstanding Notes at the date of such sale or (iii) the Indenture Trustee determines that the proceeds of the Trust Estate would not be sufficient on an ongoing basis to make all payments on the Notes as such payments would have become due if such obligations had not been declared due and payable, and the Indenture Trustee obtains the consent of the holders of 66 2/3% of the aggregate outstanding principal amount of such Notes of the Controlling Class. In the event of a sale of the assets of the Trust Estate by the Indenture Trustee following an Event of Default, the Noteholders will receive notice and an opportunity to submit a bid in respect of such sale.
If an Event of Default occurs and is continuing and the Indenture Trustee has actual knowledge of such Event of Default, the Indenture Trustee will be obligated to mail to each Noteholder notice of the Event of Default within 90 days of the Indenture Trustee’s discovery thereof in the case of an Event of Default in payment of principal on the Final Scheduled Payment Date of a Note or of interest on any Note of the Controlling Class, the Indenture Trustee may withhold the notice to Noteholders if and so long as a committee of its officers in good faith determines that withholding the notice is in the best interests of Noteholders.
Subject to the provisions of the Indenture relating to the duties of the Indenture Trustee, if an Event of Default occurs and is continuing, the Indenture Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of such Notes if the Indenture Trustee reasonably believes it will not be adequately indemnified against the costs, expenses and liabilities which might be incurred by it in complying with such request. Subject to the provisions for indemnification and certain limitations contained in the Indenture, the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee or exercising of any trust or power conferred on the Indenture Trustee, and the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, may, in certain cases, waive any default under the Indenture except a default in (i) the deposit of collections or other required amounts, (ii) any required payment from amounts held in any Trust Account
in respect of amounts due on the Notes, (iii) payment of principal or interest or (iv) a default in respect of a covenant or provision of the Indenture that cannot be modified without the waiver or consent of all the holders of such outstanding Notes of the Controlling Class.
Any Notes owned by the Depositor, the Servicer or any of their respective affiliates will be entitled to equal and proportionate benefits under the Indenture, except that such Notes, while owned by the Depositor, the Servicer or any of their respective affiliates, will not be considered to be outstanding for the purpose of determining whether the requisite percentage of Noteholders have given any request, demand, authorization, direction, notice, consent or other action under the Indenture.
No holder of a Note will have the right to institute any proceeding with respect to the Indenture, unless (i) such holder previously has given to the Indenture Trustee written notice of a continuing Event of Default, (ii) the holders of not less than 25% in principal amount of the outstanding Notes of the Controlling Class have made written request to the Indenture Trustee to institute such proceeding in its own name, (iii) such holder or holders have offered the Indenture Trustee security or indemnity reasonably satisfactory to it, (iv) the Indenture Trustee has for 30 days failed to institute such proceeding and (v) no direction inconsistent with such written request has been given to the Indenture Trustee during such 30 day period by the holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class.
In addition, the Indenture Trustee and the Noteholders, by accepting the Notes, covenant that they will not at any time institute against the Issuing Entity or the Depositor any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law.
With respect to the Issuing Entity, neither the Indenture Trustee nor the Owner Trustee in its individual capacity, nor any holder of the Certificate representing an ownership interest in the Issuing Entity nor any of their respective owners, beneficiaries, agents, officers, directors, employees, affiliates, successors or assigns will, in the absence of an express agreement to the contrary, be personally liable for the payment of the principal of or interest on the Notes or for the agreements of the Issuing Entity contained in the Indenture.
Certain Covenants. The Indenture will provide that the Issuing Entity may not consolidate with or merge into any other entity, unless, among other things, (i) the entity formed by or surviving such consolidation or merger is organized under the laws of the United States, any state or the District of Columbia, (ii) such entity expressly assumes the Issuing Entity’s obligation to make due and punctual payments upon the Notes and the performance or observance of every agreement and covenant of the Issuing Entity under the Indenture, (iii) no Event of Default has occurred and is continuing immediately after such merger or consolidation, (iv) the Rating Agency Condition has been satisfied with respect to such merger or consolidation and (v) the Issuing Entity has received an opinion of counsel to the effect that such consolidation or merger would have no material adverse tax consequence to the Issuing Entity or to any Securityholder.
The Issuing Entity will not, among other things, (i) except as expressly permitted by the Indenture, the Transfer and Servicing Agreements or certain related documents with respect to the Issuing Entity (collectively, the “Related Documents”), sell, transfer, exchange or otherwise dispose of any of the assets of the Issuing Entity, (ii) claim any credit on or make any deduction from the principal and interest payable in respect of the Notes (other than amounts withheld under the Internal Revenue Code of 1986, as amended (the “Code”) or applicable state law) or assert any claim against any present or former holder of the Notes because of the payment of taxes levied or assessed upon the Issuing Entity, (iii) except as expressly permitted by the Related Documents, dissolve or liquidate in whole or in part, (iv) permit the validity or effectiveness of the Indenture to be impaired or permit any person to be released from any covenants or obligations with respect to the Notes under the Indenture except as may be expressly permitted thereby or (v) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance to be created on or extend to or otherwise arise upon or burden the assets of the Issuing Entity or any part thereof, or any interest in the assets of the Issuing Entity or the proceeds thereof.
The Issuing Entity may not engage in any activity other than as specified in this prospectus. The Issuing Entity will not incur, assume or guarantee any indebtedness other than indebtedness incurred pursuant to the Notes and the Indenture or otherwise in accordance with the Related Documents.
Indenture Trustee’s Annual Report. If required by the TIA, the Indenture Trustee will be required to distribute each year to all Noteholders a brief report relating to its eligibility and qualification to continue as Indenture Trustee under the Indenture, any amounts advanced by it under the Indenture, the amount, interest rate and maturity date of certain indebtedness owing by the Issuing Entity to the Indenture Trustee in its individual capacity, the property and funds physically held by the Indenture Trustee as such and any action taken by it that materially affects the Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. The Indenture will be discharged with respect to the collateral securing the Notes upon the delivery to the Indenture Trustee for cancellation of all such Notes or, with certain limitations, upon deposit with the Indenture Trustee of funds sufficient for the payment in full of all such Notes, including interest thereon, and any fees, expenses and indemnification amounts due and payable to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer.
Notices
Noteholders of record will be notified in writing by the Indenture Trustee of any Event of Default or termination of, or appointment of a successor to, the Servicer promptly upon a Trust Officer (as defined in the Sale and Servicing Agreement) obtaining actual knowledge thereof. While Notes are held in book-entry form, these notices will be delivered by the Indenture Trustee to The Depository Trust Company (“DTC”). If Notes are issued in definitive form, these notices will be mailed to the addresses provided to the Indenture Trustee by the holders of record as of the relevant record date. Such notices will be deemed to have been given as of the date of delivery to DTC or mailing.
Governing Law
The Indenture and Notes are governed by and will be construed in accordance with the laws of the State of New York applicable to agreements made in and to be performed wholly within such jurisdiction.
Minimum Denominations
The Class A Notes will be issued in U.S. Dollars in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof (except for one Note of each class which may be issued in a denomination other than an integral multiple of $1,000). Each class of Notes will initially be represented by one or more Notes registered in the name of the nominee of DTC (together with any successor depository selected by the Issuing Entity, the “Depository”) and will be registered in the name of Cede & Co., as the nominee of DTC, the clearing agency. Accordingly, such nominee is expected to be the holder of record of the Notes of each class. Unless and until Definitive Notes are issued under the limited circumstances described in this prospectus, no Noteholder will be entitled to receive a physical certificate representing a Note. All references in this prospectus to actions by Noteholders refer to actions taken by DTC upon instructions from its participating organizations (the “DTC Participants”) and all references in this prospectus to payments, notices, reports and statements to Noteholders refer to payments, notices, reports and statements to DTC or its nominee, as the registered holder of the Notes, for distribution to Noteholders in accordance with DTC’s procedures with respect thereto. For additional information, you should refer to “Description of the Notes—Book-Entry Registration” and “—Definitive Securities” in this prospectus.
Book-Entry Registration
General
Upon issuance, all Notes in book-entry form having the same original issue date, maturity and otherwise having identical terms and provisions will be represented by one or more fully registered global notes. Each global note will be deposited with, or on behalf of, DTC, as depository, registered in the name of DTC or a nominee of DTC.
Except as described below, a global note may not be transferred except as a whole: (1) by DTC to a nominee of DTC; (2) by a nominee of DTC to DTC or another nominee of DTC; (3) by DTC or any nominee to a successor of DTC or a nominee of the successor.
So long as DTC or its nominee is the registered owner of a global note, DTC or its nominee, as the case may be, will be the sole holder of the Notes in book-entry form represented by the global note for all purposes under the Indenture. Except as otherwise provided in this section, the actual purchasers, or “Beneficial Owners,” of the global note or Notes representing Notes in book-entry form will not be entitled to receive physical delivery of Notes in certificated form and will not be considered to be the holders of the Notes for any purpose under the Indenture, and no global note representing Notes in book-entry form will be exchangeable or transferable. Accordingly, each person owning a beneficial interest in a global note must rely on the procedures of DTC and, if a person is not a participant, on the procedures of the participant through which the person owns its interest in order to exercise any rights of a holder under the Indenture.
We may elect to allow Beneficial Owners to hold their interest in a global note held by DTC through Clearstream Banking, société anonyme (“Clearstream”) or Euroclear Bank SA/NV, as operator of the Euroclear system (“Euroclear”), if they are participants in those systems, or indirectly through organizations that are participants in those systems. Clearstream and Euroclear will hold interests on behalf of their customers through accounts held in Clearstream’s and Euroclear’s names on the books of their respective depositaries, which in turn will hold the interests in the depositaries’ names on the books of DTC.
We understand that under existing industry practices, if we request any action of holders or if a Beneficial Owner of a global note desires to give or take any action that a holder is entitled to give or take under the Indenture, DTC would authorize the participants holding the relevant beneficial interests to give or take the desired action, and the participants would authorize Beneficial Owners owning through the participants to give or take the desired action or would otherwise act upon the instructions of Beneficial Owners. Euroclear or Clearstream, as the case may be, will take action on behalf of their participants only in accordance with its relevant rules and procedures and subject to its respective depositaries’ ability to effect such actions on its behalf through DTC.
The laws of some jurisdictions require that certain purchasers of securities take physical delivery of the securities in definitive certificated form. These limits and laws may impair the ability to transfer beneficial interests in a global note representing Notes in book-entry form. Further, because DTC can act only on behalf of its participants, who in turn act on behalf of indirect participants, the ability of Beneficial Owners to pledge their interest in the Notes to persons or entities that do not participate in the DTC system, or otherwise take action with respect to such interest, may be limited by the lack of a definitive certificate of such interest.
Settlement Procedures
The initial depository for the Notes will be DTC. The depository will act as securities depository for the Notes in book-entry form. The Notes in book-entry form will be issued as fully registered securities registered in the name of Cede & Co., the depository’s nominee or such other name as may be requested by an authorized representative of DTC. One global note will be issued to represent each $500,000,000 of aggregate principal amount of Notes of the same issue. Additional global notes will be issued to represent any remaining principal amount of the issue.
Purchases of Notes in book-entry form under DTC’s system must be made by or through direct participants, which will receive a credit for Notes in book-entry form on DTC’s records. The ownership interest of each Beneficial Owner is in turn recorded on the records of direct participants and indirect participants. Beneficial Owners of Notes in book-entry form will not receive written confirmation from DTC of their purchase, but each Beneficial Owners is expected to receive written confirmation providing details of the related transaction, as well as periodic statements of its holdings, from the direct or indirect participant through which such Beneficial Owner entered into the related transaction. Transfers of ownership interests in a global note representing Notes in book-entry form are accomplished by entries made on the books of participants acting on behalf of the Beneficial Owners. Beneficial Owners of global notes representing Notes in book-entry form will not receive Notes in certificated form representing their ownership interests in the Notes, unless use of the book-entry system for Notes in book-entry form is discontinued.
To facilitate subsequent transfers, all global notes representing Notes in book-entry form which are deposited with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of global notes with DTC and their registration in the name of Cede & Co. or such other DTC nominee effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the global notes representing the Notes in book-entry form; DTC’s records reflect only the identity of the direct participants to whose accounts the Notes in book-entry form are
credited, which may or may not be the Beneficial Owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers and for forwarding all notices concerning the Notes to their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to DTC. If less than all of the Notes in book-entry form are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each direct participant in the issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the global notes representing the Notes in book-entry form unless authorized by a direct participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an omnibus proxy to us as soon as possible after the applicable record date. The omnibus proxy assigns Cede & Co.’s consenting or voting rights to those direct participants, identified in a listing attached to the omnibus proxy, to whose accounts the Notes in book-entry form are credited on the applicable record date.
So long as DTC, or its nominee, is a registered owner of the global notes representing the Notes in book-entry form, we will make principal and interest payments on the global notes representing the Notes in book-entry form to DTC. DTC’s practice is to credit direct participants’ accounts upon DTC’s receipt of funds and corresponding detail information from TAFR LLC or the Indenture Trustee, on the applicable Payment Date in accordance with their respective holdings shown on DTC’s records. Payments by participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of the participant and not of DTC, the Indenture Trustee or TAFR LLC, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of TAFR LLC or the Indenture Trustee. Disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of payments to the Beneficial Owners is the responsibility of direct participants and indirect participants. Distributions with respect to Notes held through Clearstream or Euroclear will be credited, to the extent received by their respective depositaries, to the cash accounts of their participants in accordance with the relevant system’s rules and procedures.
DTC may discontinue providing its services as securities depository with respect to the Notes in book-entry form at any time by giving reasonable notice to TAFR LLC or the Indenture Trustee. Under these circumstances, if a successor securities depository is not obtained, Notes in certificated form are required to be printed and delivered.
We may decide (subject to the procedures of the securities depository) to discontinue use of a system of book-entry transfers through the depository or a successor securities depository. In that event, Notes in definitive certificated form will be printed and delivered.
If DTC is at any time unwilling or unable to continue as depository and a successor depository is not appointed by us within 90 days, we will issue Notes in certificated form in exchange for the Notes represented by the global notes. In addition, we may at any time and in our sole discretion determine (subject to the procedures of the securities depositary) to discontinue use of a global note and, in that event, will issue Notes in certificated form in exchange for the Notes represented by the global note. The Class A Notes will be issued in U.S. Dollars in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof (except for one Note of each class which may be issued in a denomination other than an integral multiple of $1,000) and will be issued in registered form only, without coupons.
Secondary Market Trading
Because the purchaser determines the place of delivery, it is important to establish at the time of trading of any Notes where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date.
Trading between participants of DTC, or “DTC Participants.” Secondary market sales of Notes held in DTC between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to United States corporate debt obligations.
Trading between participants of Euroclear, or “Euroclear Participants” and/or participants of Clearstream, or “Clearstream Participants.” Secondary market sales of beneficial interests in the Notes held through Euroclear or Clearstream to purchasers that will hold beneficial interests through Euroclear or Clearstream will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream and will be settled using the procedures applicable to conventional eurobonds.
Trading between DTC Seller and Euroclear/Clearstream Purchaser. When book-entry interests in Notes are to be transferred from the account of a DTC Participant to the account of a Euroclear or Clearstream accountholder, the purchaser must first send instructions to Euroclear or Clearstream through a participant at least one business day (European time) prior to the settlement date, in accordance with its rules and procedures and within its established deadlines (European time). Clearstream Participants and Euroclear Participants may not deliver instructions directly to DTC. Euroclear or Clearstream will then instruct its depositary to receive the Notes and make payment for them. On the settlement date, the depositary will make payment to the DTC Participant’s account and the Notes will be credited to the depositary’s account. After settlement has been completed, DTC will credit the Notes to the U.S. depositary for Euroclear or Clearstream, as the case may be. Euroclear or Clearstream will credit the Notes, in accordance with its usual procedures, to the participant’s account, and the participant will then credit the purchaser’s account. These securities credits will appear the next business day (European time) after the settlement date. The cash debit from the account of Euroclear or Clearstream will be back-valued to the value date (which will be the preceding business day (European time) if settlement occurs in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the cash debit will instead be valued at the actual settlement date. Since the settlement will occur during New York business hours, a DTC Participant selling an interest in the Notes can use its usual procedures for transferring notes to the U.S. depositary for Euroclear or Clearstream, as the case may be, for the benefit of Euroclear Participants or Clearstream Participants. The DTC seller will receive the sale proceeds on the settlement date. Thus, to the DTC seller, a cross-market sale will settle no differently than a trade between two DTC Participants.
Trading between a Euroclear or Clearstream Seller and a DTC Purchaser. Due to time zone differences in their favor, Euroclear Participants and Clearstream Participants can use their usual procedures to transfer Notes through the applicable U.S. depositary to a DTC Participant. The seller must first send instructions to Euroclear or Clearstream through a participant at least one business day (European time) prior to the settlement date. Euroclear or Clearstream will then instruct its U.S. Depositary to credit the Notes to the DTC Participant’s account and receive payment. The payment will be credited in the account of the Euroclear or Clearstream Participant on the following business day (European time), but the receipt of the cash proceeds will be back-valued to the value date (which will be the preceding business day (European time) if settlement occurs in New York). If settlement is not completed on the intended value date (i.e., the trade fails), the receipt of the cash proceeds will instead be valued at the actual settlement date.
The Clearing Systems
DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC Direct Participants deposit with DTC. DTC also facilitates the post-trade settlement among DTC Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between DTC Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. DTC Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial relationship with a DTC Direct Participant, either directly or indirectly. The DTC Rules applicable to DTC Direct Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Clearstream. Clearstream advises that it is incorporated under the laws of Luxembourg as a professional depository. Clearstream holds securities for Clearstream Participants and facilitates the clearance and settlement of securities transactions between Clearstream Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to Clearstream Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream interfaces with domestic markets in several countries. As a professional depository in Luxembourg, Clearstream is subject to regulation by the Commission de Surveillance du Secteur Financier. Clearstream Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Clearstream is also available to other institutions such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Participant either directly or indirectly. Distributions with respect to the Notes held beneficially through Clearstream will be credited to cash accounts of Clearstream Participants in accordance with its rules and procedures, to the extent received by the U.S. Depositary for Clearstream.
Euroclear. Euroclear holds securities and book-entry interests in securities for Euroclear Participants and facilitates the clearance and settlement of securities transactions between Euroclear Participants, and between Euroclear Participants and participants of certain other securities intermediaries through electronic book-entry changes in accounts of such participants or other securities intermediaries. Euroclear provides Euroclear Participants, among other things, with safekeeping, administration, clearance and settlement, securities lending and borrowing and related services. Euroclear Participants include investment banks, securities brokers and dealers, banks, central banks, supranationals, custodians, investment managers, corporations, trust companies and certain other organizations. Non-participants in Euroclear may hold and transfer beneficial interests in a global note through accounts with a Euroclear Participant or any other securities intermediary that holds a book-entry interest in a global note through one or more securities intermediaries standing between such other securities intermediary and Euroclear. Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payments with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through Euroclear Participants. Distributions with respect to Notes held beneficially through Euroclear will be credited to the cash accounts of Euroclear Participants in accordance with the Terms and Conditions, to the extent received by the U.S. Depository for Euroclear.
Although the foregoing sets out the procedures of Euroclear, Clearstream and DTC in order to facilitate the transfers of interests in the Notes among participants of DTC, Clearstream and Euroclear, none of Euroclear, Clearstream or DTC is under any obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor any agent or any paying agent, any underwriter or any affiliate of any of the above, or any person by whom any of the above is controlled for the purposes of the Securities Act of 1933, as amended (the “Securities Act”), will have any responsibility for the performance by DTC, Euroclear and Clearstream or their respective direct or indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations or for the sufficiency for any purpose of the arrangements described above.
Definitive Securities
The Certificate will be issued in fully registered, certificated form (the “Definitive Certificate”). The Notes will be issued in fully registered, certificated form (the “Definitive Notes” and, together with the Definitive Certificate, the “Definitive Securities”) to Noteholders or their respective nominees, instead of to DTC or its nominee, only if (i) DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to such Notes and the Administrator is unable to locate a qualified successor (and if it is the Administrator that has made such determination, the Administrator so notifies the Indenture Trustee in writing), (ii) the Depositor
or the Administrator or the Indenture Trustee, as applicable, at its option, elects to terminate the book-entry system through DTC or (iii) after the occurrence of an Event of Default or a Servicer Default with respect to the Notes, holders of Notes evidencing not less than a majority of the aggregate principal amount of the Notes of the Controlling Class then outstanding, acting together as a single class, advise the Indenture Trustee through DTC in writing that the continuation of a book-entry system through DTC (or a successor to DTC) with respect to the Notes is no longer in the best interest of the holders of the Notes.
Upon the occurrence of any event described in the immediately preceding paragraph, the Indenture Trustee will be required to notify all applicable Noteholders through participants of the availability of Definitive Notes. Upon surrender by DTC of the definitive certificates representing the corresponding Notes and receipt of instructions for re-registration, the Indenture Trustee will reissue such Notes as Definitive Notes to such Noteholders.
Payments of principal of, and interest on, such Definitive Notes will thereafter be made by the Indenture Trustee in accordance with the procedures described in the Indenture or the Trust Agreement, as applicable, directly to holders of Definitive Notes in whose names the Definitive Notes were registered at the close of business on the applicable Record Date. Such payments will be made by check mailed to the address of such holder as it appears on the register maintained by the Indenture Trustee. The final payment on any such Definitive Note, however, will be made only upon presentation and surrender of such Definitive Note at the office or agency specified in the notice of final payment to the applicable Noteholders. The Indenture Trustee will provide such notice to the applicable Noteholders not less than 15 or more than 30 days prior to the date on which such final payment is expected to occur.
Definitive Securities will be transferable and exchangeable at the offices of the applicable trustee or of a registrar named in a notice delivered to holders of Definitive Securities. No service charge will be imposed for any registration of transfer or exchange, but the Indenture Trustee or the Owner Trustee, as applicable, may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.
List of Securityholders
Separately from the requirement to include a request to communicate in a Form 10-D, three or more holders of the Notes or one or more holders of the Notes evidencing not less than 25% of the aggregate outstanding principal amount of the Notes may, by written request to the Indenture Trustee, obtain access to the list of all Noteholders maintained by the Indenture Trustee for the purpose of communicating directly with other Noteholders with respect to their rights under the Indenture or under the Notes. The Indenture Trustee may elect not to afford the requesting Noteholders access to the list of Noteholders if it agrees to mail the desired communication or proxy, on behalf of and at the expense of the requesting Noteholders, to all Noteholders.
The Depositor or an affiliate will be the initial Certificateholder.
The Trust Agreement and Indenture will not provide for the holding of annual or other meetings of Securityholders.
Reports to Securityholders
On or prior to each Payment Date, the Servicer will prepare and provide to the Indenture Trustee and the Owner Trustee statements to be delivered or made available to the Noteholders and Certificateholders, respectively, on such Payment Date. Each such statement to be delivered or made available to Securityholders will include (to the extent applicable) the following information as to the Notes and as to the Certificate with respect to such Payment Date or the period since the previous Payment Date, as applicable:
| • | the amount paid or distributed in respect of interest on each class of Notes; |
| • | the First Priority Principal Distribution Amount, the Second Priority Principal Distribution Amount, the Regular Principal Distribution Amount and the amount paid or distributed in respect of principal on or with respect to each Class of Notes; |
| • | the amount paid or distributed to the Certificateholders; |
| • | the number of Receivables, the Pool Balance and the Adjusted Pool Balance as of the close of business on the first day and the last day of the related Collection Period; |
| • | the aggregate outstanding principal amount and the Pool Factor for each class of Notes, before and after giving effect to all payments in respect of principal on such Payment Date; |
| • | the amount of the Servicing Fee paid to the Servicer, with respect to the related Collection Period and the amount of any unpaid Servicing Fees from the prior Payment Date; |
| • | the amount of any shortfall of interest applicable to each class of Notes after giving effect to all payments on interest on such Payment Date, and the change in such amounts from the preceding Payment Date; |
| • | the amount of fees, expenses and indemnification amounts due and payable to each of the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer, before and after giving effect to payments on such Payment Date; |
| • | the balance of the Reserve Account on such Payment Date and the Specified Reserve Account Balance for such Payment Date, before and after giving effect to changes thereto on such Payment Date; |
| • | the Yield Supplement Overcollateralization Amount for such Payment Date; |
| • | the amount of Available Collections for the related Collection Period; |
| • | delinquency and loss information with respect to the Receivables for the related Collection Period; |
| • | any material change in practices with respect to charge-offs, collection and management of delinquent Receivables, and the effect of any grace period, re-aging, re-structure, partial payments or other practices on delinquency and loss experience; |
| • | any material modifications, extensions or waivers to Receivables terms, fees, penalties or payments during the related Collection Period, or that have cumulatively become material over time; |
| • | any material breaches of representations and warranties made with respect to the Receivables, or covenants, contained in the Transfer and Servicing Agreements; and |
| • | whether a Delinquency Trigger has occurred as of the end of the related Collection Period. |
Within the prescribed period of time for tax reporting purposes after the end of each calendar year, the applicable Trustee will mail to each person who at any time during such calendar year has been a Securityholder and received any payment on the Securities held by such Person a statement containing certain information for the purposes of such Securityholder’s preparation of U.S. federal income tax returns. The Servicer will make the foregoing statements available to the Noteholder each month via its Internet website, which is presently located at http://www.toyotafinancial.com. For additional information, you should refer to “Material U.S. Federal Income Tax Considerations” in this prospectus.
The Servicer, on behalf of the Issuing Entity, will also prepare an asset-level data file with respect to the Receivables for each calendar month and file it with the SEC on Form ABS-EE before filing the related Form 10-D. The exhibits to each Form ABS-EE filed by or on behalf of the Issuing Entity after the filing of this prospectus will be incorporated by reference into the related Form 10-D. Each asset-level data file will contain detailed information concerning each Receivable, including data regarding its origination characteristics, contract terms, characteristics of the related Financed Vehicle and Obligor, contract and payment activity, servicing activity and status. Certain asset-level data, such as data related to term, collections, vehicle type, repurchases, losses on the Receivables and repossessions, may not match the aggregate data provided on the monthly statements to Securityholders as a result of differences between the methods of determining or calculating such data for the purpose of presenting the monthly statements to Securityholders and for the purpose of presenting asset-level data in Form ABS-EE.
