Toyota 2005 Annual Report Download - page 92

90 >NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Toyota maintains a program to sell retail and lease
finance receivables. Under the program, Toyota’s securiti-
zation transactions are generally structured as qualifying
SPEs (“QSPE”s), thus Toyota achieves sale accounting
treatment under the provisions of FAS No. 140 Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (“FAS 140”). Toyota recog-
nizes a gain or loss on the sale of the finance receivables
upon the transfer of the receivables to the securitization
trusts structured as a QSPE. Toyota retains servicing rights
and earns a contractual servicing fee of 1% per annum on
the total monthly outstanding principal balance of the
related securitized receivables. In a subordinated capacity,
Toyota retains interest-only strips, subordinated securities,
and cash reserve funds in these securitizations, and these
retained interests are held as restricted assets subject to
limited recourse provisions and provide credit enhance-
ment to the senior securities in Toyota’s securitization
transactions. The retained interests are not available to
satisfy any obligations of Toyota. Investors in the securiti-
zations have no recourse to Toyota beyond Toyota’s
retained subordinated interests and any amounts drawn
on the revolving liquidity notes. Toyota’s exposure to
these retained interests exists until the associated securities
are paid in full. Investors do not have recourse to other
assets held by Toyota for failure of obligors on the
receivables to pay when due or otherwise.
The following table summarizes certain cash flows
received from and paid to the securitization trusts for the
years ended March 31, 2003, 2004 and 2005.
U.S. dollars
Yen in millions in millions
For the year
For the years ended March 31, ended March 31,
2003 2004 2005 2005
Proceeds from new securitizations, net of purchased
and retained securities.................................................................... ¥412,594 ¥168,135 ¥48,958 $456
Servicing fees received ...................................................................... 6,868 6,860 3,762 35
Excess interest received from interest only strips ........................... 15,313 20,514 9,140 85
Repurchases of receivables ............................................................... (11,466) (33,614) (34,675) (323)
Servicing advances ............................................................................ (1,098) (792) (215) (2)
Reimbursement of servicing and maturity advances...................... 122 1,358 860 8
Toyota sold finance receivables under the program and
recognized pretax gains resulting from these sales of
¥16,202 million, ¥5,608 million and ¥323 million ($3
million) for the years ended March 31, 2003, 2004 and
2005, respectively, after providing an allowance for esti-
mated credit losses. The gain on sale recorded depends on
the carrying amount of the assets at the time of the sale.
The carrying amount is allocated between the assets sold
and the retained interests based on their relative fair values
at the date of the sale. The key economic assumptions
initially and subsequently measuring the fair value of
retained interests include the market interest rate environ-
ment, severity and rate of credit losses, and the prepay-
ment speed of the receivables. All key economic assumptions
used in the valuation of the retained interests are reviewed
periodically and are revised as considered necessary.
At March 31, 2004 and 2005, Toyota’s retained interests
relating to these securitizations include interest in trusts,
interest-only strips, and other receivables, amounting to
¥50,625 million and ¥18,896 million ($176 million),
respectively.
Toyota recorded impairments on retained interests
totaling ¥2,440 million for the year ended March 31, 2003.
These impairments were calculated by discounting cash
flows using management’s estimates and other key eco-
nomic assumptions. No impairment losses on retained
interests were recorded for the years ended March 31,
2004 and 2005.
Key economic assumptions used in measuring the fair
value of retained interests at the sale date of securitization
transactions completed during the years ended March 31,
2003, 2004 and 2005 were as follows:
For the years ended March, 31
2003 2004 2005
Prepayment speed related to securitizations..................................................................... 1.0%–1.5% 1.0%–1.5% 0.7%–1.1%
Weighted-average life (in years) ........................................................................................ 1.45–1.85 1.70–1.85 1.85
Expected annual credit losses............................................................................................. 0.50%–0.80% 0.50%–0.80% 0.30%
Discount rate used on the subordinated securities........................................................... 5.0% 5.0% —
Discount rate used on other retained interests ................................................................. 8.0%–15.0% 8.0%–15.0% 15.0%