Toyota 2009 Annual Report Download - page 78

Financial Section
TOYOTA MOTOR CORPORATION
76
Toyota maintains a program to sell retail and finance lease
receivables. Under the program, Toyota’s securitization transac-
tions 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 recognizes a gain or loss on the sale of the finance
receivables upon the transfer of the receivables to the securiti-
zation 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 secu-
ritized 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 enhancement to the senior securities in
Toyota’s securitization transactions. The retained interests are
not available to satisfy any obligations of Toyota. Investors in the
securitizations have no recourse to Toyota beyond the contrac-
tual cash flows of the securitized receivables, retained subordi-
nated interests, any cash reserve funds and any amounts
available or funded under 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 receiv-
ables to pay when due or otherwise.
During the year ended March 31, 2008, Toyota sold mortgage
loan receivables, while no other retail and finance lease receiv-
ables were securitized. During the year ended March 31, 2009,
no retail and finance lease receivables were securitized.
Toyota sold finance receivables under the program and rec-
ognized pretax gains resulting from these sales of ¥1,589 million
and ¥1,688 million for the years ended March 31, 2007 and 2008,
respectively, after providing an allowance for estimated 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 environment, severity and rate of credit losses, and
the prepayment 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, 2008 and 2009, Toyota’s retained interests relating
to these securitizations include interest in trusts, interest-only
strips, and other receivables, amounting to ¥23,876 million and
¥19,581 million ($199 million), respectively.
Toyota recorded no impairments on retained interests for the
years ended March 31, 2007, 2008 and 2009. Impairments are
calculated, if any, by discounting cash flows using management’s
estimates and other key economic assumptions.
Expected cumulative static pool losses over the life of the
securitizations are calculated by taking actual life to date losses
plus projected losses and dividing the sum by the original bal-
ance of each pool of assets. Expected cumulative static pool
credit losses for finance receivables securitized for the years
ended March 31, 2007, 2008 and 2009 were 0.16%, 0.26% and
0.26%, respectively.
The following table summarizes certain cash flows received from and paid to the securitization trusts for the years ended March 31,
2007, 2008 and 2009.
U.S. dollars
Yen in millions in millions
For the year ended
For the years ended March 31, March 31,
2007 2008 2009 2009
Proceeds from new securitizations, net of purchased and retained securities .............. ¥69,018 ¥91,385 ¥ — $—
Servicing fees received ....................................................................................................... 1,881 1,682 777 8
Excess interest received from interest only strips ............................................................. 2,818 1,865 356 4
Repurchases of receivables................................................................................................. — (4,681) (48) (0)
Servicing advances .............................................................................................................. (234) (114) — —
Reimbursement of servicing and maturity advances ........................................................ 234 114 — —
Key economic assumptions used in measuring the fair value of retained interests at the sale date of securitization transactions com-
pleted during the years ended March 31, 2007, 2008 and 2009 were as follows:
For the years ended March 31,
2007 2008 2009
Prepayment speed related to securitizations ......................................................................... 0.7%–1.4% 6.0% —
Weighted-average life (in years) .............................................................................................. 1.90–2.57 9.00 —
Expected annual credit losses ................................................................................................. 0.05%–0.12% 0.05% —
Discount rate used on the retained interests ......................................................................... 5.0% 3.8% —