Fitch Affirms Toyota Motor Credit Corp. and Affiliates at 'A'; Outlook Stable

Fitch Ratings has affirmed the ratings of Toyota Motor Credit Corporation (TMCC) and its affiliates, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited, and Toyota Kreditbank GmbH (collectively 'affiliates') at 'A/F1'. The Rating Outlook is Stable. A full list of ratings is provided at the end of this release.

The rating action follows Fitch's affirmation of Toyota Motor Corporation (TMC) on Aug. 26, 2014. For more information on Fitch's rating rationale please see rating action commentary titled 'Fitch Affirms Toyota Motor at 'A'; Outlook Stable', dated Aug. 26, 2014.

KER RATING DRIVERS - IDR and Senior Debt

TMCC's and its affiliates ratings are equalized and linked to those of its parent, TMC as Fitch considers these subsidiaries as 'core' to TMC. The equalization reflects strong implicit and explicit factors including high percentage of TMC sales financed by the subsidiaries, significant operational linkages between the companies and the existence of a credit support agreement between the parent and the subsidiaries. Ratings also reflect TMCC's solid liquidity profile, diversified funding mix, and sound credit quality of its receivables portfolio.

Credit quality has begun to normalize as used car values have moderated resulting in slightly higher loss severity. Net loss rate was 0.28% in fiscal year 2014 (FY14) (12 months ended March 31, 2014), almost flat compared to 0.27% in FY13, but up from 0.21% in FY12, reflecting the prime quality nature of lending and compares favorably with peers. 60+ day delinquencies have also remained solid and consistently below 0.20% in the past three fiscal years. Performance was solid for three months ended June 30, 2014 (first quarter 2015 [1Q'15]), with net loss rate improving to 0.20% and 60+day delinquency at 0.22%, reflecting seasonal patterns. Fitch expects asset quality performance will continue to remain solid in FY15, but normalize from current levels driven by expected moderation in used car values.

FY14 operating results were negatively impacted by $155 million in fair values losses related to derivatives versus $388 million gains in FY13. Pre-tax income, excluding fair value changes related to derivatives, measured $1.5 billion in FY14, down 15% from $1.8 billion in FY13. The decline was primarily due to increase in provision for credit losses from normalizing credit performance, and increase in depreciation expense related to increased leasing activity, partially offset by decline in borrowing costs. Fitch expects TMCC to be solidly profitable in FY15. 1Q'15 (three months ended June 30, 2014) saw increased profitability with adjusted pre-tax income increasing to $419 million, up 13% from $371 million in 1Q'14, primarily due to higher lease related revenues. However, the company does face headwinds in terms of increased credit costs, relatively higher interest expense from rising rates, and normalizing used car values which could reduce recoveries on repossessed cars and lease returns. Still, Fitch expects portfolio expansion and strong underwriting standards will help maintain profitability levels in FY15.

In terms of capitalization, TMCC operates with relatively higher leverage than its auto finance peers. Leverage, as measured by debt to tangible equity, was 10.6x at June 30, 2014, down slightly from 11.0x at the end of FY14. Leverage has reduced compared to pre-crisis levels (17.8x in FY09), but still remains high compared to peers. Leverage is managed via dividend payments to its parent. TMCC paid $665 million in dividends to its parent in FY14, down from $1.5 billion in FY13. Although higher leverage is a concern, Fitch finds some comfort in the ability of the company to suspend dividends to its parent, as was demonstrated in the downturn, when dividends were suspended FY07 and FY08.

TMCC's funding profile is strong and diversified by type, term and currency. Term funding requirements are met through the issuance of a variety of debt securities in both the U.S. and international capital markets. TMCC primarily relies on unsecured debt for its funding needs, with unsecured long-term debt and commercial paper (CP) accounting for 90% of total debt funding as of June 30, 2014. Short-term CP issuance accounts for a material portion of funding, with $21.2 billion in CP outstanding as of June 30, 2014, accounting for almost 30% of TMCC's total debt funding. Fitch notes that TMCC's CP issuance has increased since the financial crisis, which compares unfavorably to similarly rated peers. The weighted average maturity of CP was 87 days at June 30, 2014. Fitch views TMCC's high reliance on short-term CP funding negatively, as access to CP funding could dry up as witnessed in the recent financial crisis. However, Fitch notes that TMCC's CP program is supported by sizeable liquidity back-up, including $10.4 billion in cash and marketable securities on balance sheet and $18.7 billion in committed backup credit facilities. In addition, CP is covered under the credit support agreement with the parent, TMC, which provides an additional source of backup liquidity.

KEY RATING SENSITIVITIES - TMCC

A negative rating action for TMCC could be driven by a change in the perceived relationship between the parent and subsidiary, such as if Fitch believed that TMCC had become less core to the parent's strategic operations or adequate financial support was not provided in a time of crisis. Additionally, the recognition of consistent operating losses, a material increase in leverage, and or deterioration in TMCC's liquidity profile could also yield negative rating action.

Positive rating momentum for TMCC will be limited by Fitch's view of Toyota's credit profile.

Fitch has affirmed the following ratings:

Toyota Motor Credit Corporation;

Toyota Motor Finance (Netherlands) B.V.;

Toyota Credit Canada Inc.;

Toyota Finance Australia Limited; and

Toyota Kreditbank GmbH

--Long-term Issuer Default Rating (IDR) at 'A';

--Short-term IDR at 'F1';

--Senior unsecured debt at 'A';

Toyota Motor Credit Corporation

--Short-term debt at 'F1'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research

-- Global Financial Institutions Rating Criteria (January 2014);

-- Finance and Leasing Companies Criteria (December 2012);

-- Rating FI Subsidiaries and Holding Companies (August 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=857674

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.