DBRS Morningstar Assigns Issuer Rating of AA (low) With a Stable Trend to Toyota Motor Finance (Netherlands) B.V.

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating of AA (low) with a Stable trend to Toyota Motor Finance (Netherlands) B.V. (TMF). TMF is supported by a credit support agreement from Toyota Financial Services Corporation (TFSC), the parent company based in Japan. Key features of that credit support agreement include the following: (1) TFSC will, directly or indirectly, own 100% of TMF as long as TMF has any outstanding bonds, debentures, notes, and other investment securities and commercial paper (collectively, Debt); (2) TFSC will cause TMF to maintain a tangible net worth of at least EUR 100,000; and (3) if TMF at any time determines it will run short of cash or other liquid assets to meet its payment obligations on any Debt other than those owing to TFSC, and there are no credit facilities with lenders other than TFSC available to TMF, TFSC will make sufficient funds available to TMF to ensure all such debts can be paid as they fall due. TFSC is in turn supported by a credit support agreement from Toyota Motor Corporation (Toyota or the Company), with the same key features except that the Company will cause TFSC to maintain a tangible net worth of at least JPY 10 million.

Per “DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support” (March 28, 2023), the above-cited credit support agreements, in combination with DBRS Morningstar’s assessment of additional implicit support considerations, including, but not limited to, business, reputational, and financial factors (that are likely to motivate a parent or affiliated company to support its subsidiary issuer), result in a flow-through of Toyota’s Issuer Rating to TFSC, whose Issuer Rating is in turn flowed through to TMF.

Given the flow-through of Toyota’s credit rating to TFSC, and the subsequent flow-through of TFSC’s credit rating to TMF, any change in the credit rating of Toyota would directly result in a corresponding (i.e., 1-to-1 relationship) change in the credit rating of TMF. Consistent with the Stable trend, the credit rating is likely to remain constant over the near to medium term. DBRS Morningstar notes Toyota’s Financial Risk Assessment, including its inordinately strong liquidity position, provides a cushion against unexpected challenges, rendering a downgrade unlikely. Conversely, an upgrade is not likely over a similar time horizon in line with the meaningful cost challenges facing the automotive industry.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
DBRS Morningstar considered that the E factor, specifically carbon and greenhouse gas costs, represents a relevant factor as Toyota faces an assortment of laws and governmental regulations related to environmental matters such as emission levels, fuel economy, noise, and pollution. Accordingly, the Company faces risks from the transition to a lower-carbon economy. Toyota will need to respond to changes in customer demand trends by providing a diverse set of product options, taking into consideration region-specific electric power conditions. The Company is promoting its vehicle electrification strategy from all directions, including electric vehicles (EVs), hybrid models, and fuel cell EVs. In December 2021, Toyota announced its objective of increasing battery EV (BEV) sales to 3.5 million units per year by 2030. Going forward, the Company plans to invest a total of approximately JPY 5 trillion in new capital expenditures, research and development expenses, and other investments relating to BEVs and batteries.

While the E factor could have some negative credit impact, DBRS Morningstar does not deem it sufficient to change the credit ratings or the trends assigned to Toyota.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
All figures are in Japanese yen unless otherwise noted.

DBRS Morningstar applied the following principal methodology:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

DBRS Morningstar did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed credit ratings:

This credit rating concerns a newly rated issuer. This is the first DBRS Morningstar credit rating on this issuer.

With respect to the Financial Conduct Authority (FCA) and European Securities and Markets Authority (ESMA) regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the ESMA in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on DBRS Morningstar historical default rates published by the FCA in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Robert Streda, Senior Vice President, Diversified Industries
Credit Rating Committee Chair: Timothy O’Brien, Managing Director, Diversified Industries
Initial Credit Rating Dates:
Toyota – May 16, 2001
TMF – December 27, 2023

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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