TRIS Rating Co., Ltd. has assigned a “AAA” rating to the proposed issue of up to Bt4,000 million in guaranteed debentures of Toyota Leasing (Thailand) Co., Ltd. (TLT or Issuer) under the Bt40,000 million medium-term debenture program. At the same time, TRIS Rating has affirmed the ratings of TLT’s guaranteed debentures of Bt27,200 million under the same program at “AAA”. The rating outlook is “stable”.
TRIS Rating reported that the debentures of TLT are guaranteed by Toyota Motor Finance (Netherlands) B.V., (TMF or Guarantor). TMF is a wholly-owned subsidiary of Toyota Financial Service Corporation (TFS), which is 100% held by Toyota Motor Corporation (TMC), the ultimate parent company. All three companies, TMF, TFS and TMC, are rated at “AA” by Standard & Poor’s (S&P), and at “Aa2” by Moody’s Investors Service (Moody’s), with short-term issue ratings at “A-1+” by S&P and at “P-1” by Moody’s.
The ratings of TMF, TFS and TMC were downgraded to “Aa2” from “Aa1” with “negative” outlooks by Moody’s on 22 April 2010. The downgrades were based on the expectation that TMC will deliver low profitability for a period longer than previously expected. TMC’s financial performance has been affected by the global economic downturn and the contraction in demand for vehicles during 2008-2009. In addition, Toyota’s product quality-related issues and associated recalls which started in late January 2010 place an additional pressure on its profitability. The recalls will cause extraordinary costs, and raise the risk that TMC’s financial performance may recover at a slower pace. However, TMC showed a profit in fiscal year (FY) 2010 (April 2009-March 2010) after a huge loss in FY2009. A recovery of TMC’s operating performance and strong liquidity position were reasons that S&P, on 14 May 2010, affirmed the ratings of TMF, TFS and TMC at “AA” with “negative” outlooks.
TMC reported its FY2010 performance on 11 May 2010. Net income was 209 billion yen, compared with a net loss of 437 billion yen in FY2009. The improvement in the FY2010 financial results were mainly due to cost reduction efforts from TMC’s emergency profit improvement program as well as fixed cost reduction and increased profits from the financial services business. These efforts provided sufficient gains to cover the negative effects from lower sales volume and disadvantageous exchange rates. TMC announced its sales volume results in Japan which improved by 27.4% for the first quarter of FY2011 (April 2010-June 2010), compared with the same period in FY2010. Although sales volume in Japan contributed only 30% of TMC’s total sales volume in FY2010, the improvement of its financial performance is expected to continue in the future, in line with the recovery trend of global automotive industry.
TRIS Rating said about the ratings of TLT’s medium-term debentures that they reflect the unconditional and irrevocable guarantee by TMF, whose rating is based on the credit strength of TMC. Under this guarantee structure, TMC has provided a Credit Support Agreement (CSA) to TFS, which in turn provided a CSA to TMF. Under the terms of the CSA, TMC will provide sufficient liquidity for the obligations of bonds or debentures and commercial papers of both subsidiaries, TFS and TMF. TMC will also provide sufficient liquidity for TMF’s guarantee obligations. The guarantee is governed by the Dutch law and is unconditional and irrevocable. It provides punctual payment for the debenture holders of all sums payable by TLT. For the guarantee of the medium-term debentures, the obligations of TMF rank at least pari passu with all other present and future unsecured and unsubordinated indebtedness of TMF. The guarantee cannot be amended or terminated without the consent of both the debenture holders’ representatives and the Guarantor.
The Guarantor will not be under any obligation to make payment for the Issuer’s failure to pay as a result of any of the following actions by any Thai government agency: (1) interruption of payment by causing Issuer to be unable to transfer monies or to convert foreign currency to the Registrar or debenture holders to pay debt obligations; (2) causing the transfer of majority shareholding in, or control over, the Issuer to a third-party not associated with the Toyota Group; (3) expropriation or nationalization of at least 10% of the net value of hire purchase receivables of the Issuer and its subsidiaries; (4) expropriation or nationalization that has the effect of preventing the Issuer and its subsidiaries from carrying on business. TRIS Rating believes that the above events are highly unlikely to occur.
TRIS Rating said that the “stable” outlook reflects the creditworthiness of TLT’s ultimate parent, TMC, which has strong positions in major markets despite being weakened by quality-related issues. The market positions are supported by its extensive geographic and product diversification. Currently, TMC’s rating outlook is “negative”, assigned by both S&P and Moody’s, reflecting concerns over TMC’s weak profitability and the effects of product quality problems. However, TMC’s current company ratings of “AA” assigned by S&P and “Aa2” by Moody’s still reflect TMC’s relatively strong credit profile when compared with the “AAA” national scale rating in TRIS Rating’s database of rated companies in Thailand. -- End
Rating Outlook: Stable
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