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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______ Commission File Number 001-
AMERICAN HONDA FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
California 95- (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 1919 Torrance Blvd., Torrance, California 90501 (Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
20800 Madrona Avenue, Torrance, California 90503 (Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of exchange on which registered 1.300% Medium-Term Notes, Series A Due March 21, 2022 N/A^ New York Stock Exchange 2.625% Medium-Term Notes, Series A Due October 14, 2022 N/A^ New York Stock Exchange 1.375% Medium-Term Notes, Series A Due November 10, 2022 N/A^ New York Stock Exchange 0.550% Medium-Term Notes, Series A Due March 17, 2023 N/A^ New York Stock Exchange 0.750% Medium-Term Notes, Series A Due January 17, 2024 N/A^ New York Stock Exchange 0.350% Medium-Term Notes, Series A Due August 26, 2022 N/A^ New York Stock Exchange 1.600% Medium-Term Notes, Series A Due April 20, 2022 N/A^ New York Stock Exchange 1.950% Medium-Term Notes, Series A Due October 18, 2024 N/A^ New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No As of October 31, 2020, the number of outstanding shares of common stock of the registrant was 13,660,000 all of which shares were held by American Honda Motor Co., Inc. None of the shares are publicly traded.
REDUCED DISCLOSURE FORMAT American Honda Finance Corporation, a wholly-owned subsidiary of American Honda Motor Co., Inc., which in turn is a wholly-owned subsidiary of Honda Motor Co., Ltd., meets the requirements set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements included herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “scheduled,” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, or intentions. In addition, all information included herein with respect to projected or future results of operations, cash flows, financial condition, financial performance, or other financial or statistical matters constitute forward-looking statements. Such forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and that may be incapable of being realized. The following factors, among others, could cause actual results and other matters to differ materially from those in such forward-looking statements:
- uncertainties regarding the duration and severity of the COVID-19 pandemic and the measures intended to reduce its spread and the related impact on our operations, liquidity and financial condition;
- declines in the financial condition or performance of Honda Motor Co., Ltd. or the sales of Honda or Acura products;
- changes in economic and general business conditions, both domestically and internationally, including changes in international trade policy;
- fluctuations in interest rates and currency exchange rates;
- the failure of our customers, dealers or counterparties to meet the terms of any contracts with us, or otherwise fail to perform as agreed;
- our inability to recover the estimated residual value of leased vehicles at the end of their lease terms;
- changes or disruption in our funding sources or access to the capital markets;
- changes in our, or Honda Motor Co., Ltd.’s, credit ratings;
- increases in competition from other financial institutions seeking to increase their share of financing of Honda and Acura products;
- changes in laws and regulations, including the result of financial services legislation, and related costs;
- changes in accounting standards;
- a failure or interruption in our operations; and
- a security breach or cyber attack.
Additional information regarding these and other risks and uncertainties to which our business is subject to is contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed with the Securities and Exchange Commission on June 22, 2020. Readers of this Quarterly Report should review the information contained in that report, and in any subsequent reports that we file with the Securities and Exchange Commission as such risks and uncertainties may be amended, supplemented or superseded from time to time. We do not intend, and undertake no obligation to, update any forward-looking information to reflect actual results or future events or circumstances, except as required by applicable law.
ii
PART I – FINANCIAL INFORMATION
Item1. Financial Statements AMERICAN HONDA FINANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (U.S. dollars in millions, except share amounts)
September 30, 2020 March 31, 2020 Assets Cash and cash equivalents $ 2,950 $ 1, Finance receivables, net 39,572 39, Investment in operating leases, net 34,438 33, Due from Parent and affiliated companies 136 93 Income taxes receivable 80 137 Other assets 1,217 1, Derivative instruments 1,063 748 Total assets $ 79,456 $ 77, Liabilities and Equity Debt $ 51,290 $ 50, Due to Parent and affiliated companies 111 72 Income taxes payable 207 239 Deferred income taxes 6,809 6, Other liabilities 1,770 1, Derivative instruments 822 972 Total liabilities 61,009 59, Commitments and contingencies (Note 8) Shareholder’s equity:
Common stock, $100 par value. Authorized 15,000,000 shares; issued and outstanding 13,660,000 shares as of September 30, 2020 and March 31, 2020 1,366 1, Retained earnings 16,109 15, Accumulated other comprehensive loss (116) (175) Total shareholder’s equity 17,359 16, Noncontrolling interest in subsidiary 1,088 977 Total equity 18,447 17, Total liabilities and equity $ 79,456 $ 77,
The following table presents the assets and liabilities of consolidated variable interest entities. These assets and liabilities are included in the consolidated balance sheets presented above. Refer to Note 9 for additional information.
September 30, 2020 March 31, 2020 Finance receivables, net $ 10,297 $ 9, Investment in operating leases, net 472 493 Other assets 534 598 Total assets $ 11,303 $ 10, Secured debt $ 10,363 $ 9, Other liabilities 8 9 Total liabilities $ 10,371 $ 9,
See accompanying Notes to Consolidated Financial Statements (Unaudited).
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(U.S. dollars in millions)
Total
Retained earnings
Accumulated other comprehensive income/(loss)
Common stock
Noncontrolling interest Balance at March 31, 2019 $ 17,268 $ 15,088 $ (118) $ 1,366 $ 932 Net income 687 627 — — 60 Other comprehensive loss 15 — 8 — 7 Dividends declared (292) (292) — — — Balance at September 30, 2019 $ 17,678 $ 15,423 $ (110) $ 1,366 $ 999
Balance at March 31, 2020 $ 17,563 $ 15,395 $ (175) $ 1,366 $ 977 Net income 989 930 — — 59 Other comprehensive income 113 — 59 — 54 Adoption of accounting standard (Note 1) (75) (73) — — (2) Dividends declared (143) (143) — — — Balance at September 30, 2020 $ 18,447 $ 16,109 $ (116) $ 1,366 $ 1,
See accompanying Notes to Consolidated Financial Statements (Unaudited).
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(U.S. dollars in millions)
Six months ended September 30, 2020 2019 Cash flows from operating activities: Net income $ 989 $ 687 Adjustments to reconcile net income to net cash provided by operating activities: Debt and derivative instrument valuation adjustments (122) 24 Provision for credit losses (1) 106 Early termination loss on operating leases (115) 60 Depreciation on leased vehicles 2,832 2, Accretion of unearned subsidy income (745) (849) Amortization of deferred dealer participation and other deferred costs 181 179 Gain on disposition of leased vehicles (105) (96) Deferred income taxes 227 198 Changes in operating assets and liabilities: Income taxes receivable/payable 26 5 Other assets (2) 16 Accrued interest/discounts on debt 29 23 Other liabilities 73 (9) Due to/from Parent and affiliated companies (5) 48 Net cash provided by operating activities 3,262 3, Cash flows from investing activities: Finance receivables acquired (10,852) (9,240) Principal collected on finance receivables 8,995 8, Net change in wholesale loans 1,770 780 Purchase of operating lease vehicles (7,710) (9,684) Disposal of operating lease vehicles 4,980 5, Cash received for unearned subsidy income 654 637 Other investing activities, net (5) (2) Net cash used in investing activities (2,168) (3,043)
Statement continues on the next page.
Note 1. Summary of Business and Significant Accounting Policies
Organizational Structure
American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Noncontrolling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). AHM and HCI are the sole authorized distributors of Honda and Acura products, including motor vehicles, parts and accessories in the United States and Canada.
Unless otherwise indicated by the context, all references to the “Company”, “we”, “us”, and “our” in this report include AHFC and its consolidated subsidiaries, and references to “AHFC” refer solely to American Honda Finance Corporation (excluding AHFC’s subsidiaries).
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results of operations, cash flows, and financial condition for the interim periods presented. Results for interim periods should not be considered indicative of results for the full year or for any other interim period. These unaudited interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements, significant accounting policies, and the other notes to the consolidated financial statements for the fiscal year ended March 31, 2020 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (SEC) on June 22, 2020. All significant intercompany balances and transactions have been eliminated upon consolidation.
Recently Adopted Accounting Standards
Effective April 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments on a modified retrospective basis. The amendments replace the previous incurred loss impairment methodology with a methodology that reflects lifetime expected credit losses. The adoption of ASU 2016-13 resulted in an increase to the allowance for credit loss of $101 million along with an after-tax cumulative-effect reduction to opening retained earnings and noncontrolling interest of $75 million. Comparative information has not been restated and continues to be presented under previous accounting standards. Updated significant accounting policies are presented below.
Effective April 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments modify the disclosure requirements on fair value measurements in Topic 820, based on Financial Accounting Standards Board (FASB) Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. Certain disclosure requirements were removed, modified and added in Topic 820. This standard did not have an impact on the consolidated financial statements.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company is currently assessing the impact of this standard on the consolidated financial statements. The Company plans to adopt the new guidance effective April 1, 2021.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts or other transactions affected by reference rate reform if certain criteria are met. The guidance is effective immediately and may be applied prospectively through December 31, 2022. The Company is evaluating applicable contracts and transactions to determine whether to elect the optional guidance.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Significant Accounting Policies
Finance Receivables
Finance receivables include retail loan and dealer loan portfolio segments. The retail loan portfolio segment consists of retail installment contracts with consumers. The dealer loan portfolio segment consists of wholesale and commercial loans with dealers. Finance receivables are measured at amortized cost, less the allowance for credit losses. The amortized cost basis includes the unpaid principal balance, unearned origination fees, and deferred origination costs. Origination fees include payments received from AHM and HCI for incentive programs (refer to Note 6 regarding these related party transactions). Origination costs include payments made to dealers for rate participation and other initial direct costs (IDC). Accrued interest receivable balances are presented within other assets.
Revenue on finance receivables includes contractual interest income, accretion of origination fees, and amortization of origination costs. Contractual interest income is accrued using the simple interest method. Origination fees and costs are recognized in revenue using the interest method over the contractual life of the finance receivables. The recognition of finance revenue on retail loans is discontinued when the underlying collateral is repossessed or accounts are charged off. The recognition of finance revenue on dealer loans is discontinued when they are 90 days or more past due or when it has been determined the Company will be unable to collect all principal and interest payments.
Retail loans are charged off when they become 120 days past due or earlier if they have been specifically identified as uncollectible. Dealer loans are charged off when they have been individually identified as uncollectible. Charge-offs of the amortized cost basis are recognized as a reduction to the allowance for credit losses. Subsequent recoveries are credited to the allowance. Charge-offs of accrued interest receivables are reversed against finance revenue.
Allowance for Credit Losses
The allowance for credit losses is management’s estimate of lifetime expected credit losses on the amortized cost basis of finance receivables which is deducted from or, in the case of expected net recoveries, added to the amortized cost. The Company has elected not to measure an allowance for credit losses for accrued interest receivable. The allowance is measured on an undiscounted basis. Management evaluates the allowance, at minimum, on a quarterly basis.
The retail loan portfolio segment consists of homogeneous loans with relatively small balances. The allowance for retail loans is measured on a collective basis. The Company's historical experience provides the primary basis for estimating the allowance. The modeling methodology used to estimate the allowance incorporates vintage loss and delinquency migration analysis. Retail loans are segmented into pools with similar risk characteristics. Currently, retail loans are segmented by origination quarter, internal credit grade at origination, product type, and original term. Past economic conditions and other attributes of the pools including loan-to-value ratios at loan inception are also taken into consideration when assessing historical credit loss experience. Current and forecasts of future economic factors such as unemployment rates, bankruptcies and used vehicle prices are applied in the modeling to estimate current expected credit losses. Management will also consider qualitative adjustments given the inherent uncertainty in estimating expected credit losses and the imprecision of any modeling methodology.
The allowance for dealer loans is measured at the individual dealer level when they have been specifically identified as impaired. Dealer loans are considered impaired when it is probable that the Company will be unable to collect the amounts due according to the terms of the applicable contracts. The Company’s determination of whether dealer loans are impaired is based on evaluations of the dealership's payment history, financial condition, ability to perform under the terms of the loan agreements, and collateral values, as applicable. Expected credit losses on impaired dealer loans are measured based upon the specific circumstances of each dealer considering all expected sources of repayment or the fair value of the collateral if foreclosure is probable. The allowance for dealer loans that have not been specifically identified as impaired is measured collectively primarily using historical loss rates.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three and six months ended September 30, 2020 Retail Dealer Total (U.S. dollars in millions) Beginning balance as of July 1, 2020 $ 425 $ 9 $ 434 Provision (3) (1) (4) Charge-offs (47) (1) (48) Recoveries 29 1 30 Effect of translation adjustment 1 — 1 Ending balance as of September 30, 2020 $ 405 $ 8 $ 413
Beginning balance $ 364 $ 6 $ 370 Cumulative effective of adopting ASU 2016-13 98 3 101 Beginning balance as of April 1, 2020 462 9 471 Provision — (1) (1) Charge-offs (113) (1) (114) Recoveries 55 1 56 Effect of translation adjustment 1 — 1 Ending balance as of September 30, 2020 $ 405 $ 8 $ 413
Three and six months ended September 30, 2019 Retail Dealer Total (U.S. dollars in millions) Beginning balance as of July 1, 2019 $ 193 $ 11 $ 204 Provision 60 (2) 58 Charge-offs (80) (9) (89) Recoveries 24 — 24 Effect of translation adjustment — — — Ending balance as of September 30, 2019 $ 197 $ — $ 197
Beginning balance as of April 1, 2019 $ 193 $ 8 $ 201 Provision 97 9 106 Charge-offs (144) (17) (161) Recoveries 51 — 51 Effect of translation adjustment — — — Ending balance as of September 30, 2019 $ 197 $ — $ 197
The adoption of ASC 2016-13 resulted in an increase to the allowance for credit loss of $101 million, primarily for retail loans. The allowance for retail loans at the beginning of the six months ended September 30, 2020 reflected a significant increase in expected credit losses on retail loans due to the impact of COVID-19. Government measures that were enacted in an effort to slow down and control the spread of COVID-19 have had a severe adverse impact on economic conditions, including a significant increase in unemployment. Forecasts of weaker economic factors were reflected in this estimate, including a sharp rise in unemployment rates. Net charge-offs of retail loans during the six months ended September 30, 2020 were favorable relative to the expected credit losses for the period, which had a positive effect on the provision for credit losses. The forecasted economic factors that were applied in the modeling as of September 30, 2020 were slightly more favorable as compared to those applied at the beginning of the period which contributed to the reduction in the allowance for retail loans. The allowance for retail loans acquired during the six months ended September 30, 2020 is generally lower relative to loans acquired prior to the onset of COVID-19.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
There were no modifications to the terms of dealer loan contracts that constituted troubled debt restructurings during the six months ended September 30, 2020 and 2019. The Company generally does not grant concessions on consumer finance receivables that are considered troubled debt restructurings other than modifications of retail loans in reorganization proceedings pursuant to the U.S. Bankruptcy Code. Retail loans modified under bankruptcy protection were not material to the Company’s consolidated financial statements during the six months ended September 30, 2020 and 2019. The Company does allow limited payment deferrals on consumer finance receivables. These payment deferrals are not treated as troubled debt restructurings since the deferrals are deemed insignificant and interest continues to accrue during the deferral period. Payment deferrals were also granted to certain customers impacted by COVID-19 beginning in mid-March 2020. Through the end of September 2020, a cumulative total of approximately 240,000 retail loans were granted payment deferrals. As of September 30, 2020, approximately 15,000 outstanding retail loans were still within their deferral periods. The deferral period is up to a maximum of 3 months in the United States and 4 months in Canada, generally from the date the customer was initially granted the deferral. Customers taking advantage of the deferrals were not considered delinquent during such deferral periods and therefore were not reflected in delinquency measures.
Delinquencies
Collection experience provides an indication of the credit quality of finance receivables. For retail loans, delinquencies are a good predictor of charge-offs in the near term. The likelihood of accounts charging off is significantly higher once an account becomes 60 days delinquent. Retail loans are considered delinquent if more than 10% of a scheduled payment is contractually past due on a cumulative basis. Dealer loans are considered delinquent when any payment is contractually past due. The following is an aging analysis of past due finance receivables:
30 – 59 days past due
60 – 89 days past due
90 days or greater past due
Total past due
Current or less than 30 days past due
Total finance receivables (U.S. dollars in millions) September 30, 2020 Retail loans: New auto $ 166 $ 50 $ 13 $ 229 $ 29,145 $ 29, Used and certified auto 63 20 5 88 5,370 5, Motorcycle and other 12 4 2 18 1,454 1, Total retail 241 74 20 335 35,969 36, Dealer loans: Wholesale flooring — — 1 1 2,791 2, Commercial loans — — — — 889 889 Total dealer loans — — 1 1 3,680 3, Total finance receivables $ 241 $ 74 $ 21 $ 336 $ 39,649 $ 39,
March 31, 2020 Retail loans: New auto $ 222 $ 50 $ 13 $ 285 $ 27,495 $ 27, Used and certified auto 84 20 5 109 5,174 5, Motorcycle and other 12 4 2 18 1,237 1, Total retail 318 74 20 412 33,906 34, Dealer loans: Wholesale flooring 1 — — 1 4,529 4, Commercial loans — — — — 1,076 1, Total dealer loans 1 — — 1 5,605 5, Total finance receivables $ 319 $ 74 $ 20 $ 413 $ 39,511 $ 39,
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Dealerships have been divided into the following groups:
Group I - Dealerships in the strongest internal risk rating tier Group II - Dealerships with internal risk ratings below the strongest tier Group III - Dealerships with impaired loans
The following table summarizes the amortized cost of dealer loans by risk rating groups:
Commercial loans by vintage fiscal year
2021 2020 2019 2018 2017 Prior
Revolving loans
Wholesale Flooring Total (U.S. dollars in millions) Group I $ 144 $ 66 $ 7 $ 44 $ 46 $ 88 $ 284 $ 1,341 $ 2, Group II 40 35 34 31 33 37 — 1,450 1, Group III — — — — — — — 1 1 Total dealer loans $ 184 $ 101 $ 41 $ 75 $ 79 $ 125 $ 284 $ 2,792 $ 3,
Note 3. Investment in Operating Leases
Investment in operating leases consisted of the following:
September 30, 2020 March 31, 2020 (U.S. dollars in millions) Operating lease vehicles $ 44,199 $ 43, Accumulated depreciation (8,480) (8,219) Deferred dealer participation and initial direct costs 130 131 Unearned subsidy income (1,245) (1,376) Estimated early termination losses (166) (317) Investment in operating leases, net $ 34,438 $ 33,
Operating lease revenue consisted of the following:
Three months ended September 30, Six months ended September 30, 2020 2019 2020 2019 (U.S. dollars in millions) Lease payments $ 1,687 $ 1,669 $ 3,362 $ 3, Subsidy income and dealer rate participation, net 232 245 452 491 Reimbursed lessor costs 23 21 33 33 Total operating lease revenue, net $ 1,942 $ 1,935 $ 3,847 $ 3,
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Leased vehicle expenses consisted of the following:
Three months ended September 30, Six months ended September 30, 2020 2019 2020 2019 (U.S. dollars in millions) Depreciation expense $ 1,416 $ 1,421 $ 2,832 $ 2, Initial direct costs and other lessor costs 42 41 70 70 Gain on disposition of leased vehicles (1)^ (97) (53) (105) (96) Total leased vehicle expenses, net $ 1,361 $ 1,409 $ 2,797 $ 2,
(1) Included in the gain on disposition of leased vehicles are end of term charges of $14 million and $18 million for the three months ended September 30, 2020 and 2019, respectively, and $33 million and $46 million for the six months ended September 30, 2020 and 2019, respectively.
Investment in operating leases includes lease assets with a net carrying amount of $472 million and $493 million as of September 30, 2020 and March 31, 2020, respectively, which have been transferred to SPEs and are considered to be legally isolated but do not qualify for sale accounting treatment. These investments in operating leases are restricted as collateral for the payment of the related secured debt obligations. Refer to Note 9 for additional information.
Contractual operating lease payments due as of September 30, 2020 are summarized below. Based on the Company's experience, it is expected that a portion of the Company's operating leases will terminate prior to the scheduled lease term. The summary below should not be regarded as a forecast of future cash collections.
Twelve month periods ending September 30, (U.S. dollars in millions)
Total $ 11,
The Company recognized a reversal of early termination losses on operating leases of $59 million and $115 million during the three and six months ended September 30, 2020, respectively, and recognized early termination losses of $36 million and $60 million during the three and six months ended September 30, 2019, respectively. Actual net losses realized totaled $3 million and $32 million for the three months ended September 30, 2020 and 2019, respectively, and $36 million and $56 million for the six months ended September 30, 2020 and 2019, respectively.
The general allowance for uncollectible operating lease receivables was recorded through a reduction to revenue of $7 million for both the three months ended September 30, 2020 and 2019, and $21 million and $13 million during the six months ended September 30, 2020 and 2019, respectively.
During the six months ended September 30, 2020, the Company considered the impact of COVID-19 on estimated residual values and determined that impairment conditions were not met. No impairment losses due to declines in estimated residual values were recognized during the three and six months ended September 30, 2020 and 2019.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Medium-Term Note (MTN) Programs
Private MTN Program
AHFC no longer issues MTNs under its Rule 144A Private MTN Program. AHFC has one note outstanding under the Private MTN Program as of September 30, 2020. The note is long-term, with a fixed interest rate, and denominated in U.S. dollars. Notes under this program were issued pursuant to the terms of an issuing and paying agency agreement which contains certain covenants, including negative pledge provisions.
Public MTN Program
In August 2019, AHFC renewed its Public MTN program by filing a registration statement with the SEC under which it may issue from time to time up to $30.0 billion aggregate principal amount of Public MTNs pursuant to the Public MTN program. The aggregate principal amount of MTNs offered under this program may be increased from time to time. Notes outstanding under the Public MTN program as of September 30, 2020 were long-term, with either fixed or floating interest rates, and denominated in U.S. dollars, Euro or Sterling. Notes under this program are issued pursuant to an indenture which contains certain covenants, including negative pledge provisions and limitations on mergers, consolidations and asset sales.
Euro MTN Programme
The Euro MTN Programme was retired in August 2014. AHFC has one note outstanding under this program as of September 30,
- The note has a maturity date of February 21, 2023, a fixed interest rate and is not listed on the Luxembourg Stock Exchange. The note was issued pursuant to the terms of an agency agreement which contains certain covenants, including negative pledge provisions.
The MTN programs are supported by the Keep Well Agreement with HMC described in Note 6.
Other Debt
The outstanding balances as of September 30, 2020 consisted of private placement debt issued by HCFI which are long-term, with either fixed or floating interest rates, and denominated in Canadian dollars. Private placement debt is supported by the Keep Well Agreement with HMC described in Note 6. The notes are issued pursuant to the terms of an indenture which contain certain covenants, including negative pledge provisions.
Secured Debt
The Company issues notes through financing transactions that are secured by assets held by issuing SPEs. Notes outstanding as of September 30, 2020 were long-term and short-term with either fixed or floating interest rates, and denominated in U.S. dollars or Canadian dollars. Repayment of the notes is dependent on the performance of the underlying retail loans and operating leases. Refer to Note 9 for additional information on the Company’s secured financing transactions.
Credit Agreements
Syndicated Bank Credit Facilities
AHFC maintains a $7.0 billion syndicated bank credit facility that includes a $3.5 billion credit agreement, which expires on February 26, 2021, a $2.1 billion credit agreement, which expires on February 28, 2023, and a $1.4 billion credit agreement, which expires on February 28, 2025. As of September 30, 2020, no amounts were drawn upon under the AHFC credit agreements. AHFC intends to renew or replace these credit agreements prior to or on their respective expiration dates.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
HCFI maintains a $1.5 billion syndicated bank credit facility which provides that HCFI may borrow up to $751 million on a one-year revolving basis and up to $751 million on a five-year revolving basis. The one-year tranche of the credit agreement expires on March 25, 2021 and the five-year tranche of the credit agreement expires on March 25, 2025. As of September 30, 2020, no amounts were drawn upon under the HCFI credit agreement. HCFI intends to renew or replace the credit agreement prior to or on the expiration date of each respective tranche.
The credit agreements contain customary covenants, including limitations on liens, mergers, consolidations and asset sales and affiliate transactions. Loans, if any, under the credit agreements will be supported by the Keep Well Agreement described in Note 6.
Other Credit Agreements
AHFC maintains other committed lines of credit that allow the Company access to an additional $1.0 billion in unsecured funding with two banks. The credit agreements contain customary covenants, including limitations on liens, mergers, consolidations and asset sales. As of September 30, 2020, no amounts were drawn upon under these agreements. These agreements expire in September
- The Company intends to renew or replace these credit agreements prior to or on their respective expiration dates.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
