American Honda Finance Corp.’s short-term debt rating was reaffirmed with a stable outlook by Fitch Ratings, thanks to a low corporate leverage ratio and credit losses, which are the lowest among its captive finance peers, Michael Taiano, Fitch senior director of the Financial Institutions Group, told Auto Finance News.
“Honda Finance has the lowest debt of any auto captive,” Taiano said. “[It’s] around three times the debt to tangible equity, and [Honda Finance] has better asset quality in terms of who they lend to,” he added.
AHFC has kept debt low by paying dividends to its OEM, which the captive had not historically done, Fitch noted in a press release. In fact, AHFC paid $506 million of dividends to its parent in fiscal year 2019 in order to manage its debt-to-tangible-equity ratio at around three times.
In addition, AHFC’s credit losses, though increased, remain better than industry averages, Fitch noted. Net charge-offs were 0.47% for fiscal year 2019 compared with 0.44% the prior year.
For investors, the stable rating outlook means that Fitch doesn’t anticipate a rating change for Honda Finance for the next one or two years, despite sentiment that OEMs and captives might face negative rating changes in the current industry environment, Taiano said, noting factors like the recent strikes from United Auto Workers union against General Motors, Ford Motor Credit’s recent downgrade, and tariff concerns.
