EDGAR 10-K Filing

Company CIK: 864270
Filing Year: 2023
Filename: 864270_10-K_2023_0000864270-23-000006.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
American Honda Finance Corporation (AHFC) is a California corporation that was incorporated on February 6, 1980. 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 its subsidiaries). AHFC is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM). 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. AHFC’s principal executive offices are located at 1919 Torrance Boulevard, Torrance, California 90501.
We provide various forms of financing in the United States and Canada to purchasers, lessees and authorized independent dealers of Honda and Acura products. Our primary focus, in collaboration with AHM and HCI, is to provide support for the sale of Honda and Acura products and maintain customer and dealer satisfaction and loyalty. Our business is substantially dependent upon the sale of those Honda and Acura products in the United States and Canada and the percentage of those sales financed by us.
We acquire retail loans, primarily installment sale contracts, and leases originated by dealers to retail customers of Honda and Acura products and we offer wholesale flooring and commercial loans to dealers of Honda and Acura products.
AHM and HCI sponsor incentive financing programs in the United States and Canada, respectively. These programs offer promotional rates on loans and leases to purchasers, lessees, and dealers of Honda and Acura products. AHM and HCI, as applicable, pay us subsidies that enable us to realize a market yield on any financing contract we indirectly or directly finance under these programs.
We acquire and offer, as applicable, substantially similar products and services throughout many different regions, provinces, and territories, subject to national and local legal restrictions and market conditions. We divide our business segments between our business in the United States and in Canada. For additional financial information regarding our operations by business segment, see Note 15-Segment Information of Notes to Consolidated Financial Statements and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview.” In the United States and Canada, we provide our financing products under the brand names Honda Financial Services and Acura Financial Services.
Public Filings
Our filings with the Securities and Exchange Commission (SEC) are found on the SEC website at www.sec.gov. The SEC website contains reports, registration statements, and other information regarding issuers that file with the SEC, including us. Certain of our filings are also contained on our website located at www.hondafinancialservices.com under “Investor Relations, SEC Filings.” Additionally, we have made available on our website, without charge, electronic copies of our periodic and current reports that have been filed with the SEC.
Investors and others should note that we announce material financial information using the Investor Relations, SEC Filings section of our corporate website (http://www.hondafinancialservices.com). We use our website and press releases to communicate with our investors, customers, other interested parties and the general public about our company, our services and other matters. While not all of the information that we post on our website is of a material nature, some information could be material. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the Investor Relations, SEC Filings section of our website. Currently, we do not use any social media channels for purposes of communicating such information to the public. Any changes to our communication channels will be posted on the Investor Relations, SEC Filings section of our website. We are not incorporating any of the information set forth on our website into this filing on Form 10-K.
Consumer Financing
Retail Loans
We provide indirect financing to retail customers of Honda and Acura products by acquiring retail loans originated by Honda and Acura dealers. Retail loans are acquired in accordance with our underwriting standards. See “-Underwriting and Pricing of Consumer Financing” below for a description of our underwriting process. The products that we finance consist primarily of new and used Honda and Acura automobiles and Honda motorcycles, power equipment, and marine engines. Retail loans may also include the financing of insurance products or vehicle service contracts. See “-Vehicle Service Contract Administration” below for more information. The terms of retail loans originated in the United States generally range from 24 to 84 months. Effective April 1, 2022, we began offering 84-month loans in the United States. The terms of retail loans originated in Canada generally range from 24 to 84 months.
We service all of the retail loans we acquire. We generally hold a security interest in the products purchased through our retail loans. As a result, if our collection efforts fail to bring a delinquent customer’s payments current, we generally can repossess the customer’s vehicle, after satisfying local legal requirements, and sell it at auction. We may waive late payment fees and other fees assessed in the ordinary course of servicing the retail loans and allow payment deferrals by extending the loan’s term. See “-Servicing of Consumer Financing” below for more information.
We require customers who purchase Honda and Acura products through retail loans acquired by us to have adequate physical damage, comprehensive and collision insurance.
Retail Leases
We acquire closed-end vehicle lease contracts between Honda and Acura dealers and their customers primarily for leases of new Honda and Acura automobiles. In the case of leases originating in the United States, upon our acquisition of such leases, the dealer assigns all of its rights, title, and interest in the lease and the automobile to either our wholly-owned subsidiary, Honda Lease Trust (HLT) or its trustee, HVT, Inc., depending on the applicable state. HLT is a trust established to take assignments of and serve as holder of legal title to leased automobiles. In the case of leases originating in Canada, upon our acquisition of such leases, the dealer assigns all of its rights, title, and interest in the lease and the vehicle to our majority owned subsidiary HCFI.
Leases are acquired in accordance with our underwriting standards. See “-Underwriting and Pricing of Consumer Financing” below for a description of our underwriting process. Terms of the leases generally range from 24 to 60 months. We service the leases we acquire. We may waive late payment fees and other fees assessed in the ordinary course of servicing the leases, extend the lease term, or offer end-of-lease incentives. See “-Servicing of Consumer Financing” below for more information.
Contractual residual values of lease vehicles are determined at lease inception based on expectations of used vehicle values at the end of their lease term. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealers are sold through online and physical auctions. See “-Servicing of Consumer Financing-Remarketing Center” below.
We require the lessee to have insurance with adequate public liability and physical damage coverage for the entire lease term.
Underwriting and Pricing of Consumer Financing
Dealers submit customer credit applications electronically through our online system. In addition, our customers are able to submit their own credit applications for pre-approval directly through our website. If our requirements are met, an application received from a dealer is approved automatically. Our system is programmed to review application information for purchase policy and legal compliance. Applications that are not automatically approved are routed to credit buyers located in our service centers, who will evaluate and make purchase decisions within the framework of our purchase policy and legal requirements.
We utilize our proprietary credit scoring system to evaluate the credit risk of applicants. Factors used by our credit scoring system to develop a customer’s credit grade include the term of the contract, the loan-to-value or lease capitalized cost-to-value ratios, the customer’s debt ratios, and credit bureau attributes, number of trade lines, utilization ratio, and number of credit inquiries. We utilize different scorecards depending on the type of product we finance and we regularly review and analyze our consumer-financing portfolio to ensure the effectiveness of our underwriting guidelines, purchasing criteria and scorecard predictability of our customers' credit worthiness.
In the United States, AHFC utilizes a tiered pricing structure based on customer Fair Isaac Corporation/FICO scores at origination. In Canada, HCFI has a single tiered pricing structure.
Servicing of Consumer Financing
We have three service centers in the United States that are responsible for the acquisition, servicing, collection, and customer service activities related to our automobile retail loans and leases. These service centers are located in California, Texas, and Georgia. We also have an office that is responsible for the underwriting of motorcycle, power equipment, and marine engine loans, customer service related to those contracts and collection efforts for past due accounts on a national basis.
In addition to our service centers, we have centralized certain operational functions in the United States relating to our automobile retail loans and leases at the National Service Center located in Texas, which contains our National Processing Center, Lease Maturity Center, Remarketing Center, and Recovery and Bankruptcy Center, which are described below:
•National Processing Center. The National Processing Center is responsible for processing customer payments that cannot be processed through our automated servicing system.
•Lease Maturity Center. Lease accounts are transferred from our service centers to the Lease Maturity Center six months prior to the end of the given lease term. The Lease Maturity Center assumes responsibility for servicing the lease from this time, including providing the leaseholder with end of term options, responding to customer service issues and coordinating end of term vehicle inspections. Once a vehicle is returned to us, the Lease Maturity Center transfers the account to the Remarketing Center to arrange for the disposition of the vehicle.
•Remarketing Center. The Remarketing Center oversees the disposition of vehicles returned at the end of leases and after repossession. In order to minimize losses at lease maturity, we have developed remarketing strategies to maximize proceeds and minimize disposition costs on vehicles sold at lease termination. We use various channels to sell vehicles returned at lease end, including a dealer direct, on-line program referred to as the Vehicle Inter-Dealer Purchase System (VIPS) and physical auctions. The goal of our VIPS program is to increase dealer purchases of off-lease vehicles thereby reducing our disposition costs of such vehicles. Through VIPS, the dealer accepting return of the leased vehicle (also referred to as the grounding dealer) initially has the exclusive right to purchase the vehicle at the contractual residual value or a market-based price. If the vehicle is not purchased by the grounding dealer, it then becomes available to Honda and Acura vehicle dealers through the VIPS online auction. If the vehicle is not sold to a Honda or Acura dealer, the auction is opened to any dealer. Off-lease vehicles that are not purchased through a VIPS auction and all repossessed vehicles are sold at physical auction sites throughout the United States. When deemed necessary, we recondition used vehicles prior to sale in order to enhance the vehicle values at auction. Additionally, vehicles to be sold at public auctions may be relocated in accordance with our goal to minimize oversupply at any given location and maximize sales proceeds.
•Recovery and Bankruptcy Center. The Recovery and Bankruptcy Center is responsible for collecting the deficiency balances of charged-off accounts using outside collection agencies, locating and securing the collateral of charged-off accounts, and collecting lease end of term fees. Consumer financing contracts are transferred from our service centers to the Recovery and Bankruptcy Center after charge-off, which occurs when they become 120 days contractually past due, payments due are no longer expected to be received, or the underlying product is sold, whichever occurs first. In addition, accounts subject to bankruptcy proceedings are assigned to the Recovery and Bankruptcy Center for tracking, monitoring and handling through the life of the loan or until the related customer is discharged from bankruptcy. If the customer is discharged or dismissed from bankruptcy, the account will return to the service center for servicing.
In Canada, we have two regional offices that are responsible for acquisition, servicing, collection, and customer service activities related to our retail loans and leases. These offices are located in Quebec and Ontario. Similar to our United States operations, in addition to our servicing regions, we have centralized certain operational functions for our Canadian retail loans and leases. These centralized functions are located in Ontario and include our Customer Retention Center, Recovery Center, Collections Center, Customer Service Center, and Auctions/Remarketing Center. The services provided by these centralized functions are comparable to the services provided by our National Service Center in the United States.
Recovery Policies and Procedures
We use an account servicing system and an automated dialer system that prioritize collection efforts, generate past due notices, and signal our collections personnel to make telephone contact with delinquent customers. For the purpose of determining whether a retail loan or lease is delinquent, payment is generally considered to have been made upon receipt of 90% of the sum of the current monthly payment due plus any overdue monthly payments.
As needed, repossession action is taken using bonded and licensed repossession agencies. Subject to state or provincial laws and recording, filing, and notice requirements, we are generally permitted by applicable state or provincial laws to repossess automobiles or motorcycles upon default by the related customer. We typically decide whether or not to repossess a vehicle when the account is 45 to 60 or more days past due, subject to the laws and regulations governing repossession in the state or province where the automobile or motorcycle is located.
Incentive Financing Programs for Retail Loans and Leases
A substantial portion of our consumer financing business is acquired through incentive financing programs sponsored by AHM and HCI in the United States and Canada, respectively. These programs typically offer promotional rates on retail loans and leases to purchasers and lessees of Honda and Acura products. AHM and HCI, as applicable, pay us subsidies that enable us to realize a market yield on any financing contract we indirectly finance under these programs. Market yield is based on, among other things, the credit quality of the customer and the length of the contract. The amount of subsidy payments we receive from AHM and HCI is dependent on the terms of the incentive financing programs and the interest rate environment. Subsidy payments received on retail loans and leases are deferred and recognized as revenue over the term of the related contracts. The volume of incentive financing programs sponsored by AHM and HCI and the allocation of those programs between retail loans and leases may vary from fiscal period to fiscal period depending upon the respective marketing strategies of AHM and HCI. AHM and HCI’s marketing strategies are based in part on their business planning and control, in which we do not participate. Therefore, we cannot predict the level of incentive financing programs AHM and HCI may sponsor in the future and a significant change in the level of incentive financing programs in a fiscal period typically only has a limited impact on our results of operations for that period. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview.”
Honda Aviation Financing
Honda Aviation Finance Company LLC, a wholly-owned subsidiary of AHFC, provides financing and account servicing for customers of Honda Aircraft Company LLC, a subsidiary of AHM, in the United States. Customers submit a credit application and if our underwriting policies and legal requirements are met, the retail loan is approved.
Dealer Financing
Wholesale Flooring Loans
We provide wholesale flooring loans to dealers of Honda and Acura automobiles and Honda motorcycles, power equipment, and marine engines through our Dealer Financial Services (DFS) business unit.
Wholesale flooring loans are available primarily through revolving lines of credit and may only be used by dealers to finance the purchase of inventory. AHFC will finance new automobiles and motorcycles up to 100% of the dealer invoice price and used automobiles and motorcycles up to 100% of the applicable market value determined in accordance with industry pricing guides in the United States. HCFI will finance new automobiles and motorcycles up to 100% of the dealer invoice price and used automobiles and motorcycles up to 100% of the current market value determined in accordance with industry pricing guides in Canada. Dealers pay a variable interest rate on wholesale flooring loans. Wholesale flooring loans must be repaid at specified intervals and increments and generally must be paid in full upon the sale of the product. AHM and HCI sponsor incentive financing programs in the United States and Canada, respectively, to Honda and Acura dealers approved by the Company for wholesale flooring loans.
In establishing a wholesale flooring loan, we conduct a comprehensive review of the dealership, including a review of its business operations and management, any credit reports, financial statements, tax returns, bank references, and/or other available historical credit information and a review of the personal financial statements of the dealership’s individual owner(s). This data is organized into an electronic scorecard which supports our determination of whether we will provide a wholesale flooring loan and, if so, the amount of the loan and the interest rate. Once a wholesale flooring loan has been approved, we maintain an ongoing review process of the dealerships we finance. We use a third party to perform random periodic on-site physical inspections of financed dealership inventory at a frequency determined by the dealership’s scorecard and financial performance. Monitoring activities are performed more frequently for dealerships with higher levels of credit risk.
We seek to retain a purchase money security interest in all products that are financed pursuant to wholesale flooring loan agreements we enter into with dealers. In addition, we generally secure wholesale flooring loans with liens on the dealership’s other assets and obtain a personal guarantee from dealership owners, as well as corporate guarantees from, or on behalf of, dealership owner(s)’ other dealerships. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We require dealerships to maintain insurance on all inventory, including peril coverage for flood, hail, wind, false pretense, liability, earthquake, vandalism, and other risks.
In the event of a default on a wholesale flooring loan, we may repossess the financed product, sell the repossessed assets, and seek other available legal remedies pursuant to the related wholesale flooring loan agreement and related guarantees consistent with commercially accepted practices and applicable laws. After the sale of a financed product to consumers in the ordinary course of business, we have no right to recover the product and are limited to the remedies under our wholesale flooring loan agreement with the dealer. Additionally, we have agreements with AHM and HCI that provide for their repurchase of new, unused, undamaged, and unregistered vehicles or equipment that have been repossessed from dealers who defaulted under the terms of their wholesale flooring agreements.
A wholesale flooring loan is considered delinquent when any payment is contractually past due. Collection efforts are initiated by our staff. We may file replevin actions, send past due notices, enter into forbearance agreements, and renegotiate contracts with delinquent dealers. If we determine a dealer cannot meet the obligations under its wholesale flooring loan agreement, legal action may commence. Subject to recording, filing and notice requirements of state, provincial or other laws, we are generally permitted by the applicable laws to repossess the underlying collateral that have not been sold to a buyer in the ordinary course of business.
In the United States, wholesale flooring loans are currently serviced at AHFC’s service centers. In Canada, wholesale flooring loans are serviced at HCFI’s headquarters in Ontario.
Commercial Loans
We provide commercial loans to Honda and Acura automobile dealers through our DFS business unit. This commercial financing is available through mortgage loans for financing dealership property or construction, term loans for financing equipment or facility improvements and revolving lines of credit. We offer either fixed or floating interest rates on commercial loans.
In establishing a commercial loan, we conduct a comprehensive review of the dealership, including a review of its business operations and management, appraisals of dealership property, credit reports, financial statements, tax returns, bank references, and/or other available historical credit information and a review of the personal financial statements of the dealership’s individual owner(s). Once the loan has been approved, we maintain an ongoing review process of the dealership we finance, which we believe is consistent with industry practices.
Commercial loans are generally secured by the associated properties, inventory, and other dealership assets. In addition, we generally obtain a personal guarantee from dealership owners, as well as corporate guarantees from, or on behalf of, dealership individual owner(s)’ other dealerships. Although our commercial loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure. Commercial loans are considered delinquent when any payment is contractually past due.
In the United States, commercial loans are serviced at AHFC’s headquarters in California. In Canada, commercial loans are serviced at HCFI’s headquarters in Ontario.
Competition
The automobile financing industries in the United States and Canada are very competitive. Providers of vehicle and similar product financing have traditionally competed based on interest rates charged, the quality of credit accepted, the flexibility of loan terms offered, the quality of service provided to dealers and customers, and the strength of dealer relationships.
National, regional and local commercial banks, credit unions, savings and loan associations, online banks, finance companies, and other captive finance companies provide consumer financing for new and used Honda and Acura products. Commercial banks, finance companies, and captive finance companies of other manufacturers also provide inventory financing for Honda and Acura dealers. Our primary competition in the wholesale motorcycle, power equipment, and marine engine financing business tends to be local banks and specialty finance firms that are familiar with the particular characteristics of these businesses. In Canada, banks and credit unions are strong competitors in the automobile consumer financing business and also provide inventory financing for Honda and Acura dealers.
Relationships with HMC and Other Affiliates
The following is a description of certain relationships with HMC and other affiliates.
HMC and AHFC Keep Well Agreement
HMC and AHFC are parties to a keep well agreement (the HMC-AHFC Agreement), which became effective on September 9, 2005.
Under the terms of the HMC-AHFC Agreement, HMC has agreed to:
•own and hold, at all times, directly or indirectly, at least 80% of AHFC’s issued and outstanding shares of voting stock and not pledge, directly or indirectly, encumber, or otherwise dispose of any such shares or permit any of HMC’s subsidiaries to do so, except to HMC or wholly-owned subsidiaries of HMC;
•cause AHFC to, on the last day of each of AHFC’s fiscal years, have a positive consolidated tangible net worth (with “tangible net worth” for purposes of this discussion of the HMC-AHFC Agreement understood to mean (a) shareholders’ equity less (b) any intangible assets, as determined in accordance with U.S. generally accepted accounting principles (GAAP)); and
•ensure that, at all times, AHFC has sufficient liquidity and funds to meet its payment obligations under any Debt (with “Debt” for purposes of this discussion of the HMC-AHFC Agreement defined as AHFC’s debt for borrowed money that HMC has confirmed in writing is covered by the HMC-AHFC Agreement) in accordance with the terms of such Debt, or where necessary, HMC will make available to AHFC, or HMC will procure for AHFC, sufficient funds to enable AHFC to pay its Debt in accordance with its terms.
The HMC-AHFC Agreement is not a guarantee by HMC of any Debt or other obligation, indebtedness, or liability of any kind of AHFC.
The HMC-AHFC Agreement includes AHFC’s agreement that it will use any funds made available to it by HMC thereunder solely for fulfilling AHFC’s payment obligations in respect of Debt. Any claims of HMC arising from any provisions of funds to AHFC by HMC shall be subordinated to the claims of all holders of Debt with respect to such Debt, whether or not such claims exist at the time such funds are made available to AHFC, and HMC will not demand payment of such claims from AHFC unless and until all outstanding Debt has been paid in full.
HMC or AHFC may each terminate the HMC-AHFC Agreement upon giving to the other party 30 days’ prior written notice and the HMC-AHFC Agreement may be modified or amended only by the written agreement of HMC and AHFC and upon 30 days’ prior written notice to each rating agency rating any covered Debt. However, such termination, modification, or amendment will not be effective with respect to any Debt outstanding at the time of such termination, modification, or amendment unless: (i) such termination, modification, or amendment is permitted under the documentation governing such Debt, (ii) all affected holders of such Debt (or, in the case of Debt incurred pursuant to documentation that permits the HMC-AHFC Agreement to be terminated, modified, or amended with the consent of less than all of the holders of such Debt, the requisite holders of such Debt) otherwise consent in writing, or (iii) with respect to Debt that is rated by one or more rating agencies at the request of HMC or AHFC, each such rating agency confirms in writing that the rating assigned to such Debt will not be withdrawn or reduced because of the proposed action.
An amendment, modification, or termination of the HMC-AHFC Agreement may constitute an event of default under certain of AHFC’s Debt, subject to certain limited exceptions contained in the instruments governing such Debt. In addition, failure by HMC to meet its obligations under the HMC-AHFC Agreement would constitute an event of default under such Debt, but only if, in the case of certain of AHFC's Debt, such failure continued for 30 days and was continuing at the time the default was declared.
Under its terms, the HMC-AHFC Agreement is not enforceable against HMC by anyone other than: (i) AHFC or (ii) if any case is commenced under the United States Bankruptcy Code (11 USC §§101 et seq.), or any successor statutory provisions, or the Bankruptcy Code, in respect of AHFC, the debtor in possession or trustee appointed by the court having jurisdiction over such proceeding. In the event of (1) a breach by HMC in performing a provision of the HMC-AHFC Agreement and (2) the commencement of such a case under the Bankruptcy Code in respect of AHFC while any Debt is outstanding, the remedies of a holder of Debt shall include the right, if no proceeding in respect of AHFC has already been commenced in such case, to file a petition in respect of AHFC thereunder with a view to the debtor in possession, or the trustee appointed by the court having jurisdiction over such proceeding, pursuing AHFC’s rights under the HMC-AHFC Agreement against HMC. However, all holders of outstanding Debt may (i) demand in writing that AHFC enforce its rights under the HMC-AHFC Agreement and (ii) proceed directly against HMC to enforce compliance by HMC with its obligations under the HMC-AHFC Agreement if AHFC fails or refuses to take action to enforce its rights under that agreement within 30 days following AHFC’s receipt of demand for such enforcement by such holder.
The HMC-AHFC Agreement is governed by and construed in accordance with the laws of the State of New York.
HMC and HCFI Keep Well Agreement
HMC and HCFI are parties to a Keep Well Agreement (the HMC-HCFI Agreement), which became effective on September 26, 2005.
Under the terms of the HMC-HCFI Agreement, HMC has agreed to:
•own and hold, at all times, directly or indirectly, at least 80% of HCFI’s issued and outstanding shares of voting stock and not pledge, directly or indirectly, encumber, or otherwise dispose of any such shares or permit any of HMC’s subsidiaries to do so, except to HMC or wholly-owned subsidiaries of HMC;
•cause HCFI to, on the last day of each of HCFI’s fiscal years, have a positive consolidated tangible net worth (with “tangible net worth” for purposes of this discussion of the HMC-HCFI Agreement understood to mean (a) shareholders’ equity less (b) any intangible assets, as determined in accordance with generally accepted accounting principles in Canada); and
•ensure that, at all times, HCFI has sufficient liquidity and funds to meet its payment obligations under any Debt (with “Debt” for purposes of this discussion of the HMC-HCFI Agreement defined as HCFI’s debt for borrowed money that HMC has confirmed in writing is covered by the HMC-HCFI Agreement) in accordance with the terms of such Debt, or where necessary, HMC will make available to HCFI, or HMC will procure for HCFI, sufficient funds to enable HCFI to pay its Debt in accordance with its terms.
The HMC-HCFI Agreement is not a guarantee by HMC of any Debt or other obligation, indebtedness, or liability of any kind of HCFI.
The HMC-HCFI Agreement includes HCFI’s agreement that it will use any funds made available to it by HMC thereunder solely for the purposes of fulfilling HCFI’s payment obligations in respect of Debt. Any claims of HMC arising from any provisions of funds to HCFI by HMC shall be subordinated to the claims of all holders of Debt with respect to such Debt, whether or not such claims exist at the time such funds are made available to HCFI, and HMC will not demand payment of such claims from HCFI unless and until all outstanding Debt has been paid in full.
HMC or HCFI may each terminate the HMC-HCFI Agreement upon giving to the other party 30 days’ prior written notice and the HMC-HCFI Agreement may be modified or amended only by the written agreement of HMC and HCFI and upon 30 days’ prior written notice to each rating agency rating any covered Debt. However, such termination, modification, or amendment will not be effective with respect to any Debt outstanding at the time of such termination, modification, or amendment unless: (i) such termination, modification, or amendment is permitted under the documentation governing such Debt, (ii) all affected holders of such Debt (or, in the case of Debt incurred pursuant to documentation that permits the HMC-HCFI Agreement to be terminated, modified, or amended with the consent of less than all of the holders of such Debt, the requisite holders of such Debt) otherwise consent in writing, or (iii) with respect to Debt that is rated by one or more rating agencies at the request of HMC or HCFI, each such rating agency confirms in writing that the rating assigned to such Debt will not be withdrawn or reduced because of the proposed action.
An amendment, modification, or termination of the HMC-HCFI Agreement may constitute an event of default under certain of HCFI’s Debt, subject to certain limited exceptions contained in the instruments governing such Debt. In addition, failure by HMC to meet its obligations under the HMC-HCFI Agreement would constitute an event of default under such Debt, but only if, in the case of certain of HCFI's Debt, such failure continued for 30 days and was continuing at the time the default was declared.
Under its terms, the HMC-HCFI Agreement is not enforceable against HMC by anyone other than: (i) HCFI or (ii) if any case is commenced under the Canadian Bankruptcy and Insolvency Act, the Canadian Companies’ Creditors Arrangement Act, or the Canadian Winding Up and Restructuring Act by or against HCFI, the debtor in possession or trustee or receiver appointed by the court having jurisdiction over such proceeding. In the event of (1) a breach by HMC in performing a provision of the HMC-HCFI Agreement and (2) the insolvency of HCFI while any Debt is outstanding, the remedies of a holder of Debt shall include the right, if no proceeding in respect of HCFI has already been commenced in such proceeding, to file an application in respect of HCFI for the appointment of a trustee or receiver by the court having jurisdiction over such proceeding in order to pursue HCFI’s rights under the HMC-HCFI Agreement against HMC. However, all holders of outstanding Debt may (i) demand in writing that HCFI enforce its rights under the HMC-HCFI Agreement and (ii) proceed directly against HMC to enforce compliance by HMC with its obligations under the HMC-HCFI Agreement if HCFI fails or refuses to take action to enforce its rights under that agreement within 30 days following HCFI’s receipt of demand for such enforcement by such holder.
The HMC-HCFI Agreement is governed by and construed in accordance with the laws of the State of New York.
Incentive Financing Programs
AHM and HCI sponsor incentive financing programs in the United States and Canada, respectively. These programs offer promotional rates on loans and leases to purchasers, lessees, and dealers of Honda and Acura products. AHM and HCI, as applicable, pay us subsidies that enable us to realize a market yield on any financing contract we indirectly or directly finance under these programs. These subsidy payments supplement the revenues on our financing products offered under our incentive financing programs. See “-Consumer Financing-Incentive Financing Programs for Retail Loans and Leases” above for more information.
Shared Services
AHM provides services to Honda’s North American operations. AHM provides us with information technology, legal, internal audit, facilities and other services pursuant to a shared services agreement. AHM is paid a compensation fee for these services.
In Canada, we also share certain common expenditures with HCI, including professional services, data processing services, insurance, software development and facilities. HCI is paid a compensation fee for these services.
Benefit Plans
Our employees participate in various employee benefit plans that are sponsored by AHM and HCI, respectively. Refer to Note 8-Benefit Plans of Notes to Consolidated Financial Statements for additional information about employee benefit plans.
Income taxes
AHFC and its United States subsidiaries are included in the consolidated United States federal income tax returns of AHM and many consolidated or combined state and local income tax returns of AHM. In some cases, AHFC and its United States subsidiaries file tax returns separately as required by certain state and local jurisdictions. AHFC and its United States subsidiaries pay for their share of the consolidated or combined income tax on a modified separate return basis pursuant to an intercompany tax allocation agreement with AHM. AHFC and its applicable United States subsidiaries file a separate California return based on California’s worldwide income and apportionment rules. To the extent AHFC and its United States subsidiaries have taxable losses in AHM’s consolidated federal and consolidated or combined state and local tax returns, AHM reimburses AHFC and its United States subsidiaries, as applicable, to the extent the losses are utilized by AHM or another member of the consolidated or combined group under the terms of the intercompany tax allocation agreement. All but an insignificant amount of the federal and state taxes payable or receivable shown on the consolidated balance sheets are due to or from AHM, pursuant to the intercompany tax allocation agreement.
Our Canadian subsidiary, HCFI, files Canadian federal and provincial income tax returns based on separate legal entity financial statements. HCFI does not file federal, state or local income tax returns in the United States. Consequently, HCFI does not participate in the intercompany tax allocation agreement that AHFC and its United States subsidiaries have with AHM.
Refer to Note 7-Income Taxes of Notes to Consolidated Financial Statements for additional information about income taxes.
Repurchase Agreements
We have agreements with AHM and HCI that provide for their repurchase of new, unused, undamaged, and unregistered vehicles or equipment that have been repossessed from dealers who defaulted under the terms of its wholesale flooring agreements.
Seasonality
We are subject to seasonal variations in credit losses, which are historically higher in the first and fourth quarters of the calendar year. This seasonality does not have a significant impact on our results of operations. However, the COVID-19 pandemic affected consumer and dealer behaviors that resulted in, and may in the future continue to result in, changes in the seasonal fluctuations of our business.
Human Capital
Our associates are our most valuable asset. We aim to create a safe, respectful, and productive work environment that embraces diverse talents, backgrounds, and perspectives and where associates feel valued and supported as both individuals and members of the team. We are committed to attracting, retaining, and developing the best talent to achieve our goals for today and prepare our company for the future.
Foundational to our business are our Company values and our commitment to always strive "to be a company society wants to exist.” Our Company philosophy is rooted in what we call our "Fundamental Beliefs," particularly our commitment to "Respect for the Individual." In line with our beliefs, we are committed to being an employer of choice for our associates and a good corporate citizen for society. Our associates are the safekeepers of our corporate reputation and the trust we have earned from our customers and society. We encourage associates to give back to their communities and the fact that many proactively embrace the opportunity to volunteer and contribute to local causes is a source of pride within our organization.
Our management and associates understand and support our zero tolerance for discrimination, including in recruitment, hiring, training, reviewing, promoting, or administering any other personnel actions. We offer resources, tools, and training to help facilitate conversations about race and social justice. We also encourage our associates to get involved in Business Resource Groups, whose members are aligned across broad constituencies such as gender, race/ethnicity, ability, life-stage and other dimensions of diversity.
We support our associates and provide resources and training to enable them to develop as individuals. We offer training to all levels of associates to help them develop skills for their current roles, build competence for future opportunities, and increase leadership capabilities for emerging and experienced leaders.
The collective efforts of our associates and their adherence to safety guidelines have been critical in enabling us to provide a safe and healthy work environment.
Employees
On March 31, 2023, we had 1,183 employees in the United States and 167 employees in Canada. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees.
Governmental Regulations
Our consumer financing and dealer financing operations are subject to regulation, supervision, and licensing under various United States, Canadian, state, provincial, and local statutes, ordinances and regulations. In recent years, regulators have increased their focus on the regulation of the financial services industry and consumer financing in particular. As a result, there have been and may continue to be proposals for laws and regulations that could increase the scope and nature of laws and regulations that are currently applicable to us. We actively monitor proposed changes to relevant legal and regulatory requirements in order to maintain our compliance. The cost of our ongoing compliance efforts in our consumer financing and dealer financing operations has not had a material adverse effect on our results of operations, cash flows, or financial condition to date, although future compliance efforts may have such an effect.
United States
Our consumer financing operations in the United States are regulated under both federal and state laws, including consumer protection statutes and related regulations. Management believes that AHFC is in compliance in all material respects, with the applicable federal and state laws, including consumer protection statutes and related regulations.
Federal Regulation
We are subject to extensive federal regulation, including the regulations discussed below. These laws, in part, require us to provide certain disclosures prior to and throughout the duration of consumer retail and lease financing transactions and prohibit certain credit and collection practices.
•The Truth in Lending Act and the Consumer Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions.
•The Equal Credit Opportunity Act is designed to prevent discrimination based on certain protected classes in any aspect of a credit transaction, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction.
•The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies, credit decision notices, the accuracy and integrity of information reported to the credit reporting agencies, consumer dispute handling procedures, and identity theft prevention requirements.
•The Gramm-Leach-Bliley Act requires certain communications periodically with consumers on privacy matters, restricts the disclosure of nonpublic personal information about consumers by financial institutions and prohibits the sharing of account number information for certain marketing purposes.
•The Servicemembers Civil Relief Act provides special protection to certain customers in military service and is designed to protect military personnel from personal hardship or loss resulting from financial obligations while in service.
•The Right to Financial Privacy Act restricts the disclosure of customers’ financial records to federal government agencies.
•The Telephone Consumer Protection Act governs communication methods that may be used to contact consumers and among other things, prohibits the use of automated dialers to call cellular telephones without consent of the consumer.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was enacted in 2010, has broad implications for the financial services industries, including automotive financing, securitizations and derivatives, and requires the development, adoption, and implementation of many regulations which will impact the offering, marketing, and regulation of consumer financial products and services offered by financial institutions. Agencies have issued rules establishing a comprehensive framework for the regulation of derivatives, providing for the regulation of non-bank financial institutions that pose systemic risk, and requiring sponsors of asset-backed securities to retain an ownership stake in securitization transactions. Although we have analyzed these and other rulemakings, the absence of final rules in some cases and the complexity of some of the proposed rules make it difficult for us to estimate the financial, compliance and operational impacts.
The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), which has broad rule-making, examination and enforcement authority with respect to the laws and regulations that apply to consumer financial products and services. The CFPB has supervisory, examination and enforcement authority over certain non-depository institutions, including those entities that are large participants of a market for consumer financial products or services, as defined by rule. We are subject to the CFPB’s supervisory authority with respect to our compliance with applicable consumer protection laws.
State Regulation
We are also subject to laws and regulations that vary among the states. A majority of states have enacted legislation establishing licensing requirements to conduct consumer-financing activities. We are also periodically subject to state audits and inquiries, which monitor our compliance with consumer and other regulations.
State rules and regulations generally include requirements as to the form and content of finance contracts and limitations on the maximum rate of consumer finance charges, including interest rate. In periods of high interest rates, interest rate limitations could have an adverse effect on our operations if we are unable to pass on our increased costs to our customers or dealers. State rules and regulations also restrict collection practices and creditor’s rights regarding our consumer accounts.
In addition, many states are focusing on consumer privacy and data protection as areas warranting consumer protection. Some states have passed complex legislation dealing with consumer privacy and data protection, which impacts companies such as AHFC. Under certain of these laws, including the California Consumer Privacy Act, we must disclose to consumers our privacy policy and practices, including those policies relating to the sharing of consumers’ non-public personal information with third parties. These regulations also require us to ensure that our systems are designed to protect the confidentiality of consumers’ nonpublic personal information. In addition, in some jurisdictions, these laws and regulations provide a private right of action that would allow customers to bring suit directly against us for mishandling their data for certain violations of these laws and regulations.
Canada
The consumer financing and dealer financing operations of HCFI are regulated under both Canadian federal and provincial law. Management believes that HCFI is in compliance in all material respects with the applicable statutes and regulations of the federal government of Canada, its jurisdiction of incorporation, as well as applicable provincial statutes and regulations.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
We are exposed to certain risks and uncertainties that could have a material adverse effect on our business, results of operations, cash flows, financial condition, or on our ability to service our indebtedness. There may be additional risks and uncertainties (either currently unknown or not currently believed to be material) that could have a material adverse effect on our business, results of operations, cash flows, financial condition, or on our ability to service our indebtedness.
Operational Risks Relating To Our Business
Our results of operations, cash flows, and financial condition are substantially dependent upon HMC and the sale of Honda and Acura products and any decline in the financial condition of HMC or the sales of Honda and Acura products could have a materially adverse impact on our financial condition, cash flows, and results of operations.
Our results of operations, cash flows, and financial condition are substantially dependent upon the sale of Honda and Acura products in the United States and Canada. Any prolonged reduction or suspension of HMC’s production or sales of Honda or Acura products in the United States or Canada resulting from a decline in demand, a change in consumer preferences, a decline in the actual or perceived quality, safety, or reliability of Honda and Acura products, shortages in key components or raw materials, supply chain issues or capacity constraints, a reduction of incentive financing programs, volatility in fuel prices, sustained economic stagnation or the occurrence of a recession, a financial crisis, a work stoppage, governmental action, including a change in regulation, trade policies, human rights legislation, adverse publicity, a recall, a war, a use of force by foreign countries, a terrorist attack, a multinational conflict, a natural disaster including extreme weather-related disasters due to climate change, a pandemic, or similar events could have a substantially unfavorable effect on us.
The production and sale of HMC’s products will depend significantly on HMC’s ability to continue its capital expenditure and product development programs and to market its vehicles successfully. This ability is subject to several risks, including:
•any prolonged reduction or suspension of production or sales as discussed above;
•rapid changes in HMC’s industry, including advancement of technology and the introduction of new types of competitors who may possess various innovations;
•the ability of HMC to successfully implement its electrification of motorcycle and automobile products and expand its range of electrified products;
•risks with HMC's business alliances and joint ventures;
•discovery of defects in vehicles which could lead to recall campaigns and suspended sales;
•volatility in the price of automobiles, motorcycles, power equipment and marine products;
•currency and interest rate fluctuation affecting pricing of products sold and materials purchased and any derivative financial instruments used to hedge against these risks;
•extensive environmental and government regulation of the automotive, motorcycle, and power product industries;
•the inability to protect and preserve its valuable intellectual property;
•legal proceedings, which could adversely affect business, financial condition, cash flows, or results of operations;
•reliance on external suppliers for the provision of raw materials and parts used in the manufacturing of its products;
•increased costs from conducting business worldwide;
•inadvertent disclosures of confidential information despite internal controls and procedures; and
•pension costs and benefit obligations.
Additionally, our credit ratings depend, in large part, on the existence of the Keep Well Agreements with HMC and on the financial condition and results of operations of HMC. If these arrangements (or replacement arrangements acceptable to the rating agencies, if any) become unavailable to us, or if a credit rating of HMC is lowered, our credit ratings will also likely be adversely impacted, leading to higher borrowing costs.
Declines in general business and economic conditions can have a significant adverse impact on our results of operations, cash flows, and financial condition.
Because our operations are heavily dependent on retail sales of motor vehicles and other retail products, general business and economic conditions have a significant impact on our financing volumes and our operations. In particular, changes in the following events can adversely affect our results of operations, cash flows, and financial condition:
•changes in the United States or Canadian economies;
•changes in the overall market for consumer financing or dealer financing;
•changes in consumer trends and preferences within the automotive industry;
•changes in the United States and Canadian regulatory environment;
•a decline or slowdown in the new or used vehicle market;
•increased fuel prices;
•inflationary pressures;
•fluctuations in interest rates;
•changes in consumer confidence;
•pandemics, epidemics, and other public health crises, such as COVID-19, and the impact of efforts to contain them; and
•the fiscal and monetary policies in the countries in which we operate.
Elevated levels of market disruption and volatility could adversely affect our ability to access the global capital markets in a similar manner and at a similar cost as we have had in the past. These market conditions could also have an adverse effect on our results of operations, cash flows, and financial condition by diminishing the value of financial assets. If, as a result, we increase the rates we charge to our customers and dealers, our competitive position could be negatively affected.
Additionally, the United States and Canada have experienced periods of economic slowdown and recession. These periods have been accompanied by decreases in consumer demand for automobiles and other products. High unemployment, decreases in home values, and lack of availability of credit may lead to increased default rates. Significant increases in the inventory of used automobiles during periods of economic recession may also depress the prices at which returned or repossessed automobiles may be sold or delay the timing of these sales. Dealers may also be affected by an economic slowdown or recession, which in turn may increase the risk of default of certain dealers within our wholesale flooring and commercial financing portfolios.
If we are unable to compete successfully or if competition continues to increase in the businesses in which we operate, our results of operations, cash flows, and financial condition could be materially and adversely affected.
The finance industries in the United States and Canada are highly competitive. We compete with national and regional commercial banks, credit unions, savings and loan associations, finance companies, and other captive finance companies that provide consumer financing for new and used Honda and Acura products. Additionally, Canadian banks and credit unions are strong competitors in the automobile consumer financing business and also provide inventory financing for Honda and Acura dealers. Commercial banks, finance companies, and captive finance companies of other manufacturers also provide wholesale flooring financing for Honda and Acura dealers. Our primary competition in the wholesale motorcycle, power equipment, and marine engine financing business tends to be local banks and specialty finance firms that are familiar with the particular characteristics of these businesses. Changes in the financial services industry resulting from technological innovations and changes in consumer preferences in how they seek financing may also result in increased competition. Our ability to maintain and expand our market share is contingent upon, among other things, us offering competitive pricing, the quality of credit accepted, the flexibility of loan terms offered, the quality of service provided to dealers and customers and strong dealer relationships. Our inability to compete successfully, as well as increases in competitive pressures, could have an adverse impact on our contract volume, market share, revenues, and margins and have a material adverse effect on us.
We are exposed to residual value risk on the vehicles we lease.
Customers of leased vehicles typically have an option to return the vehicle to the dealer at the end of the lease term or to buy the vehicle for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealer are sold through online and physical auctions. Residual value risk is the risk that the contractual residual value determined at lease inception will not be recoverable at the end of the lease term. When the market value of a leased vehicle at contract maturity is less than its contractual residual value, there is a higher probability that the vehicle will be returned to us. As a result, we are exposed to risk of loss on the disposition of leased vehicles to the extent that sales proceeds are not sufficient to cover the carrying value of the leased asset at termination. Among the factors that can affect the value of returned lease vehicles are the volume of vehicles returned, adverse economic conditions, preferences for particular types of vehicles, new vehicle pricing, new vehicle incentive financing programs, new vehicle sales, the actual or perceived quality, safety, or reliability of vehicles, recalls, future plans for new Honda and Acura product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, and fuel prices. See “Financial Risks Relating to Business-We are subject to consumer and dealer credit risk, which could adversely impact our results of operations, cash flows, and financial condition” below.
Vehicle recalls and other announcements may impact our business.
From time to time, AHM and/or HCI may recall, suspend sales and production of, or initiate market actions on certain Honda or Acura products to address performance, customer satisfaction, compliance, or safety-related issues. Because our business is substantially dependent upon the sale of Honda and Acura products such actions may negatively impact our business. A decrease in the level of vehicle sales would negatively impact our financing volume. Additionally, recalls may affect the demand for used recalled vehicles, or impact our timely disposal of repossessed and returned lease vehicles, which may affect the sales proceeds of those vehicles. For example, during fiscal years 2016 and 2017, we experienced delays in the disposition of returned lease vehicles due to a recall of certain Honda and Acura vehicles. The delays in disposition resulted in the recognition of impairment losses, additional depreciation expense, and lower gains on the disposition of lease vehicles due to the negative impact on the sales proceeds of the affected vehicles.
Adverse economic conditions or changes in laws in states or provinces in which we have customer concentrations may negatively affect our results of operations, cash flows, and financial condition.
We are exposed to geographic concentration risk in our consumer financing operations. Factors adversely affecting the economy and applicable laws in various states or provinces where we have concentration risk, such as California and New York, could have an adverse effect on our results of operations, cash flows, and financial condition.
Financial Risks Relating To Our Business
Our results of operations, cash flows, and financial condition may be adversely affected because of currency risk.
Currency risk or exchange rate risk refers to potential changes of value of financial assets, including Canadian dollar denominated finance receivables, foreign currency denominated debt or derivatives used to manage exposure of foreign currency denominated debt in response to fluctuations in exchange rates of various currencies. Changes in exchange rates can have adverse effects on our results of operations, cash flows, and financial condition.
We monitor the exchange rate environment and enter into various financial instruments, including currency swap agreements, to manage our exposure to the risk of exchange rate fluctuations. However, our hedging strategies may not fully mitigate the impact of changes in exchange rates. Further, these instruments contain an element of risk in the event the counterparties are unable to meet the terms of the agreements. See “-The failure or commercial soundness of our counterparties and other financial institutions may have an adverse effect on our results of operations, cash flows, or financial condition” below.
We need substantial capital to finance our operations and a disruption in our funding sources and access to the capital markets would have an adverse effect on our results of operations, cash flows, and financial condition.
We depend on a significant amount of capital funding to operate our business. Our business strategies utilize diverse sources to fund our operations, including the issuance of commercial paper, medium term notes, asset-backed securities, bank loans and borrowings from AHM and HCI, as needed.
The availability of these financing sources at the prices we desire may depend on factors outside of our control, including our credit ratings, the sovereign credit ratings in jurisdictions in which we raise capital, disruptions to the capital markets, actual events or concerns involving liquidity, defaults, or non-performance by financial institutions, the fiscal and monetary policies of government, government regulations and industry standards. In the event that we are unable to raise the funds we require at reasonable rates, we may curtail our various loan originations or incur the effects of increased costs of operation. Reducing loan originations or increasing the rates we charge consumers and dealers may adversely affect our ability to remain a preferred source of financing for consumers and dealers for Honda and Acura products and will have an adverse effect on our results of operations, cash flows, and financial condition. See “-Fluctuations in interest rates could have an adverse impact on our results of operations, cash flows, and financial condition” below.
Fluctuations in interest rates could have an adverse impact on our results of operations, cash flows, and financial condition.
Our results of operations, cash flows, and financial condition could be adversely affected during any period of changing interest rates, possibly to a material degree. Interest rate risks arise from the mismatch between assets and the related debt used for funding. We provide consumer financing, dealer financing, incentive financing, originations and servicing, all of which are exposed, in varying degrees, to changes in value due to movements in interest rates. Furthermore, an increase in interest rates could increase our costs of providing dealer and consumer financing originations, which could, in turn, adversely affect our financing volumes because financing can be less attractive to our dealers and customers and qualifying for financing may be more difficult.
We monitor the interest rate environment and enter into various financial instruments, including interest rate and basis swaps, to manage our exposure to the risk of interest rate fluctuations. However, our hedging strategies may not fully mitigate the impact of changes in interest rates. For example, the U.K. Financial Conduct Authority announced that LIBOR will cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. The Alternative Reference Rates Committee has, among other things, recommended the Secured Overnight Financing Rate (SOFR) as the alternative to U.S. Dollar LIBOR. Beginning in the fourth quarter of fiscal year 2022, we began entering into transactions that reference SOFR. There can be no assurance that SOFR will perform in the same way LIBOR would have at any time, including, without limitation, as a result of changes in interest rates in the market, market volatility or global or regional economic, financial, regulatory or other events. The potential impact of continued developments. modifications, or other reforms affecting LIBOR or other benchmark rates could adversely affect the market valuation of LIBOR-linked securities, loans and other financial obligations, the interest rates on our current or future cost of funds and/or access to capital markets, and our ability to manage interest rate risk effectively.
Our borrowing costs and access to the debt capital markets depend significantly on our credit ratings, the credit ratings of HMC and the Keep Well Agreements.
The cost and availability of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Our credit ratings depend, in large part, on the existence of the Keep Well Agreements with HMC and on the financial condition and results of operations of HMC. If these arrangements (or replacement arrangements acceptable to the rating agencies, if any) become unavailable to us, or if a credit rating of HMC is lowered, our credit ratings will also likely be adversely impacted, leading to higher borrowing costs.
Credit rating agencies that rate the credit of HMC and its affiliates, including AHFC, may qualify, alter, or terminate their ratings at any time. For example, Moody's Investors Service downgraded the credit rating of Honda Motor Co., Ltd. on March 26, 2020, and downgraded our credit ratings on March 27, 2020. Additionally, S&P Global Ratings downgraded the credit rating of Honda Motor Co., Ltd. and its subsidiaries, including us, on May 20, 2020. Global economic conditions and other geopolitical factors may directly or indirectly affect such ratings. Any downgrade in the sovereign credit ratings of the United States, Japan, or Canada may directly or indirectly have a negative effect on the ratings of HMC and AHFC. Downgrades, the change to a negative outlook, or placement on review for possible downgrades of such ratings have resulted and could continue to result in an increase in our borrowing costs and could reduce our access to global debt capital markets. These factors would have a negative impact on our business, including our competitive position, results of operations, cash flows and financial condition.
We are subject to consumer and dealer credit risk, which could adversely impact our results of operations, cash flows, and financial condition.
Credit risk is the risk of loss arising from the failure of a consumer or dealer to meet the terms of any contract with us or otherwise fail to perform as agreed. Credit losses are an expected cost of extending credit. The majority of our credit risk is with consumer financing, and to a lesser extent, with dealer financing. Our level of credit risk on our consumer financing portfolios is influenced primarily by two factors: the total number of contracts that default, and the amount of loss per occurrence, net of recoveries, which in turn are influenced by various factors, such as the used vehicle market, our purchase quality mix, contract term lengths, operational changes, and certain economic factors such as unemployment and inflationary pressures. Our level of credit risk on our dealer-financing portfolio is influenced primarily by the financial strength of dealers within the portfolio, the concentration of dealers demonstrating financial strength, the quality of the collateral securing the financing within the portfolio and economic factors. Significant physical effects of climate change, such as extreme weather and natural disasters, may affect consumers or dealers. For example, consumers living in areas affected by extreme weather and natural disasters may suffer financial harm, reducing their ability to make timely payments. Dealerships and physical auctions that facilitate the disposition of the financed vehicles after repossession are also subject to disruption as a result of extreme weather and natural disasters, which could result in an inability to sell repossessed vehicles or a temporary or permanent decline in the market value of those vehicles. If such extreme weather or a natural disaster were to occur in a geographic region in which a large number of consumers or dealers are located, these risks would be exacerbated. An increase in credit risk would increase our provision for credit losses and early termination losses on operating lease assets, which would have a negative impact on our results of operations, cash flows, and financial condition.
We manage credit risk by managing the credit quality of our consumer financing and dealer financing portfolios, pricing contracts for expected losses and focusing collection efforts to minimize losses. However, our monitoring of credit risk and our efforts to mitigate credit risk may not be sufficient to prevent a material adverse effect on our results of operations, cash flows, and financial condition.
We are required to apply significant judgments and assumptions in the preparation of our financial statements, and actual results may vary from those assumed in our judgments and assumptions.
Certain of our accounting policies require the application of our most difficult, subjective, or complex judgments, often requiring us to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition and results of operations.
We maintain an allowance for management’s estimate of lifetime expected credit losses on our finance receivables. We also maintain an estimate for early termination losses on operating lease assets due to lessee defaults. Our allowance for credit losses and early termination losses on operating leases requires significant judgment about inherently uncertain factors. Actual losses may differ from the original estimates due to actual results varying from those assumed in our estimates, which may have a negative impact on our results of operations, cash flows and financial condition. Refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates-Allowance for Credit Losses on Retail Loans and Estimated Early Termination Losses on Operating Lease Assets” for additional information regarding our estimates.
We maintain projections for expected residual values and return volumes of the vehicles we lease. Actual proceeds realized by us upon sales of returned leased vehicles at lease termination might be lower than the projected amount, which would reduce the profitability of the lease transaction and could have the potential to adversely affect our gain or loss on the disposition of lease vehicles and our results of operations, cash flows and financial condition. Refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates-Estimated End of Term Residual Values” for additional information regarding our estimates.
The failure or commercial soundness of our counterparties and other financial institutions may have an adverse effect on our results of operations, cash flows, or financial condition.
We have exposure to many different financial institutions, and we routinely execute transactions with counterparties in the financial industry. Our debt, derivative and investment transactions, our ability to borrow under committed and uncommitted credit facilities, and the availability of our cash held in deposits at financial institutions could be adversely affected by the creditworthiness, actions, and commercial soundness of these financial institutions.
If the financial institutions with which we do business enter receivership or become insolvent in the future, there is no guarantee that the Department of the Treasury, the Federal Reserve, and the FDIC will intercede to provide us and other depositors with access to balances in excess of the $250,000 FDIC insurance limit or that we would be able to: (i) access our existing cash, cash equivalents, and investments; (ii) maintain any required letters of credit or other credit support arrangements; or (iii) adequately fund our business for a prolonged period of time or at all. Any of such events could have a material adverse effect on our results of operations, cash flows or financial condition. In addition, if any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our results of operations, cash flows and financial condition.
Deterioration of social, political, labor, or economic conditions along with increased regulation in a specific country or region may also adversely affect the ability of financial institutions, including our derivative counterparties and lenders, to perform their contractual obligations. Financial institutions are interrelated because of trading, clearing, lending, and other relationships, and as a result, financial and political difficulties in one country or region may adversely affect financial institutions in other jurisdictions, including those with which we have relationships. The failure of any financial institution and other counterparty to which we have exposure, directly or indirectly, to perform their contractual obligations, and any losses resulting from that failure, could have a material adverse effect on our results of operations, cash flows, or financial condition.
Our results of operations may be adversely affected by the rate of prepayment of our financing and leasing contracts.
Our financing and leasing contracts may be repaid by borrowers at any time at their option. Early repayment of contracts will limit the amount of earnings we would have otherwise generated under those contracts, and we may not be able to reinvest the portions repaid early immediately into new loans and new leases or loans and leases with similar pricing.
Our defined benefit plan costs and those of AHM and HCI may affect our financial condition, cash flows, and results of operations.
Our employees participate in either AHM’s or HCI’s defined benefit plans if they qualify. HMC also has a defined benefit plan but a great majority of our employees do not participate in that plan. The amount of pension benefits and lump-sum payments provided in those plans are primarily based on the combination of years of service and compensation. AHM and HCI each determine and make periodic contributions to their respective defined benefit plans pursuant to applicable regulations and we are allocated our share of pension plan costs due to the participation of our employees. Since benefit obligations and pension costs are based on many assumptions, including, but not limited to, participant mortality, discount rate, rate of salary increase, expected long-term rate of return on plan assets, differences in actual expenses and costs or changes in those assumptions could affect AHM’s, HCI’s, and our cash contributions and liquidity. Under the Employee Retirement Income Security Act of 1974 (ERISA), we are jointly and severally liable for the obligations under AHM’s plans that are subject to ERISA, even for participants in the plans that are not our employees. See Note 8-Benefit Plans of Notes to Consolidated Financial Statements, for more information.
Regulatory Risks Relating To Our Business
Changes in laws and regulations, or the application thereof, may adversely affect our business, results of operations, cash flows, and financial condition.
Our operations are subject to regulation, supervision, and licensing under various United States, Canadian, state, provincial, and local statutes, ordinances, and regulations. A failure to comply with applicable regulatory, supervisory, or licensing requirements may adversely affect our business, results of operations, cash flows, and financial condition. Due to events in the global financial markets, regulators have increased their focus on the regulation of the financial services industry. As a result, there have been and may continue to be proposals for laws and regulations that could increase the scope and nature of laws and regulations that are currently applicable to us. Changes to laws or regulations enacted to address the potential impacts of climate change may adversely impact the auto industry in particular as a result of efforts to mitigate the factors contributing to climate change. Any change in such laws and regulations, whether in the form of new or amended laws or regulations, regulatory policies, supervisory action, or the application of any of the above, may adversely affect our business, results of operations, cash flows, and financial condition by increasing our costs to comply with the new laws, prohibiting or limiting the amount of certain revenues we currently receive, or constraining certain collection or collateral recovery action which are currently available to us. We are also subject to tax laws under various jurisdictions and changes in, or our application of, tax laws may result in additional tax exposure. For example, our tax exposure will be effected by the full realization of the government incentives contemplated by the Inflation Reduction Act of 2022. However, due to uncertainty with respect to application of the law, we are still evaluating the impact to our business. See Note 1(j)-Summary of Business and Significant Accounting Policies, Income Taxes and Note 7-Income Taxes of Notes to Consolidated Financial Statements, for more information.
Financial or consumer regulations may adversely affect our business, results of operations, cash flows and financial condition.
The Dodd-Frank Act is extensive and significant legislation that, among other things:
•created a liquidation framework for purposes of liquidating certain bank holding companies or other nonbank financial companies determined to be “covered financial companies,” and certain of their respective subsidiaries, defined as “covered subsidiaries,” if, among other conditions, it is determined such a company is in default or in danger of default and the resolution of such a company under other applicable law would have serious adverse effects on financial stability in the United States;
•created the CFPB, an agency with broad rule-making examination and enforcement authority with respect to the laws and regulations that apply to consumer financial products and services, such as the extension of credit to finance the purchase of automobiles and motorcycles;
•created a new framework for the regulation of over-the-counter derivatives activities; and
•strengthened the regulatory oversight of securities and capital markets activities by the SEC.
The scope of the Dodd-Frank Act has broad implications for the financial services industry, including us, and requires the implementation of numerous rules and regulations. The Dodd-Frank Act affects the offering, marketing, and regulation of consumer financial products and services offered by financial institutions. The potential impact of the Dodd-Frank Act and its rules and regulations may include supervision and examination, limitations on our ability to expand product and service offerings and new or modified disclosure requirements.
The CFPB has supervisory, examination and enforcement authority over certain non-depository institutions, including those entities that are larger participants of a market for consumer financial products or services, as defined by rule. We are subject to the CFPB’s supervisory authority with respect to our compliance with applicable consumer protection laws. Over the past few years, the CFPB has become active in investigating the products, services, and operations of credit providers, including AHFC. The CFPB’s investigations of, and initiation of enforcement actions against, credit providers, whether on its own initiative or jointly with other agencies and regulators, may continue for the foreseeable future.
We are also subject to state laws and regulations that vary among the states. A majority of states have enacted legislation establishing licensing requirements to conduct consumer-financing activities. We are also periodically subject to state audits and inquiries, which monitor our compliance with consumer and other regulations. We expect state regulators to continue their supervision and regulation of financial products and services within their jurisdictions.
Compliance with the regulations under the Dodd-Frank Act or the oversight of the SEC, CFPB, state regulators or other governmental entities and enforcement actions, if any, may impose costs on, create operational constraints for, or place limits on pricing with respect to, finance companies such as us. Such compliance and enforcement actions may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, reduce our profitability, affect our reputation, or otherwise adversely affect our business.
General Risk Factors
A failure or interruption in our operations could adversely affect our results of operations and financial condition.
Operational risk is the risk of loss resulting from, among other factors, inadequate or failed processes, systems or internal controls, theft, fraud, cybersecurity breaches, or natural disasters. Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. These events can potentially result in financial losses, regulatory inquiries or other damage to us, including damage to our reputation.
We rely on internal and external information technology systems to help us manage and maintain our operations and are exposed to risk of loss resulting from breaches in the security or other failures of these systems. Any failure, upgrade, replacement or interruption of these systems could disrupt our normal operating procedures and have an adverse effect on our results of operations, cash flows, and financial condition.
We also rely on a framework of internal controls designed to provide a sound and well-controlled operating environment. Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material adverse effect on us.
A security breach or a cyber attack may adversely affect our business, results of operations and financial condition.
A security breach or cyber attack of our systems could interrupt, damage or harm our operations or result in the slow performance or unavailability of our information systems for some customers. We collect, analyze and retain certain types of personally identifiable and other information pertaining to our customers and employees through internal and third party information technology systems. We also store confidential business, employee and technical information. A security breach or cyber attack of these systems, including those caused by physical or electronic break-ins, computer virus, malware, attacks by hackers or foreign governments, ransomware attacks, disruptions from authorized access and tampering (including through social engineering such as phishing attacks) and similar breaches, could expose us to a risk of loss of this information, regulatory scrutiny, claims for damages, penalties, litigation, reputational harm, and a loss of confidence that could potentially have an adverse impact on current and future business with current and potential customers. Information security risks have increased recently because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others. In some cases, it may be difficult to anticipate or immediately detect security breaches and the damage they cause. We monitor and review our security systems and by using a Total Quality Management methodology, we update the posture of these systems based on the current threat environment.
We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. It is also possible that our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. The occurrence of any of these events could have a material adverse effect on our business. For example, in June 2020, HMC and its subsidiaries, including AHFC and HCFI, experienced a cyber-attack. As a result, certain business operations were temporarily suspended but have since resumed. No damages to customers or other third parties, such as leaks of information, have been confirmed. While countermeasures have been taken to minimize the impacts of the attack and prevent similar or additional attacks, there may be undetected impacts of the attack, and the countermeasures may not be sufficient to prevent similar or additional attacks.
We are subject to various privacy, data protection and information security laws, including requirements concerning security breach notification. For example, the California Consumer Privacy Act, among others, imposes stringent data protection requirements and provides significant penalties for noncompliance. Compliance with current and future privacy, data protection and information security laws affecting customer or employee data to which we are subject could result in higher compliance and technology costs. Our failure or perceived failure, even if unfounded, to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, damage to our reputation and could materially and adversely affect our profitability.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our headquarters are located in Torrance, California. Our United States operations have three customer and dealer services centers located in California, Texas, and Georgia. HCFI’s headquarters are located in Markham, Ontario, Canada and our Canadian operations have regional offices and national servicing centers located in Quebec and Ontario. All premises are occupied pursuant to lease agreements.
We believe that our properties are suitable to meet the requirements of our business.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
For information on our material legal proceedings, see Note 9-Commitments and Contingencies-Legal Proceedings and Regulatory Matters of Notes to Consolidated Financial Statements, which is incorporated by reference herein.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of the outstanding common stock of AHFC is owned by AHM. Accordingly, shares of our common stock are not listed on any national securities exchange, there is no established public trading market for AHFC’s common stock, and there is no intention to create a public market or list the common stock on any securities exchange. As of the date of this annual report, there are no shares of AHFC common stock that are subject to outstanding options or warrants to purchase, or securities convertible into AHFC common stock. No shares of AHFC common stock can be sold pursuant to Rule 144 under the Securities Act of 1933, as amended.
Dividends are declared and paid by AHFC if, when, and as determined by its Board of Directors. AHFC declared and paid semi-annual cash dividends to its parent, AHM, of $766 million and $500 million during the fiscal year ended March 31, 2023 and $491 million and $1.0 billion during the fiscal year ended March 31, 2022. We anticipate that we will continue to pay cash dividends to AHM in the future. However, the payment and amount of future dividends remain within the discretion of AHFC’s Board of Directors and will depend upon our future earnings, financial condition, capital requirements, and other factors.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Our primary focus, in collaboration with AHM and HCI, is to provide support for the sale of Honda and Acura products and maintain customer and dealer satisfaction and loyalty. To deliver this support effectively, we seek to maintain competitive pricing, efficient operations, and effective risk and compliance management. The primary factors influencing our results of operations, cash flows, and financial condition include the volume of Honda and Acura sales and the portion of those sales that we finance, our cost of funds, competition from other financial institutions, consumer credit defaults, and used motor vehicle prices.
A substantial portion of our consumer financing business is acquired through incentive financing programs sponsored by AHM and HCI. The volume of these incentive financing programs and the allocation of those programs between retail loans and leases may vary from fiscal period to fiscal period depending upon the respective marketing strategies of AHM and HCI. AHM and HCI’s marketing strategies are based in part on their business planning and control, in which we do not participate. Therefore, we cannot predict the level of incentive financing programs AHM and HCI may sponsor in the future. Our consumer financing acquisition volumes are substantially dependent on the extent to which incentive financing programs are offered. Increases in incentive financing programs generally increase our financing penetration rates, which typically results in increased financing acquisition volumes for us. The amount of subsidy payments we receive from AHM and HCI is dependent on the terms of the incentive financing programs and the interest rate environment. Subsidy payments are received upon acquisition and recognized in revenue throughout the life of the loan or lease; therefore, a significant change in the level of incentive financing programs in a fiscal period typically only has a limited impact on our results of operations for that period. The amount of subsidy income we recognize in a fiscal period is dependent on the cumulative level of subsidized contracts outstanding that were acquired through incentive financing programs.
We seek to maintain high quality consumer and dealer account portfolios, which we support with strong underwriting standards, risk-based pricing, and effective collection practices. Our cost of funds is facilitated by the diversity of our funding sources, and effective interest rate and foreign currency exchange risk management. We manage expenses to support our profitability, including adjusting staffing needs based upon our business volumes and centralizing certain functions. Additionally, we use risk and compliance management practices to optimize credit and residual value risk levels and maintain compliance with our pricing, underwriting and servicing policies at the United States, Canadian, state and provincial levels.
In our business operations, we incur costs related to funding, credit loss, residual value loss, and general and administrative expenses, among other expenses.
We analyze our operations in two business segments defined by geography: the United States and Canada. We measure the performance of our United States and Canada segments on a pre-tax basis before the effect of valuation adjustments on derivative instruments and revaluations of foreign currency denominated debt. For additional information regarding our segments, see Note 15-Segment Information of Notes to Consolidated Financial Statements. The following tables and the related discussion are presented based on our geographically segmented consolidated financial statements.
References in this report to our "fiscal year 2023", “fiscal year 2022” and “fiscal year 2021” refer to our fiscal years ended March 31, 2023, 2022 and 2021, respectively.
Results of Operations
Operating Environment Overview
Supply chain disruptions continued to have a negative impact on the production of new vehicles, dealer inventory levels, new vehicle sales, and ultimately our consumer financing acquisition volumes, particularly during the first half of fiscal year 2023. However, there were some improvements in production levels and availability of new vehicles during the second half of fiscal year 2023. Although below pre-pandemic levels, this increase in availability of new vehicles contributed to an increase in dealer inventory levels, dealer loan financing balances, and consumer financing acquisition volumes during the second half, as compared to the first half of fiscal year 2023. Given the limited supply of new vehicles in the first half of fiscal year 2023, incentive programs supporting the sale of new vehicles were reduced, which also had a negative impact on our acquisition volumes by lowering our penetration rates during fiscal year 2023.
The trend in delinquencies and charge-offs has increased during fiscal year 2023 which may be attributable to the negative effects of inflationary pressures, rising interest rates, and other factors affecting consumers’ ability to perform on their obligations. Used vehicle prices remain strong due to the limited supply of new vehicles, with return rates on leased vehicles remaining at historically low levels. In addition, the rise in interest rates has increased the returns on more recently acquired financing assets and funding costs.
Segment Results-Comparison of Fiscal Years Ended March 31, 2023 and 2022
Results of operations for the United States segment and the Canada segment are summarized below:
United States Segment Canada Segment Consolidated
Years ended March 31, Difference Years ended March 31, Difference Years ended March 31,
2023 2022 Amount % 2023 2022 Amount % 2023 2022
(U.S. dollars in millions)
Revenues:
Retail $ 1,299 $ 1,414 $ (115) (8) % $ 169 $ 185 $ (16) (9) % $ 1,468 $ 1,599
Dealer 104 58 46 79 % 12 9 3 33 % 116 67
Operating leases 5,535 6,489 (954) (15) % 1,065 1,289 (224) (17) % 6,600 7,778
Total revenues 6,938 7,961 (1,023) (13) % 1,246 1,483 (237) (16) % 8,184 9,444
Leased vehicle expenses 4,059 4,655 (596) (13) % 832 975 (143) (15) % 4,891 5,630
Interest expense 723 604 119 20 % 164 109 55 50 % 887 713
Realized (gains)/losses on derivatives and foreign currency debt (92) 121 (213) n/m (42) 22 (64) n/m (134) 143
Net revenues 2,248 2,581 (333) (13) % 292 377 (85) (23) % 2,540 2,958
Other income, net 77 36 41 114 % 15 14 1 7 % 92 50
Total net revenues 2,325 2,617 (292) (11) % 307 391 (84) (21) % 2,632 3,008
Expenses:
General and administrative expenses 430 423 7 2 % 55 56 (1) (2) % 485 479
Provision for credit losses 138 (22) 160 n/m 8 - 8 n/m 146 (22)
Early termination loss on operating leases 38 16 22 n/m - - - n/m 38 16
Income before income taxes $ 1,719 $ 2,200 $ (481) (22) % $ 244 $ 335 $ (91) (27) % $ 1,963 $ 2,535
_______________________
n/m = not meaningful
The following table summarizes average outstanding asset balances, units, and yields and average outstanding debt and interest rates.
United States Segment Canada Segment
Years ended March 31, Difference Years ended March 31, Difference
2023 2022 Amount % 2023 2022 Amount %
(U.S. dollars in millions except as noted, units in thousands) (1)
Retail loans:
Average outstanding balance $ 30,319 $ 33,833 $ (3,514) (10) % $ 3,802 $ 4,019 $ (217) (5) %
Average outstanding units 1,905 2,106 (201) (10) % 268 286 (18) (6) %
Effective yield 4.3 % 4.2 % 4.4 % 4.6 %
Dealer loans:
Average outstanding balance $ 1,982 $ 2,032 $ (50) (2) % $ 226 $ 388 $ (162) (42) %
Effective yield 5.2 % 2.7 % 5.2 % 2.2 %
Operating leases:
Average outstanding balance $ 25,868 $ 30,316 $ (4,448) (15) % $ 4,355 $ 5,167 $ (812) (16) %
Average outstanding units 1,058 1,280 (222) (17) % 224 256 (32) (13) %
Average monthly rental income(2)
$ 436 $ 423 $ 13 3 % $ 397 $ 419 $ (22) (5) %
Average monthly depreciation(2),(3)
$ 328 $ 315 $ 13 4 % $ 314 $ 324 $ (10) (3) %
Debt:
Average outstanding balance $ 36,294 $ 44,374 $ (8,080) (18) % $ 5,480 $ 6,412 $ (932) (15) %
Effective interest rate 2.0 % 1.4 % 3.0 % 1.7 %
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(1)Average outstanding balances and units based on month end amounts during respective periods. Effective yields and interest rates based on average outstanding month end balances. Average monthly rental income and depreciation based on average outstanding month end units.
(2)U.S. dollars per unit
(3)Excludes gains on disposition of leased vehicles.
United States Segment
Revenues
-Revenue from retail loans decreased due to lower average outstanding balances, which was partially offset by higher yields.
-Revenue from dealer loans increased due to higher yields, which was partially offset by lower average outstanding wholesale flooring loan balances as a result of lower dealer inventory levels. Dealer inventory levels have steadily increased during fiscal year 2023 but remain below historical levels due to supply chain disruptions that have negatively impacted the production of new vehicles.
-Operating lease revenue decreased due to lower average outstanding units, which was partially offset by an increase in average rental income per unit.
Leased vehicle expenses
Leased vehicle expenses decreased due to lower average outstanding units, which was partially offset by lower gains on disposition of leased vehicles and higher average depreciation expense per unit.
Interest expense
Interest expense increased due to higher average interest rates, which was partially offset by lower average outstanding debt balances. See “-Liquidity and Capital Resources” below for more information.
Realized (gains)/losses on derivatives and foreign currency debt
Net realized gains during fiscal year 2023 were attributable to gains on pay fixed interest rate swaps of $534 million and gains on foreign currency denominated debt of $403 million, which were partially offset by losses on pay float interest rates swaps of $273 million and losses on cross currency swaps of $572 million.
Provision for credit losses
We recognized a provision for credit losses during fiscal year 2023 due to the increase in provision for retail loans as a result of an increase in expected losses due to an increase in the trend of delinquencies, net charge-offs, and a slight decline in credit quality. We recognized a negative provision for credit losses during fiscal year 2022 due to reductions to the allowance reflecting favorable revisions to forecasted economic factors and lower than expected net charge-offs. See “-Financial Condition-Credit Risk” below for more information.
Early termination loss on operating leases
Early termination losses on operating leases increased due to a higher estimate of early termination losses. See -Financial Condition-Credit Risk” below for more information.
Canada Segment
Revenues
-Revenue from retail loans decreased due to lower average outstanding balances, lower yields, and the effect of foreign currency translation adjustments.
-Revenue from dealer loans increased primarily due to higher yields.
-Operating lease revenue decreased due to lower average outstanding units and the effect of foreign currency translation adjustments.
Leased vehicle expenses
Leased vehicle expenses decreased due to lower average outstanding units and the effect of foreign currency translation adjustments.
Interest expense
Interest expense increased due to higher average interest rates, which was partially offset by lower average outstanding debt. See “-Liquidity and Capital Resources” below for more information.
Realized (gains)/losses on derivative instruments
Net realized gains on interest rate swaps during fiscal year 2023 were attributable to realized gains on pay fixed interest rate swaps of $81 million, which was partially offset by realized losses on pay float interest rate swaps of $39 million.
Provision for credit losses
Provision for credit losses increased due to the increase in provision for retail loans as a result of higher expected losses due to an increase in the trend of delinquencies and net charge-offs. See “-Financial Condition-Credit Risk” below for more information.
Early termination loss on operating leases
We recognized early termination losses on operating leases of less than $1 million during both fiscal years 2023 and 2022. See “-Financial Condition-Credit Risk” below for more information.
Income tax expense
Our consolidated effective tax rate was 26.1% for fiscal year 2023 and 26.2% for fiscal year 2022. The decrease in the effective tax rate for fiscal year 2023 was attributable primarily to the effects of U.S. state taxes compared to the prior year. For additional information regarding income taxes, see Note 7-Income Taxes of Notes to Consolidated Financial Statements.
Financial Condition
Consumer Financing
Consumer Financing Acquisition Volumes
The following table summarizes the number of retail loans and leases we acquired and the number of such loans and leases acquired through incentive financing programs sponsored by AHM and HCI:
Years ended March 31,
2023 2022 2021
Acquired Sponsored (2)
Acquired Sponsored (2)
Acquired Sponsored (2)
(Units (1) in thousands)
United States Segment
Retail loans:
New auto 301 165 416 344 556 471
Used auto 113 30 68 16 104 36
Motorcycle and other 58 1 64 1 87 3
Total retail loans 472 196 548 361 747 510
Leases 229 196 403 378 470 416
Canada Segment
Retail loans 64 23 68 45 72 54
Leases 37 28 61 58 67 66
Consolidated
Retail loans 536 219 616 406 819 564
Leases 266 224 464 436 537 482
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(1)A unit represents one retail loan or lease contract, as noted, that was originated in the United States and acquired by AHFC or its subsidiaries, or originated in Canada and acquired by HCFI, during the period shown.
(2)Represents the number of retail loans and leases acquired through incentive financing programs sponsored by AHM and/or HCI and only those contracts with subsidy payments. Excludes contracts where contractual rates met or exceeded AHFC’s yield requirements and subsidy payments were not required.
Consumer Financing Penetration Rates
The following table summarizes the percentage of AHM and/or HCI sales of new automobiles and motorcycles that were financed with either retail loans or leases that we acquired:
Years ended March 31,
2023 2022 2021
United States Segment
New auto 53 % 59 % 74 %
Motorcycle 28 % 29 % 33 %
Canada Segment
New auto 75 % 77 % 84 %
Motorcycle 17 % 20 % 29 %
Consolidated
New auto 55 % 61 % 74 %
Motorcycle 27 % 28 % 33 %
Consumer Financing Asset Balances
The following table summarizes our outstanding retail loan and lease asset balances and units:
March 31, March 31,
2023 2022 2021 2023 2022 2021
(U.S. dollars in millions) (Units (1) in thousands)
United States Segment
Retail loans:
New auto $ 24,564 $ 25,953 $ 27,200 1,375 1,491 1,587
Used auto 5,276 4,307 4,915 337 318 359
Motorcycle and other 1,137 1,229 1,328 176 186 196
Total retail loans $ 30,977 $ 31,489 $ 33,443 1,888 1,995 2,142
Investment in operating leases $ 23,853 $ 28,691 $ 30,036 954 1,191 1,311
Securitized retail loans (2)
$ 6,770 $ 8,849 $ 8,368 540 693 686
Canada Segment
Retail loans $ 3,777 $ 3,931 $ 3,913 264 276 292
Investment in operating leases $ 3,925 $ 4,933 $ 5,309 207 242 272
Securitized retail loans (2)
$ 446 $ 184 $ 415 26 21 38
Securitized investment in operating leases (2)
$ 168 $ 294 $ 440 14 18 23
Consolidated
Retail loans $ 34,754 $ 35,420 $ 37,356 2,152 2,271 2,434
Investment in operating leases $ 27,778 $ 33,624 $ 35,345 1,161 1,433 1,583
Securitized retail loans (2)
$ 7,216 $ 9,033 $ 8,783 566 714 724
Securitized investment in operating leases (2)
$ 168 $ 294 $ 440 14 18 23
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(1)A unit represents one retail loan or lease contract, as noted, that was outstanding as of the date shown.
(2)Securitized retail loans and investments in operating leases represent the portion of total managed assets that have been sold in securitization transactions but continue to be recognized on our balance sheet.
In the United States segment, retail loan acquisition volumes decreased by 14% and lease acquisition volumes decreased by 43% during fiscal year 2023 compared to fiscal year 2022. In the Canada segment, retail loan acquisition volumes decreased by 6% and lease acquisition volumes decreased by 39% during fiscal year 2023 compared to fiscal year 2022. Supply chain disruptions have negatively impacted the production of new vehicles and dealer inventory levels, which contributed to the decline in acquisition volumes in both the United States and Canada segments. While there has been increased availability of new vehicles in the second half of fiscal year 2023, availability is still below pre-pandemic levels. The duration and severity of the supply chain disruptions are uncertain. Prolonged disruptions could materially impact the volume of future retail loans and lease acquisitions.
Dealer Financing
Wholesale Flooring Financing Penetration Rates
The following table summarizes the number of dealerships with wholesale flooring financing agreements as a percentage of total Honda and Acura dealerships in the United States and/or Canada, as applicable:
March 31,
2023 2022 2021
United States Segment
Automobile 28 % 28 % 28 %
Motorcycle 98 % 98 % 97 %
Other 16 % 17 % 18 %
Canada Segment
Automobile 29 % 33 % 33 %
Motorcycle 95 % 95 % 95 %
Other 94 % 94 % 92 %
Consolidated
Automobile 28 % 29 % 29 %
Motorcycle 97 % 97 % 97 %
Other 19 % 19 % 20 %
Wholesale Flooring Financing Percentage of Sales
The following table summarizes the percentage of AHM unit sales in the United States and/or HCI unit sales in Canada, as applicable, that we financed through wholesale flooring loans with dealerships:
Years ended March 31,
2023 2022 2021
United States Segment
Automobile 21 % 23 % 24 %
Motorcycle 98 % 98 % 98 %
Other 8 % 6 % 7 %
Canada Segment
Automobile 26 % 29 % 31 %
Motorcycle 91 % 92 % 90 %
Other 96 % 96 % 96 %
Consolidated
Automobile 22 % 23 % 25 %
Motorcycle 97 % 97 % 97 %
Other 12 % 9 % 10 %
Dealer Financing Asset Balances
The following table summarizes our outstanding dealer financing asset balances and units:
March 31, March 31,
2023 2022 2021 2023 2022 2021
(U.S. dollars in millions) (Wholesale Flooring Units (1) in thousands)
United States Segment
Wholesale flooring loans:
Automobile $ 1,193 $ 837 $ 2,396 35 29 83
Motorcycle 428 192 216 58 30 26
Other 65 39 39 55 35 37
Total wholesale flooring loans $ 1,686 $ 1,068 $ 2,651 148 94 146
Commercial loans $ 855 $ 763 $ 812
Canada Segment
Wholesale flooring loans $ 258 $ 196 $ 553 45 32 40
Commercial loans $ 32 $ 34 $ 61
Consolidated
Wholesale flooring loans $ 1,944 $ 1,264 $ 3,204 193 126 186
Commercial loans $ 887 $ 797 $ 873
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(1)A unit represents one automobile, motorcycle, power equipment, or marine engine, as applicable, financed through a wholesale flooring loan that was outstanding as of the date shown.
Credit Risk
Credit losses are an expected cost of extending credit. The majority of our credit risk is in consumer financing and to a lesser extent in dealer financing. Credit risk of our portfolio of consumer finance receivables can be affected by general economic conditions. Adverse changes, such as a rise in unemployment or an increase in inflationary pressures, can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. We manage our exposure to credit risk in retail loans by monitoring and adjusting our underwriting standards, which affect the level of credit risk that we assume, pricing contracts for expected losses, and focusing collection efforts to minimize losses. We manage our exposure to credit risk for dealers through ongoing reviews of their financial condition.
We are also exposed to credit risk on our portfolio of operating lease assets. We expect a portion of our operating leases to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The factors affecting credit risk on our operating leases and our management of the risk are similar to that of our consumer finance receivables.
Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio, the value of collateral securing the financings, and economic and market factors that could affect the creditworthiness of dealers. We manage our exposure to credit risk in dealer financing by performing comprehensive reviews of dealers prior to establishing financing arrangements and monitoring the payment performance and creditworthiness of these dealers on an ongoing basis. In the event of default by a dealer, we seek all available legal remedies pursuant to related dealer agreements, guarantees, security interests on collateral, or liens on dealership assets. Additionally, we have agreements with AHM and HCI that provide for their repurchase of new, unused, undamaged and unregistered vehicles or equipment that have been repossessed from dealers who defaulted under the terms of their respective wholesale flooring agreements.
The allowance for credit losses is management’s estimate of lifetime expected credit losses on the amortized cost basis of finance receivables. Additional information regarding credit losses is provided in the discussion of “-Critical Accounting Estimates-Allowance for Credit Losses and Estimated Early Termination Losses on Operating Lease Assets” below.
The following table presents information with respect to our allowance for credit losses and credit loss experience of our finance receivables and losses related to lessee defaults on our operating leases:
United States Segment Canada Segment Consolidated
As of or for the years ended March 31,
2023 2022 2021 2023 2022 2021 2023 2022 2021
(U.S. dollars in millions)
Finance receivables:
Allowance for credit losses at beginning of period (3)
$ 204 $ 279 $ 456 $ 7 $ 9 $ 15 $ 211 $ 288 $ 471
Provision for credit losses 138 (22) (65) 8 - (4) 146 (22) (69)
Charge-offs, net of recoveries (100) (53) (112) (3) (2) (3) (103) (55) (115)
Effect of translation adjustment - - - (1) - 1 (1) - 1
Allowance for credit losses at end of period $ 242 $ 204 $ 279 $ 11 $ 7 $ 9 $ 253 $ 211 $ 288
Charge-offs as a percentage of average receivable balance (1)
0.31 % 0.15 % 0.31 % 0.08 % 0.05 % 0.06 % 0.28 % 0.13 % 0.29 %
Allowance as a percentage of ending receivable balance (1)
0.71 % 0.60 % 0.74 % 0.29 % 0.19 % 0.21 % 0.67 % 0.55 % 0.68 %
Delinquencies (60 or more days past due):
Delinquent amount (2)
$ 90 $ 90 $ 58 $ 3 $ 4 $ 2 $ 93 $ 94 $ 60
As a percentage of ending receivable balance (1),(2)
0.26 % 0.26 % 0.15 % 0.07 % 0.08 % 0.04 % 0.24 % 0.24 % 0.14 %
Operating leases:
Early termination loss on operating leases $ 38 $ 16 $ (157) $ - $ - $ 1 $ 38 $ 16 $ (156)
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(1)Ending and average receivable balances exclude the allowance for credit losses, unearned subvention income related to our incentive financing programs and deferred origination costs. Average receivable balances are calculated based on the average of each month’s ending receivables balance for that fiscal year.
(2)For the purposes of determining whether a contract is delinquent, payment is generally considered to have been made, in the case of (i) dealer loans, upon receipt of 100% of the payment when due and (ii) consumer finance receivables, upon receipt of 90% of the sum of the current monthly payment plus any overdue monthly payments. Delinquent amounts presented are the aggregated principal balances of delinquent finance receivables. Payments that were granted deferrals are not considered delinquent during the deferral period.
(3)Beginning allowance for March 31, 2021 includes the $101 million cumulative effect of adopting ASU 2016-13.
In the United States segment, we recognized a provision for credit losses on our finance receivables of $138 million during fiscal year 2023 and a negative provision for credit losses of $22 million during fiscal year 2022. The provision for credit losses during fiscal year 2023 was attributable to an increase in expected losses due to an increase in the trend of delinquencies and net charge-offs above the historical lows experienced during the COVID-19 pandemic. In addition, there was a slight decline in the overall credit quality of our portfolio of retail loans which was attributable to lower incentive volumes, an increase in used vehicle financing, an increase in the mix of 72 and 84 month loans, and an increase in loan-to-value ratios for loans acquired during fiscal year 2023. The negative provision during fiscal year 2022 was attributable to the reduction in the allowance for credit losses on retail loans reflecting favorable revisions to forecasted economic factors including unemployment and personal bankruptcy rates, and lower than expected net charge-offs of retail loans. We recognized early termination losses on operating leases of $38 million and $16 million during fiscal year 2023 and 2022, respectively. Early termination losses on operating leases increased due to the increase in net charge-offs.
In the Canada segment, we recognized a provision for credit losses on our finance receivables of $8 million and less than $1 million during fiscal year 2023 and 2022, respectively. The increase in provision for credit losses was due to higher provision for retail loans as a result of an increase in expected losses due to an increase in the trend of delinquencies and net charge-offs. We recognized early termination losses on operating leases of less than $1 million during both fiscal years 2023 and 2022.
Lease Residual Value Risk
Contractual residual values of lease vehicles are determined at lease inception based on our expectations of used vehicle values at the end of their lease term. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealers are sold through online and physical auctions. We are exposed to a risk of loss on the disposition of returned lease vehicles if the market values of leased vehicles at the end of their lease terms are less than their contractual residual values.
Operating lease vehicles are depreciated on a straight-line basis over the lease term to the lower of contract residual values or estimated end of term residual values. Adjustments to estimated end of term residual values are made prospectively on a straight-line basis over the remaining lease term. A review for impairment of our operating lease assets is performed whenever events or changes in circumstances indicate that their carrying values may not be recoverable. If impairment conditions are met, impairment losses are measured by the amount carrying values exceed their fair values. We did not recognize impairment losses due to declines in estimated residual values during fiscal year 2023. Additional information regarding lease residual values is provided in the discussion of “-Critical Accounting Estimates-Estimated End of Term Residual Values” below.
The following table summarizes our number of lease terminations and the method of disposition:
Years ended March 31,
2023 2022 2021
(Units (1) in thousands)
United States Segment
Termination units:
Sales at outstanding contractual balances (2)
453 506 379
Sales through auctions and dealer direct programs (3)
1 6 89
Total termination units 454 512 468
Canada Segment
Termination units:
Sales at outstanding contractual balances (2)
71 90 84
Sales through auctions and dealer direct programs (3)
- 1 7
Total termination units 71 91 91
Consolidated
Termination units:
Sales at outstanding contractual balances (2)
524 596 463
Sales through auctions and dealer direct programs (3)
1 7 96
Total termination units 525 603 559
_______________________
(1)A unit represents one terminated lease by their method of disposition during the period shown. Unit counts do not include leases that were terminated due to lessee defaults.
(2)Includes vehicles purchased by lessees or dealers for the contractual residual value at lease maturity or the outstanding contractual balance if purchased prior to lease maturity.
(3)Includes vehicles sold through online auctions and market based pricing options under our dealer direct programs or through physical auctions.
Used vehicle prices remained strong during fiscal year 2023 due to the limited supply of new vehicles, even as that supply has slowly begun increasing. As a result, lease vehicle return rates were extremely low during fiscal year 2023 as compared to our historical return rates in both the United States and Canada segments. If the supply of new vehicles increases and the demand for used vehicles declines, return rates and lease vehicle expenses may be negatively impacted.
Liquidity and Capital Resources
Our liquidity strategy is to fund current and future obligations through our cash flows from operations and our diversified funding programs in a cost and risk effective manner. Our cash flows are generally impacted by cash requirements related to the volume of finance receivable and operating lease acquisitions and various operating and funding costs incurred, which are largely funded through payments received on our assets and our funding sources outlined below. As noted, the levels of incentive financing sponsored by AHM and HCI can impact our financial results and liquidity from period to period. Increases or decreases in incentive financing programs typically increase or decrease our financing penetration rates, respectively, which result in increased or decreased acquisition volumes and increased or decreased liquidity needs, respectively. At acquisition, we receive the subsidy payments, which reduce the cost of consumer loan and lease contracts acquired, and we recognize such payments as revenue over the term of the loan or lease.
In an effort to minimize liquidity risk and interest rate risk and the resulting negative effects on our margins, results of operations and cash flows, our funding strategy incorporates investor diversification and the utilization of multiple funding sources including commercial paper, medium-term notes, bank loans and asset-backed securities. We incorporate a funding strategy that takes into consideration factors such as the interest rate environment, domestic and foreign capital market conditions, maturity profiles, and economic conditions. We believe that our funding sources, combined with cash provided by operating and investing activities, will provide sufficient liquidity for us to meet our debt service and working capital requirements over the next twelve months.
The summary of outstanding debt presented in the tables and discussion below in this section “-Liquidity and Capital Resources” as of March 31, 2023, 2022 and 2021 includes foreign currency denominated debt which was translated into U.S. dollars using the relevant exchange rates as of March 31, 2023, 2022 and 2021, as applicable. Additionally, the amounts in this section that are presented in “C$” (Canadian dollar) were converted into U.S. dollars solely for convenience based on the exchange rate on March 31, 2023. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or that they could be converted into U.S. dollars at the rates indicated.
Summary of Outstanding Debt
The table below presents a summary of our outstanding debt by various funding sources:
Weighted average
contractual interest rate (1)
March 31, March 31,
2023 2022 2021 2023 2022 2021
(U.S. dollars in millions)
United States Segment
Unsecured debt:
Commercial paper $ 5,609 $ 1,718 $ 4,615 5.25 % 0.79 % 0.29 %
Bank loans 1,099 2,249 2,799 5.70 % 1.47 % 0.95 %
Private MTN program - - 500 - % - % 3.80 %
Public MTN program 21,962 28,659 28,943 1.99 % 1.53 % 1.53 %
Euro MTN programme - 25 27 - % 2.23 % 2.23 %
Total unsecured debt 28,670 32,651 36,884
Secured debt 6,444 8,517 8,149 2.19 % 0.91 % 1.37 %
Total debt $ 35,114 $ 41,168 $ 45,033
Canada Segment
Unsecured debt:
Commercial paper $ 766 $ 589 $ 927 4.70 % 0.57 % 0.42 %
Bank loans 795 859 1,253 5.59 % 1.64 % 1.15 %
Other debt 3,176 3,952 3,973 3.15 % 2.20 % 2.11 %
Total unsecured debt 4,737 5,400 6,153
Secured debt 483 371 741 5.48 % 1.32 % 0.95 %
Total debt $ 5,220 $ 5,771 $ 6,894
Consolidated
Unsecured debt:
Commercial paper $ 6,375 $ 2,307 $ 5,542 5.18 % 0.74 % 0.31 %
Bank loans 1,894 3,108 4,052 5.66 % 1.52 % 1.01 %
Private MTN program - - 500 - % - % 3.80 %
Public MTN program 21,962 28,659 28,943 1.99 % 1.53 % 1.53 %
Euro MTN programme - 25 27 - % 2.23 % 2.23 %
Other debt 3,176 3,952 3,973 3.15 % 2.20 % 2.11 %
Total unsecured debt 33,407 38,051 43,037
Secured debt 6,927 8,888 8,890 2.42 % 0.93 % 1.34 %
Total debt $ 40,334 $ 46,939 $ 51,927
_______________________
(1)Weighted average contractual interest rates for commercial paper are bond equivalent yields.
Commercial Paper
As of March 31, 2023, we had commercial paper programs in the United States of $7.0 billion and in Canada of C$2.5 billion ($1.8 billion). Interest rates on the commercial paper are fixed at the time of issuance. During fiscal year 2023, consolidated commercial paper month-end outstanding principal balances ranged from $2.4 billion to $6.4 billion.
Bank Loans
During fiscal year 2023, AHFC did not enter into any new loan agreements. HCFI entered into a C$675 million ($499 million) floating rate term loan agreement. As of March 31, 2023, we had bank loans denominated in U.S. dollars and Canadian dollars with floating interest rates, in principal amounts ranging from $74 million to $500 million. As of March 31, 2023, the remaining maturities of all bank loans outstanding ranged from 178 days to approximately 4.0 years. The weighted average remaining maturity on all bank loans was 2.6 years as of March 31, 2023.
Our bank loans contain customary restrictive covenants, including limitations on liens, mergers, consolidations and asset sales, and a financial covenant that requires us to maintain positive consolidated tangible net worth. In addition to other customary events of default, the bank loans include cross-default provisions and provisions for default if HMC does not maintain ownership, whether directly or indirectly, of at least 80% of the outstanding capital stock of AHFC or HCFI, as applicable. All of these covenants and events of default are subject to important limitations and exceptions under the agreements governing the bank loans. As of March 31, 2023, management believes that AHFC and HCFI were in compliance with all covenants contained in our bank loan agreements.
Medium Term Note (MTN) Programs
Private MTN Program
AHFC no longer issues MTNs under its Rule 144A Private MTN Program. The last remaining note under the Private MTN Program matured on September 20, 2021.
Public MTN Program
AHFC is a well-known seasoned issuer under SEC rules and issues Public MTNs pursuant to a registration statement on Form S-3 filed with the SEC. In August 2022, 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, which includes the issuance of foreign currency denominated notes into international markets. The aggregate principal amount of MTNs offered under this program may be increased from time to time.
The Public MTNs may have original maturities of 9 months or more from the date of issue, may be interest bearing with either fixed or floating interest rates, or may be discounted notes. During fiscal year 2023, AHFC issued $1.0 billion U.S. dollar denominated fixed rate notes and $300 million U.S. dollar denominated floating rate notes. The weighted average remaining maturities of all Public MTNs was 2.3 years as of March 31, 2023.
The Public MTNs are issued pursuant to an indenture, which requires AHFC to comply with certain covenants, including negative pledge provisions and restrictions on AHFC’s ability to merge, consolidate or transfer substantially all of its assets or the assets of its subsidiaries, and includes customary events of default. As of March 31, 2023, management believes that AHFC was in compliance with all covenants under the indenture.
Euro MTN Programme
AHFC no longer issues MTNs under its Rule 144A Euro MTN Programme. The last remaining note under the Euro MTN Programme matured on February 21, 2023.
The table below presents a summary of outstanding debt issued under our MTN Programs by currency:
March 31,
2023 2022 2021
(U.S. dollars in millions)
U.S. dollar $ 17,868 $ 21,006 $ 22,902
Euro 2,867 6,019 5,032
Sterling 1,227 1,634 1,509
Japanese yen - 25 27
Total $ 21,962 $ 28,684 $ 29,470
Other Debt
HCFI issues privately placed Canadian dollar denominated notes, with either fixed or floating interest rates. During fiscal year 2023, HCFI issued C$500 million ($370 million) fixed rate notes and C$250 million ($185 million) floating rate notes. As of March 31, 2023, the remaining maturities of all of HCFI’s Canadian notes outstanding ranged from 150 days to approximately 4.9 years. The weighted average remaining maturities of these notes was 2.6 years as of March 31, 2023.
The notes are issued pursuant to the terms of an indenture, which requires HCFI to comply with certain covenants, including negative pledge provisions, and includes customary events of default. As of March 31, 2023, management believes that HCFI was in compliance with all covenants contained in the privately placed notes.
Secured Debt
Asset-Backed Securities
We enter into securitization transactions for funding purposes. Our securitization transactions involve transferring pools of retail loans and operating leases to bankruptcy-remote special purpose entities (SPEs). The SPEs are established to accommodate securitization structures, which have the limited purpose of acquiring assets, issuing asset-backed securities, and making payments on the securities. Assets transferred to SPEs are considered legally isolated from us and the claims of our creditors. We continue to service the retail loans and operating leases transferred to the SPEs. Investors in the notes issued by a SPE only have recourse to the assets of such SPE and do not have recourse to the assets of AHFC, HCFI, or our other subsidiaries or to other SPEs. The assets of SPEs are the only source of funds for repayment on the notes.
Our securitizations are structured to provide credit enhancements to investors in the notes issued by the SPEs. Credit enhancements can include the following:
•Subordinated certificates- securities issued by SPEs that are retained by us and are subordinated in priority of payment to the notes.
•Overcollateralization- securitized asset balances that exceed the balance of securities issued by SPEs.
•Excess interest- excess interest collections to be used to cover losses on defaulted loans.
•Reserve funds- restricted cash accounts held by the SPEs to cover shortfalls in payments of interest and principal required to be paid on the notes.
•Yield supplement accounts-restricted cash accounts held by SPEs to supplement interest payments on notes.
The risk retention regulations in Regulation RR of the Securities Exchange Act of 1934, as amended (Exchange Act), require the sponsor to retain an economic interest in the credit risk of the securitized assets, either directly or through one or more majority-owned affiliates. Standard risk retention options allow the sponsor to retain either an eligible vertical interest, an eligible horizontal residual interest, or a combination of both. AHFC has satisfied this obligation by retaining an eligible vertical interest of an amount equal to at least 5% of the principal amount of each class of note and certificate issued for the securitization transaction that was subject to this rule but may choose to use other structures in the future.
We are required to consolidate the SPEs in our financial statements, which results in the securitizations being accounted for as on-balance sheet secured financings. The securitized assets remain on our consolidated balance sheet along with the notes issued by the SPEs.
During fiscal year 2023, we issued notes through asset-backed securitizations totaling $2.9 billion, which were secured by assets with an initial balance of $3.1 billion.
Credit Agreements
Syndicated Bank Credit Facilities
AHFC maintains a $7.0 billion syndicated bank credit facility that includes a $3.5 billion 364-day credit agreement, which expires on February 23, 2024, a $2.1 billion credit agreement, which expires on February 25, 2026, and a $1.4 billion credit agreement, which expires on February 25, 2028. As of March 31, 2023, 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.
HCFI maintains a C$2.0 billion ($1.5 billion) syndicated bank credit facility that includes a C$1.0 billion ($740 million) credit agreement, which expires on March 25, 2024 and a C$1.0 billion ($740 million) credit agreement, which expires March 25, 2027. As of March 31, 2023, no amounts were drawn upon under the HCFI credit agreement. HCFI intends to renew or replace the credit agreement prior to or on the respective expiration date of each tranche.
The credit agreements contain customary conditions to borrowing and customary restrictive covenants, including limitations on liens and limitations on mergers, consolidations and asset sales, and limitations on affiliate transactions. The credit agreements also require AHFC and HCFI to maintain a positive consolidated tangible net worth as defined in their respective credit agreements. The credit agreements, in addition to other customary events of default, include cross-default provisions and provisions for default if HMC does not maintain ownership, whether directly or indirectly, of at least 80% of the outstanding capital stock of AHFC or HCFI, as applicable. In addition, the AHFC and HCFI credit agreements contain provisions for default if HMC’s obligations under the HMC-AHFC Keep Well Agreement or the HMC-HCFI Keep Well Agreement, as applicable, become invalid, voidable, or unenforceable. All of these conditions, covenants and events of default are subject to important limitations and exceptions under the agreements governing the credit agreements. As of March 31, 2023, management believes that AHFC and HCFI were in compliance with all covenants contained in the respective credit agreements.
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 March 31, 2023, no amounts were drawn upon under these agreements. These agreements expire on September 20, 2023. The Company intends to renew or replace these credit agreements prior to or on their respective expiration dates.
Keep Well Agreements
HMC has entered into separate Keep Well Agreements with AHFC and HCFI. For additional information, refer to “Part I, Item 1. Business-Relationships with HMC and Affiliates-HMC and AHFC Keep Well Agreement” and “Part I, Item 1. Business-Relationships with HMC and Affiliates-HMC and HCFI Keep Well Agreement.”
As consideration for HMC’s obligations under the Keep Well Agreements, we have agreed to pay HMC a quarterly fee based on the amount of outstanding debt pursuant to Support Compensation Agreements, dated April 1, 2019. We incurred expenses of $63 million, $76 million and $72 million during fiscal years 2023, 2022 and 2021, respectively, pursuant to these Support Compensation Agreements and the predecessor agreements.
Indebtedness of Consolidated Subsidiaries
As of March 31, 2023, AHFC and its consolidated subsidiaries had $49.9 billion of outstanding indebtedness and other liabilities, including current liabilities, of which $13.1 billion consisted of indebtedness and liabilities of our consolidated subsidiaries. None of AHFC’s consolidated subsidiaries had any outstanding preferred equity.
Material Cash Requirements
The following table summarizes our material cash requirements, including from contractual obligations and excluding lending commitments to dealers and derivative obligations, by fiscal year payment period, as of March 31, 2023:
Payments due by period
Total 2024 2025 2026 2027 2028 Thereafter
(U.S. dollars in millions)
Unsecured debt obligations (1)
$ 33,491 $ 14,462 $ 6,457 $ 3,336 $ 3,422 $ 3,366 $ 2,448
Secured debt obligations (1)
6,936 3,931 2,106 688 178 33 -
Interest payments on debt (2)
1,835 717 463 306 188 113 48
Total $ 42,262 $ 19,110 $ 9,026 $ 4,330 $ 3,788 $ 3,512 $ 2,496
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(1)Debt obligations reflect the remaining principal obligations of our outstanding debt and do not reflect unamortized debt discounts and fees. Repayment schedule of secured debt reflects payment performance assumptions on underlying receivables. Foreign currency denominated debt principal is based on exchange rates as of March 31, 2023.
(2)Interest payments on floating rate and foreign currency denominated debt based on the applicable floating rates and/or exchange rates as of March 31, 2023.
The obligations in the above table do not include certain lending commitments to dealers since the amount and timing of future payments is uncertain. Refer to Note 9-Commitments and Contingencies of Notes to Consolidated Financial Statements for additional information on these commitments.
Our contractual obligations on derivative instruments are also excluded from the table above because our future cash obligations under these contracts are inherently uncertain. We recognize all derivative instruments on our consolidated balance sheet at fair value. The amounts recognized as fair value do not represent the amounts that will be ultimately paid or received upon settlement under these contracts. Refer to Note 5-Derivative Instruments of Notes to Consolidated Financial Statements for additional information on derivative instruments.
Derivatives
We utilize derivative instruments to mitigate exposures to fluctuations in interest rates and foreign currency exchange rates. The types of derivative instruments include interest rate swaps, basis swaps, and cross currency swaps. Interest rate and basis swap agreements are used to mitigate the effects of interest rate fluctuations of our floating rate debt relative to our fixed rate finance receivables and operating lease assets. Cross currency swap agreements are used to manage currency and interest rate risk exposure on foreign currency denominated debt. The derivative instruments contain an element of credit risk in the event the counterparties are unable to meet the terms of the agreements.
All derivative financial instruments are recorded on our consolidated balance sheet as assets or liabilities, and carried at fair value. Changes in the fair value of derivatives are recognized in our consolidated statements of income in the period of the change. Since we do not elect to apply hedge accounting, the impact to earnings resulting from these valuation adjustments as reported under GAAP is not representative of our results of operations as evaluated by management. Realized gains and losses on derivative instruments, net of realized gains and losses on foreign currency denominated debt, are included in the measure of net revenues when we evaluate segment performance. Refer to Note 15-Segment Information of Notes to Consolidated Financial Statements for additional information about segment information and Note 5-Derivative Instruments of Notes to Consolidated Financial Statements for additional information on derivative instruments.
New Accounting Standards
Refer to Note 1(n)-Recently Issued Accounting Standards of Notes to Consolidated Financial Statements.
Critical Accounting Estimates
The application of certain accounting policies may require management to make estimates that affect our financial condition and results of operations. Critical accounting estimates require our most difficult, subjective, or complex judgments, often requiring us to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition and results of operations. Actual results could differ from these estimates which could have a material effect on our financial condition and results of operations in subsequent periods. Refer to Note 1-Summary of Business and Significant Accounting Policies of Notes to Consolidated Financial Statements for information on our accounting policies related to our critical accounting estimates.
Allowance for Credit Losses on Retail Loans and Estimated Early Termination Losses on Operating Lease Assets
Retail loans are evaluated on a collective basis and grouped into pools with similar risk characteristics such as origination quarter, internal credit grade at origination, product type, and original term. The allowance for retail loans is measured using econometric regression models that correlate vintage age, credit quality, economic, and other variables to historical vintage-level credit loss performance. Statistically relevant economic factors such as unemployment rates, bankruptcies, and used vehicle price indexes are applied in the analysis of the economic environment. Current and forecasted economic conditions are applied in the models to project monthly gross loss rates in terms of origination dollars for the remaining contractual life of each vintage. Recoveries are projected as a percentage of the cumulative forecasted loss dollar of each vintage. The contractual term is the estimated lifetime of retail loans and is considered to be a reasonable and supportable forecast period of future economic conditions. Economic forecasts and macroeconomic variables are obtained from a third party economic research firm that extend through the lifetime of retail loans and converge to long-run equilibrium trends. Baseline forecasts that reflect the most likely economic future is the single economic scenario applied in the models. Qualitative adjustments may also be applied if management believes the quantitative models do not reflect the best estimate of lifetime expected credit losses. Estimated losses on operating leases expected to terminate early due to lessee defaults are also determined collectively using modeling methodologies consistent with those used for retail loans.
Sensitivity Analysis
We applied the baseline economic scenarios for the United States and Canada that were obtained from a third party economic research firm in our models to determine our allowance for credit losses on retail loans and estimated early termination losses on operating lease assets as of March 31, 2023. These baseline economic scenarios represent forecasts of the most likely economic future, with an equal probability of economic conditions being better or worse than forecasted. Alternative economic scenarios were also obtained from the third party economic research firm. As an example of the sensitivity of our accounting estimates, we applied upside and downside economic scenarios in our models. The peak unemployment rate over the next 24 month period under the upside and downside economic scenarios in the United States was 3.5% and 7.8%, respectively. The resulting allowance for credit losses on retail loans under the upside and downside economic scenarios was $229 million and $394 million, respectively. Similarly, the resulting estimated early termination losses on operating lease assets were $71 million and $109 million, respectively.
Estimated End of Term Residual Values
Estimated end of term residual values are dependent on the expected market values of leased vehicles at the end of their lease terms and the percentage of leased vehicles expected to be returned by lessees. Factors considered in this evaluation include, among other factors, economic conditions, external market information on new and used vehicles, historical trends, and recent auction values. Estimated return rates are dependent on expected market values of leased vehicles since declines in used vehicle prices generally increase the probability of vehicles being returned to us at the end of their lease terms. We also review our investment in operating leases for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable. If impairment conditions are met, impairment losses are measured by the amount the carrying values exceed their fair values.
Sensitivity Analysis
If future expected end of term market values for all outstanding operating leases as of March 31, 2023 were to decrease by $100 per unit from our current estimates, the total impact would be an increase of approximately $41 million in depreciation expense, which would be recognized over the remaining lease terms. If future return rates for all operating leases were to increase by one percentage point from our current estimates, the total impact would be an increase of approximately $8 million in depreciation expense, which would be recognized over the remaining lease terms. This sensitivity analysis is specific to the conditions in effect as of March 31, 2023 and does not consider the effect declines in estimated end of term market values may have on return rates.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks. Our financial condition, cash flows, and results of operations depend on the extent to which we effectively identify and manage these risks. The principal types of risk to our business include:
•Interest rate risk arising from changes in interest rates related to our funding, investing, and cash management activities. Our assets consist primarily of fixed rate receivables and operating lease assets, however, our liabilities consist of both floating and fixed rate debt. We utilize interest rate and basis swaps to mitigate the impact of interest rate movements on our cash flows and net interest margins.
•Foreign currency exchange rate risk arising from changes in value of our foreign currency denominated debt in response to fluctuations in exchange rates of various currencies. We enter into cross currency swaps concurrently with the issuance of this debt to convert all interest and principal payments to either of our functional currencies, which is United States dollars in the United States segment and Canadian dollars in the Canadian segment, which effectively eliminates our foreign currency exchange rate risks.
•Counterparty risk arising primarily with our derivative contracts. To manage this risk, we limit our exposure to counterparties in accordance with credit rating based guidelines. We also enter into master netting agreements which help to mitigate our exposure to loss in the case of defaults. In Canada, HCFI is a party to credit support agreements that require posting of cash collateral to mitigate credit risk on derivative positions.
•Credit risk arising from actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, or other companies in the financial services industry, or concerns or rumors about any events of these kinds. We maintain cash held in deposit at financial institutions in the United States and Canada. Deposits in the United States are insured by the FDIC in an amount up to $250,000 for any depositor per institution. To the extent we hold cash deposits in amounts that exceed the FDIC insurance limitation, we may incur a loss in the event of a failure of any of the financial institutions where we maintain deposits. Management believes we are not exposed to significant risk due to the financial position of our depository institutions, but will continue to monitor regularly and adjust, if needed, to mitigate risk. To date, we have not experienced any losses associated with this credit risk and continue to believe that this exposure is not significant.
To provide a quantitative measure of the sensitivity of interest rate movements on our pre-tax cash flows, we have estimated the effect of a hypothetical 100 basis point increase and decrease to benchmark interest rates on our floating rate financial instruments for the 12-month periods ending March 31, 2024 and 2023 below. Our estimates were based upon our existing receivables, debt, and derivatives as of March 31, 2023 and 2022. We do not include any assumptions for reinvestment of maturing assets and refinancing of maturing debt. The estimates for a 100 basis point decrease assume that rates cannot fall below zero percent.
Impact on pre-tax cash flows for the 12 months ending March 31,
Hypothetical change in interest rate 2024 2023
100 basis point increase $64 million increase $18 million increase
100 basis point decrease $64 million decrease $13 million decrease
LIBOR Transition
Beginning in the fourth quarter of fiscal year 2022, we ceased entering into new transactions that reference U.S. Dollar LIBOR and began entering into derivative transactions that reference SOFR. We are party to contracts that reference U.S. Dollar LIBOR with scheduled maturities after June 2023 when relevant U.S. Dollar LIBOR rates will no longer be published, which consists of our floating rate debt and derivative contracts. We adhered to the International Swap and Derivatives Association 2020 Interbank
Offer Rate Fallbacks Protocol in the United States, which became effective in January 2021. Our debt agreements also contain applicable fallback language. We plan to follow these protocols to settle with our counterparties when relevant U.S. Dollar LIBOR rates are no longer available. Similarly, the Canadian Dollar Reference Rate for relevant tenors will no longer be published after June 2024 and will be replaced with an enhanced version of the Canadian Overnight Repo Rate Average (CORRA). We plan to begin entering transaction that reference CORRA no later than June 2023. See “Item 1A, Risk Factors -Fluctuations in interest rates could have an adverse impact on our results of operations, cash flows, and financial condition.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, the accompanying notes to consolidated financial statements, and the Report of Independent Registered Public Accounting Firm that are filed as part of this Form 10-K are listed under “Part IV, Item 15. Exhibits, Financial Statement Schedules” and are set forth beginning on page immediately following the Signatures page of this Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Principal Executive Officer and Principal Financial Officer have performed an evaluation of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Exchange Act, as of March 31, 2023, and each has concluded that such disclosure controls and procedures are effective, at the reasonable assurance level, to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.
Management conducted, under the supervision of our Principal Executive Officer and Principal Financial Officer, an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management concluded that our internal control over financial reporting was effective as of March 31, 2023.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC applicable to non-accelerated filers.
Changes in Internal Control over Financial Reporting
There were no changes in the internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is KPMG LLP, Los Angeles, CA, Auditor Firm ID: 185.
The following table represents aggregate costs for fees and services provided to us by our independent registered public accounting firm.
Years ended March 31,
2023 2022
(U.S. dollars in thousands)
Audit fees $ 8,240 $ 6,797
Audit-related fees 343 431
Tax fees - -
All other fees - -
Total $ 8,583 $ 7,228
Audit fees are for audit services, which are professional services provided by independent auditors for the audit or review of our financial statements or for services that are normally provided by independent auditors with respect to any submissions required under applicable laws and regulations.
Audit-related fees are for audit-related services, which are assurance and related services by independent auditors that are reasonably related to the performance of the audit or review of our financial statements and other related services. This category includes fees for agreed upon procedures and other services related to our securitization transactions.
Auditor Pre-Approval Policy
We comply with pre-approval policies and procedures established by HMC which, among other things, list particular audit services and non-audit services that may be provided without specific pre-approval. None of the services provided were waived from pre-approval requirements pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(1) Our consolidated financial statements, the accompanying notes to consolidated financial statements, and the Report of Independent Registered Public Accounting Firm that are filed as part of this Form 10-K are set forth beginning on page immediately following the Signatures page of this Form 10-K.
(2) Financial statement schedules have been omitted because they are not applicable, the information required to be contained in them is disclosed in Note 2-Finance Receivables of Notes to Consolidated Financial Statements or the amounts involved are not sufficient to require submission.
(3) Exhibits
Exhibit
Number Description
3.1(1)
Articles of Incorporation of American Honda Finance Corporation, dated February 6, 1980, and Certificates of Amendment to the Articles of Incorporation, dated March 29, 1984, November 13, 1988, December 4, 1989, July 2, 1991, April 3, 1997, November 30, 1999, and December 17, 2003.
3.2(1)
Amended and Restated Bylaws of American Honda Finance Corporation, dated April 27, 2010.
4.1(1)
Form of Specimen Common Stock of American Honda Finance Corporation.
4.2 American Honda Finance Corporation agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of American Honda Finance Corporation and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the American Honda Finance Corporation and its subsidiaries.
4.3(2)
Amended and Restated Issuing and Paying Agency Agreement between American Honda Finance Corporation and The Bank of New York Mellon, dated as of August 27, 2012.
4.4 Trust Indenture between Honda Canada Finance Inc., as issuer, and BNY Trust Company of Canada (as successor to CIBC Mellon Trust Company), as trustee, dated as of September 26, 2005 (3), as supplemented by supplemental indentures from time to time, and the Form of Debenture (4).
4.5(5)
Indenture, dated September 5, 2013, between American Honda Finance Corporation and Deutsche Bank Trust Company Americas, as trustee.
4.6(6)
First Supplemental Indenture, dated February 8, 2018, between American Honda Finance Corporation and Deutsche Bank Trust Company Americas, as trustee.
4.7 Form of Fixed Rate Medium-Term Note, Series A (7) and Form of Floating Rate Medium-Term Note, Series A (8).
4.8(9)
Description of 0.750% Medium-Term Notes, Series A, due January 17,2024.
4.9(10)
Description of 1.950% Medium-Term Notes, Series A, due October 18, 2024.
4.10 (11)
Description of 0.750% Medium-Term Notes, Series A, due November 25, 2026.
4.11 (12)
Description of 0.300% Medium-Term Notes, Series A, due July 27, 2028.
4.12 (13)
Description of 1.500% Medium-Term Notes, Series A, due October 19, 2027.
10.1(14)
$1,300,000,000 Second Amended and Restated Credit Agreement, dated as of March 24, 2014, among HCFI, as the borrower, the lenders party thereto, and Canadian Imperial Bank of Commerce, as administrative agent, joint bookrunner and co-lead arranger, RBC Capital Markets, as joint bookrunner and co-lead arranger, BMO Capital Markets, as co-lead arranger, The Toronto-Dominion Bank, as co-arranger and co-syndication agent, Bank of Tokyo-Mitsubishi UFJ (Canada), as co-arranger and co-syndication agent, Bank of Montreal, as co-syndication agent, Royal Bank of Canada, as co-syndication agent, and Mizuho Corporate Bank, Ltd., Canada Branch, as documentation agent.
10.2(15)
Amendment, dated as of June 30, 2014, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
Exhibit
Number Description
10.3(16)
Second Amendment, dated as of March 13, 2015, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
10.4(17)
Third Amendment, dated as of March 23, 2016, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
10.5(18)
Fourth Amendment dated as of March 23, 2017 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.6(19)
Fifth Amendment dated as of March 13, 2018 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.7(20)
Sixth Amendment, dated as of March 12, 2019 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.8(21)
Seventh Amendment, dated as of March 19, 2020 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.9(22)
Eighth Amendment, dated as of March 15, 2021 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.10(23)
Ninth Amendment, dated as of March 21, 2022 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.11(24)
Tenth Amendment, dated as of March 20, 2023 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.12(25)
$3,500,000,000 364-Day Credit Agreement, dated February 25, 2022, among American Honda Finance Corporation, as the borrower, the lenders from time to time party thereto, MUFG Bank Ltd., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas, Citibank, N.A. and Mizuho Bank, Ltd., as documentation agents and MUFG Bank, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citibank, N.A. and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunners.
10.13(26)
First Amendment, dated as of February 24, 2023 between AHFC and MUFG Bank Ltd., as administrative agent and auction agent, for and on behalf of the banks party to the 364-day Credit Agreement.
10.14(27)
$2,100,000,000 Three-Year Credit Agreement, dated February 25, 2022, among American Honda Finance Corporation, as the borrower, the lenders from time to time party thereto, MUFG Bank, Ltd., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas, Citibank, N.A. and Mizuho Bank, Ltd., as documentation agents and MUFG Bank, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citibank, N.A. and Mizuho Bank. Ltd., as joint lead arrangers and joint bookrunners.
10.15(28)
$1,400,000,000 Five-Year Credit Agreement, dated February 25, 2022, among American Honda Finance Corporation, as the borrower, the lenders from time to time party thereto, MUFG Bank. Inc., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas, Citibank, N.A. and Mizuho Bank, Ltd., as documentation agents and MUFG Bank. Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citibank, N.A. and Mizuho Bank. Ltd., as joint lead arrangers and joint bookrunners.
10.16(29)
Keep Well Agreement between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated September 9, 2005.
10.17(30)
Support Compensation Agreement, between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated as of April 1, 2019.
10.18(31)
Keep Well Agreement between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated September 26, 2005.
10.19(32)
Support Compensation Agreement, between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated as of April 1, 2019.
23.1(33)
Consent of KPMG LLP
31.1(33)
Certification of Principal Executive Officer
Exhibit
Number Description
31.2(33)
Certification of Principal Financial Officer
32.1(34)
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2(34)
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS(33)
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH(33)
XBRL Taxonomy Extension Schema Document
101.CAL(33)
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB(33)
XBRL Taxonomy Extension Label Linkbase Document
101.PRE(33)
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF(33)
XBRL Taxonomy Extension Definition Linkbase Document
104(33)
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
________________________
(1)Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, dated June 28, 2013.
(2)Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013.
(3)Incorporated herein by reference to Exhibit number 4.5 filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013.
(4)Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 12, 2015.
(5)Incorporated herein by reference to Exhibit number 4.1 filed with our registration statement on Form S-3, dated September 5, 2013.
(6)Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 8, 2018.
(7)Incorporated herein by reference to Exhibit number 4.1 filed with our current report on Form 8-K, dated August 8, 2019.
(8)Incorporated herein by reference to Exhibit number 4.2 filed with our current report on Form 8-K, dated August 8, 2019.
(9)Incorporated herein by reference to Exhibit number 4.12 filed with our annual report on Form 10-K, dated June 21, 2019.
(10)Incorporated herein by reference to Exhibit number 4.15 filed with our annual report on Form 10-K, dated June 22, 2020.
(11)Incorporated herein by reference to Exhibit number 4.16 filed with our annual report on Form 10-K, dated June 24, 2021.
(12)Incorporated herein by reference to Exhibit number 4.15 filed with our annual report on Form 10-K, dated June 23, 2022.
(13)Incorporated herein by reference to Exhibit number 4.16 filed with our annual report on Form 10-K, dated June 23, 2022.
(14)Incorporated herein by reference to the same numbered Exhibit filed with our current report on Form 8-K, dated March 24, 2014.
(15)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated June 30, 2014.
(16)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 13, 2015.
(17)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2016.
(18)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2017.
(19)Incorporated herein by reference to the same numbered Exhibit filed with our annual report on Form 10-K, dated June 21, 2018.
(20)Incorporated herein by reference to the same numbered Exhibit filed with our annual report on Form 10-K, dated June 21, 2019.
(21)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2020.
(22)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 17, 2021.
(23)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 25, 2022.
(24)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 24, 2023.
(25)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated February 25, 2022.
(26)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated February 28, 2023.
(27)Incorporated herein by reference to Exhibit number 10.2 filed with our current report on Form 8-K, dated February 25, 2022.
(28)Incorporated herein by reference to Exhibit number 10.3 filed with our current report on Form 8-K, dated February 25, 2022.
(29)Incorporated herein by reference to Exhibit 10.1 filed with our registration statement on Form 10, dated June 28, 2013.
(30)Incorporated herein by reference to Exhibit 10.15 filed with our annual report on Form 10-K, dated June 21, 2019.
(31)Incorporated herein by reference to Exhibit 10.3 filed with our registration statement on Form 10, dated June 28, 2013.
(32)Incorporated herein by reference to Exhibit 10.17 filed with our annual report on Form 10-K, dated June 21, 2019.
(33)Filed herewith.
(34)Furnished herewith.