EDGAR 10-K Filing

Company CIK: 864270
Filing Year: 2021
Filename: 864270_10-K_2021_0000864270-21-000006.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 and lessees of Honda and Acura products 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 or HCI, as applicable, pays a subsidy that enables 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 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) may be found by accessing 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. A direct link to the SEC website and certain of our filings are 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 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 72 months while 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 that purchase Honda and Acura products through retail loans acquired by us to obtain 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 future used vehicle values, taking into consideration external industry data and our own historical experience. 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 dealer are sold through online and at physical auctions. See “-Servicing of Consumer Financing-Remarketing Center” below.
We require the lessee to obtain 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 regional offices, 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 or lease-to-value ratio, 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.
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 eight regional offices 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 offices are located in California, Texas, Massachusetts, Illinois, North Carolina, Delaware, and Georgia. We also have one office in Georgia 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 November 2020, we finalized plans to consolidate our regional offices in the United States into three customer and dealer services centers located in California, Texas, and Georgia. The consolidation is to take place in stages through the fall of 2022 starting with the consolidation of our California offices in June 2021.
In addition to our servicing regions, 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, providing service to our regional offices and other services.
•Lease Maturity Center. Lease accounts are transferred from our regional offices 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 regional offices 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 or has been held in unsold repossessed inventory for 90 days, 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 original regional office 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.
If necessary, 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 offer promotional rates on retail loans and leases to purchasers and lessees of Honda and Acura products. AHM or 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 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 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 its wholesale flooring agreement.
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 serviced at AHFC’s regional offices in California, Texas, Massachusetts, Illinois, North Carolina, Delaware, and Georgia. 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 primarily through mortgage loans for financing dealership property or construction, and term loans for financing equipment or facility improvements. 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 and regional commercial banks, credit unions, savings and loan associations, 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, commercial banks are strong competitors in the automobile consumer financing business.
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 or 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.
Related Party Debt
HCFI issues fixed rate short-term notes to HCI to fund HCFI’s general corporate operations. See Note 4-Debt of Notes to Consolidated Financial Statements for further information regarding our related party debt.
Vehicle Service Contract Administration
A vehicle service contract is a contractual agreement between the dealer, manufacturer or an independent third party, and the dealer’s customer. The contract provides for certain repairs, mechanical breakdown coverage, roadside assistance, and/or oil changes for the customer’s new or used automobile. A vehicle service contract can be obtained on both Honda and Acura automobiles.
Our Consumer Assurance Products and Service Group was responsible for the administration of vehicle service contracts issued by certain subsidiaries of AHM. As the administrator, we approved claims and provided customer service to purchasers of vehicle service contracts. We did not provide the maintenance or roadside assistance provided by the vehicle service contracts. We received fees to perform administrative services. Effective April 1, 2021, the administration of vehicle service contracts has been transferred to AHM.
HCFI performs marketing services for vehicle service contracts issued by HCI and receives fees for these services.
Shared Services
AHM provides services to Honda’s North American operations. AHM provides us with information technology, legal, internal audit, 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.
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 agreement.
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 may have an impact on consumer and dealer behaviors that 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, especially during the COVID-19 pandemic.
Employees
At March 31, 2021, we had 1,241 employees in the United States and 177 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.
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.
Risks Relating To The COVID-19 Pandemic
The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.
The ongoing global COVID-19 pandemic could materially adversely affect our business, results of operations, cash flows and financial condition. For instance, the COVID-19 pandemic and the actions taken to slow its spread, including quarantines, government-mandated actions, stay-at-home orders and other restrictions, have impacted and may continue to impact our workforce and have resulted in the temporary closure of the sales operations of a number of Honda and Acura dealerships. A large portion of our workforce is temporarily working remotely. This may negatively affect our business, particularly if our infrastructure and information technology systems are not capable of supporting our remote work force or otherwise experience business interruptions or failed processes.
The COVID-19 pandemic and the related restrictions have also adversely affected the business of our parent, AHM, and our ultimate parent, HMC, in a number of ways, including the temporary suspension of production at all plants in North America, which continued through the start of May 2020, and selected plants in countries outside of North America. There is a possibility of additional suspensions of production depending on whether there is a resurgence of COVID-19 in a given area. Disruption in the supply chain of the vehicles we finance may contribute to a significant decline in the sale of Honda and Acura products and our financing of those products. In addition, disruptions in the sales operations of dealerships and declines in consumer demand have and may continue to negatively impact the sale of Honda and Acura products.
The COVID-19 pandemic and the related restrictions also caused an economic slowdown, an increase in unemployment claims, and resulted and are expected to continue to result in decreased consumer spending. Similar to relief options we have previously offered to customers and dealers impacted by natural disasters, we offered payment relief options to those customers and dealers impacted by COVID-19, including payment deferrals, contract extensions, waiver of late charges, interest deferments for dealer floorplans, and interest only payments for dealer commercial loans. Unlike the relief options we have historically offered for natural disasters, which were limited to the affected geographies, the relief was offered through March 2021 across the United States and Canada due to the widespread impact of the COVID-19 pandemic. These relief options may not be sufficient to avoid defaults for many of our customers.
The COVID-19 pandemic has also led to disruption and volatility in the global capital markets, which has increased and may continue to increase our cost of capital and has adversely affected and may continue to adversely affect our ability to access the capital markets. In addition, the foregoing events and the uncertainty relating thereto have adversely affected our short-term and long-term credit ratings and may continue to further adversely affect our ratings. For example, on March 27, 2020, Moody’s Investors Service downgraded our short-term and long-term issuer ratings to P-2 and A3, respectively, and placed those ratings under review for further downgrade. On June 8, 2020, Moody's Investors Service confirmed our issuer ratings and changed its outlook to negative from rating under review. Additionally, on May 20, 2020, S&P Global Ratings downgraded our short-term and long-term issuer ratings to A-2 and A- respectively, with negative outlook. With the S&P Global Ratings downgrade to our short-term issuer rating, we have lost our Tier-1 commercial paper issuer status, which has increased our costs in the commercial paper markets. Additionally, further downgrades or placement on review for possible downgrades of our long-term unsecured ratings could also result in an increase in our borrowing costs as well as reduced access to global debt capital markets.
The duration and potential resurgence of the COVID-19 pandemic is uncertain, and the extent to which the COVID-19 outbreak adversely impacts our business, results of operations, cash flows and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the related actions taken to contain its impact and the availability and effectiveness of vaccines. While we do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole, the effects could have a material adverse effect on our business, financial condition, results of operations, and cash flows, including further increases in our allowance and provision for credit losses and early termination losses on operating leases. Moreover, many risk factors set forth in this Annual Report on Form 10-K should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
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, supply chain shortages, 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, adverse publicity, a recall, a war, a use of force by foreign countries, a terrorist attack, a multinational conflict, a natural disaster, 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;
•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.
Because our operations are heavily dependent on retail sales of motor vehicles and other retail products, a decline 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 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;
•inflation; and
•the fiscal and monetary policies in the countries in which we issue debt.
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 commercial banks are strong competitors in the automobile consumer financing markets. 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.
Our leasing volumes and those of the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years, which could negatively affect used vehicle prices. Our results of operations, cash flows, and financial condition could be adversely affected by declines in the value of returned lease vehicles.
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 applicable.
The availability of these financing sources at the prices we desire may depend on factors outside of our control, including our credit ratings, disruptions to the capital markets, 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 liabilities 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. Further, these instruments contain an element of risk in the event the counterparties are unable to meet the terms of the agreements. For example, in July 2017, the U.K. Financial Conduct Authority (FCA), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA further announced that LIBOR will either 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 potential impact of changes to LIBOR is unknown and 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. 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.
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. See above under “Risks Relating To The COVID-19 Pandemic-The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition.” for additional information. 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, levels of consumer debt service burden and personal income growth rates. 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. 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 credit losses for management’s estimate of probable losses incurred 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 Policies-Credit Losses” 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 Policies-Determination of Lease 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, and our ability to borrow under committed and uncommitted credit facilities, could be adversely affected by the creditworthiness, actions, and commercial soundness of these financial institutions. 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 may participate in either AHM’s or HCI’s defined benefit plans. 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.
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. 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. See “Risks Relating To The COVID-19 Pandemic-The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations, cash flows and financial condition” above.
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. For example, in July 2015 we reached a settlement with the CFPB and the U.S. Department of Justice and entered into consent orders related to their investigation of, and allegations regarding pricing practices by dealers originating automobile retail installment sales contracts that we purchased. As a part of the consent orders, we implemented a new dealer compensation policy and agreed to maintain general compliance management systems reasonably designed to assure compliance with all relevant federal consumer financial laws. Over the past few years, the CFPB has become active in investigating the products, services and operations of credit providers. 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. For example, in November 2020, we finalized plans to consolidate our nine regional offices in the United States into three customer and dealer services centers located in California, Texas, and Georgia. The consolidation is to take place in stages through the fall of 2022 starting with the consolidation of our California offices in June 2021. Although steps are being taken to mitigate the operational risks related to the consolidation of our regional offices, there is no guarantee that we will not experience any business interruptions.
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, 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, 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. 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 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 regional offices and national servicing centers located in California, Georgia, Texas, Massachusetts, Illinois, North Carolina, and Delaware. In November 2020, we finalized plans to consolidate our regional offices in the United States into three customer and dealer services centers located in California, Texas, and Georgia. The consolidation is to take place in stages through the fall of 2022 starting with the consolidation of our California offices in June 2021. 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 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 $143 million and $465 million during the fiscal year ended March 31, 2021 and $292 million and $313 million during the fiscal year ended March 31, 2020.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following information is a historical summary only and should be read in conjunction with, and is qualified in its entirety by reference to, the information contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this annual report.
We derived the consolidated balance sheet data as of March 31, 2021 and 2020 and the consolidated statements of income data for the fiscal years ended March 31, 2021, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this annual report. We derived the consolidated balance sheet data as of March 31, 2019 from our audited consolidated financial statements that are not included in this annual report. Our historical results are not necessarily indicative of the results to be expected in any future period.
Years ended March 31,
2021 2020 2019
(U.S. dollars in millions)
Consolidated Statement of Income Data
Revenues:
Retail loans $ 1,664 $ 1,737 $ 1,614
Dealer loans 107 222 232
Operating leases 7,765 7,749 7,253
Total revenues 9,536 9,708 9,099
Leased vehicle expenses (1)
5,580 5,693 5,389
Interest expense 893 1,241 1,190
Net revenues 3,063 2,774 2,520
Other income 64 88 71
Total net revenues 3,127 2,862 2,591
Expenses:
General and administrative expenses 471 498 456
Provision for credit losses (69) 402 249
Impairment loss on operating leases - - 14
Early termination loss on operating leases (156) 331 101
(Gain)/Loss on derivative instruments (229) 305 509
(Gain)/Loss on foreign currency revaluation of debt 430 (107) (407)
Total expenses 447 1,429 922
Income before income taxes 2,680 1,433 1,669
Income tax expense 647 424 428
Net income 2,033 1,009 1,241
Less: Net income attributable to noncontrolling interest 121 97 96
Net income attributable to American Honda Finance Corporation $ 1,912 $ 912 $ 1,145
March 31,
2021 2020 2019
(U.S. dollars in millions)
Consolidated Balance Sheet Data
Finance receivables, net (2):
Retail loans $ 37,636 $ 34,318 $ 34,790
Dealer loans 4,085 5,606 5,835
Allowance for credit losses (288) (370) (201)
Total finance receivables, net $ 41,433 $ 39,554 $ 40,424
Investment in operating leases, net $ 35,345 $ 33,843 $ 32,606
Total assets $ 80,802 $ 77,256 $ 75,964
Debt:
Commercial paper $ 5,542 $ 5,490 $ 5,755
Related party debt - 533 749
Bank loans 4,052 4,938 4,962
Medium term note programs 29,470 26,157 25,984
Other debt 3,973 3,266 3,514
Secured debt 8,890 9,748 8,790
Total debt $ 51,927 $ 50,132 $ 49,754
Total shareholder’s equity (3)
$ 17,948 $ 16,586 $ 16,336
As of or for the years ended March 31,
2021 2020 2019
Other Key Consolidated Financial Data
Ratio of debt to shareholder’s equity 2.89x 3.02x 3.05x
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(1)The change in presentation of lessor costs resulting from lessor accounting changes that were adopted on April 1, 2019 contributed to the increase in leased vehicle expenses in the fiscal year ended March 31, 2020. For additional information regarding leases, see Note 1-Summary of Business and Significant Accounting Policies of Notes to Consolidated Financial Statements.
(2)Net of unearned interest, fees and subsidy income, and deferred origination costs.
(3)Excludes noncontrolling interest in subsidiary.

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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 cost of funds, 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 2021", “fiscal year 2020” and “fiscal year 2019” refer to our fiscal year ending March 31, 2021, fiscal year ended March 31, 2020 and fiscal year ended March 31, 2019, respectively.
COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a global pandemic. Extraordinary governmental measures were enacted in efforts to slow down and control the spread of COVID-19 including travel bans and border closings, shelter-in-place orders, closures of non-essential businesses and social distancing requirements. These restrictions, some of which have been and may continue to be reinstituted, along with the related changes in consumer behaviors, have resulted and may continue to result in an economic slowdown and an increase in unemployment in the United States and Canada.
We have modified certain business practices, including remote work arrangements, and we may take further action as may be required by government authorities, or that we determine are in the best interest of our employees, customers and dealers. We also established procedures to protect the safety of our employees who have returned to work. As of the date of this report, our remote work arrangements have not caused material adverse disruptions to our business operations or financial reporting functions. In an effort to reduce expenses, we also implemented temporary furloughs and salary reductions, which were lifted during May 2020 and September 2020, respectively.
To assist our existing retail loan and lease customers who may have been impacted by COVID-19, payment deferrals were granted to those customers who requested assistance. The granting of payment deferrals began in mid-March 2020 and ended in March 2021. Through the end of March 2021, a cumulative total of approximately 266,000 retail loans and 204,000 retail leases were granted payment deferrals, which represented approximately 11% and 13% of outstanding retail loans and retail leases as of March 31, 2021, respectively. By the end of March 2021, approximately 99% of these customers were required to resume making their payments. The deferral periods were up to a maximum of 3 months in the United States and 4 months in Canada, generally from the date the customer was initially granted the deferral. Customers taking advantage of the deferrals were not considered delinquent during such deferral periods and therefore were not reflected in our delinquency measures. In the United States, approximately 20% of the customers that were required to resume making their payments after the expiration of their deferral period were delinquent as of May 31, 2021, of which approximately 4% were 30 days or more past due and approximately 4% were repossessed or charged-off.
Many Honda and Acura dealerships temporarily suspended their sales operations beginning in mid-March 2020. To help support the dealers during this period of disruption to their operations, we have granted deferrals of interest payments on floorplans and principal payments on commercial loans generally for a period of 3 months. The granting of interest payment deferrals began in mid-March 2020 and ended in June 2020. Interest continued to accrue during the deferral period.
The suspension of sales operations at Honda and Acura dealerships and the decline in consumer demand had an impact on the sale of Honda and Acura vehicles. As a result, our consumer financing acquisition volumes also declined. Most dealerships resumed their sales operations beginning in May 2020 and with the support of incentive financing programs, our consumer financing acquisition volumes recovered to pre-COVID-19 levels by June 2020.
Sales of returned vehicles were limited during April 2020 as most physical auctions temporarily suspended operations. Used vehicle prices were negatively impacted during the suspension of auctions but recovered to pre-COVID-19 levels by June 2020.
The COVID-19 pandemic initially led to disruptions and volatility in the global capital markets. To improve our liquidity position for potential disruptions in funding sources, we increased our cash balances in part through additional medium-term note issuances. Our overall ability to access funding sources has not been negatively impacted.
The near-and-long term impact of COVID-19 to our business remains highly uncertain and cannot be accurately predicted. Although some of the governmental measures that were enacted to control the spread of COVID-19 have begun to be scaled back and the vaccine rollout has expanded, surges in the spread of COVID-19 due to the emergence of new strains or the ineffectiveness of the vaccines against such strains, may result in the reimplementation of certain restrictions, which could adversely impact our business.
Results of Operations
The following table presents our income before income taxes:
Years ended March 31,
2021 2020 2019
(U.S. dollars in millions)
Income before income taxes:
United States segment $ 2,334 $ 1,157 $ 1,396
Canada segment 346 276 273
Total income before income taxes $ 2,680 $ 1,433 $ 1,669
Comparison of Fiscal Years Ended March 31, 2021 and 2020
Our consolidated income before income taxes was $2,680 million in fiscal year 2021 compared to $1,433 million in fiscal year 2020. This increase of $1,247 million, or 87%, was due to the following differences:
Years ended March 31,
2021 2020 Difference % Change
(U.S. dollars in millions)
Net revenues:
Retail $ 1,664 $ 1,737 $ (73) (4) %
Dealer 107 222 (115) (52) %
Operating leases, net of leased vehicle expenses 2,185 2,056 129 6 %
Interest expense (893) (1,241) 348 (28) %
Other income 64 88 (24) (27) %
Total net revenues 3,127 2,862 265 9 %
Expenses:
General and administrative expenses 471 498 (27) (5) %
Provision for credit losses (69) 402 (471) (117) %
Impairment loss on operating leases - - - n/m
Early termination loss on operating leases (156) 331 (487) (147) %
(Gain)/Loss on derivative instruments (229) 305 (534) (175) %
(Gain)/Loss on foreign currency revaluation of debt 430 (107) 537 (502) %
Total expenses 447 1,429 (982) (69) %
Total income before income taxes $ 2,680 $ 1,433 $ 1,247 87 %
n/m= not meaningful
Segment Results-Comparison of Fiscal Years Ended March 31, 2021 and 2020
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, Years ended March 31, Years ended March 31,
2021 2020 2019 2021 2020 2019 2021 2020 2019
(U.S. dollars in millions)
Revenues:
Retail $ 1,474 $ 1,533 $ 1,406 $ 190 $ 204 $ 208 $ 1,664 $ 1,737 $ 1,614
Dealer 94 198 211 13 24 21 107 222 232
Operating leases 6,437 6,402 6,001 1,328 1,347 1,252 7,765 7,749 7,253
Total revenues 8,005 8,133 7,618 1,531 1,575 1,481 9,536 9,708 9,099
Leased vehicle expenses 4,576 4,667 4,420 1,004 1,026 969 5,580 5,693 5,389
Interest expense 772 1,063 1,015 121 178 175 893 1,241 1,190
Net revenues 2,657 2,403 2,183 406 371 337 3,063 2,774 2,520
Other income 51 77 63 13 11 8 64 88 71
Total net revenues 2,708 2,480 2,246 419 382 345 3,127 2,862 2,591
Expenses:
General and administrative expenses 418 439 403 53 59 53 471 498 456
Provision for credit losses (65) 393 242 (4) 9 7 (69) 402 249
Impairment loss on operating leases - - 14 - - - - - 14
Early termination loss on operating leases (157) 327 98 1 4 3 (156) 331 101
(Gain)/Loss on derivative instruments (252) 271 500 23 34 9 (229) 305 509
(Gain)/Loss on foreign currency revaluation of debt 430 (107) (407) - - - 430 (107) (407)
Income before income taxes $ 2,334 $ 1,157 $ 1,396 $ 346 $ 276 $ 273 $ 2,680 $ 1,433 $ 1,669
Revenues
Revenue from retail loans in the United States segment decreased by $59 million, or 4%, during fiscal year 2021 compared to fiscal year 2020. The decrease in revenue was primarily attributable to lower yields due to the declining interest rate environment which was partially offset by higher average outstanding balances. Revenue from retail loans in the Canada segment decreased by $14 million, or 7%, during fiscal year 2021 compared to fiscal year 2020. The decrease in revenue was attributable to lower yields due to the declining interest rate environment and lower average outstanding balances.
Operating lease revenue in the United States segment increased by $35 million, or 1%, during fiscal year 2021 compared to fiscal year 2020. The increase in revenue was primarily attributable to higher average outstanding operating leases. Operating lease revenue in the Canada segment decreased by $19 million, or 1%, during fiscal year 2021 compared to fiscal year 2020. The decrease in revenue was primarily attributable to lower average outstanding operating leases.
In the United States segment, revenue from dealer loans decreased by $104 million, or 53%, during fiscal year 2021 compared to fiscal year 2020 and in the Canada segment, revenue from dealer loans decreased by $11 million, or 46%, during fiscal year 2021 compared to fiscal year 2020. The decreases in revenue were attributable to lower yields due to the declining interest rate environment and lower average outstanding balances.
Consolidated subsidy income from AHM and HCI sponsored incentive programs decreased by $163 million to $1,476 million during fiscal year 2021 compared to $1,639 million during fiscal year 2020. The average subsidy payment received for incentive leases and retail loans that were outstanding during fiscal year 2021 was lower compared to those outstanding during fiscal year 2020, resulting in a decline in average subsidy income earned per incentive lease and retail loan. This decline in subsidy income was partially offset by an increase in the average number of incentive retail loans that were outstanding during fiscal year 2021 compared to fiscal year 2020. The average number of incentive leases outstanding was slightly lower during fiscal year 2021 compared to fiscal year 2020 which also contributed to the decline in subsidy income.
Leased vehicle expenses
Leased vehicle expense in the United States segment decreased by $91 million, or 2%, during fiscal year 2021 compared to fiscal year 2020. The decrease was attributable to higher gains on disposition of leased vehicles due to strong used vehicle prices during fiscal year 2021. Leased vehicle expenses in the Canada segment decreased by $22 million, or 2%, during fiscal year 2021 compared to fiscal year 2020. The decrease was attributable to the decrease in depreciation on operating leases due to lower average outstanding operating leases and higher gains on disposition of leased vehicles due to strong used vehicle prices during fiscal year 2021.
Interest expense
Interest expense in the United States segment decreased by $291 million, or 27%, during fiscal year 2021 compared to fiscal year 2020 primarily due to lower average interest rates. Interest expense in the Canada segment decreased by $57 million, or 32%, primarily due to lower average interest rates and lower average outstanding debt. See “-Liquidity and Capital Resources” below for more information.
Provision for credit losses
In the United States segment, we recognized a negative provision for credit losses of $65 million during fiscal year 2021 compared to a provision for credit losses of $393 million during fiscal year 2020 and in the Canada segment, we recognized a negative provision for credit losses of $4 million during fiscal year 2021 compared to a provision for credit losses of $9 million during fiscal year 2020. The negative provision for credit losses were attributable to the reduction in the allowance for credit losses and lower than expected net charge-offs of retail loans during fiscal year 2021. See “-COVID-19 Pandemic” above and “-Financial Condition-Credit Risk” below for more information.
Early termination loss on operating leases
In the United States segment, we recognized a reversal of early termination losses on operating leases of $157 million during fiscal year 2021 compared to early termination losses of $327 million during fiscal year 2020. The reversal of early termination loss was the result of lower than expected realized losses during fiscal year 2021 and a reduction in the estimated impact that COVID-19 will have on lease default rates. Early termination losses on operating leases in the Canada segment decreased by $3 million during fiscal year 2021 compared to fiscal year 2020. The decrease was the result of lower than expected realized losses during fiscal year 2021. See “-COVID-19 Pandemic” above and “-Financial Condition-Credit Risk” below for more information.
Gain/loss on derivative instruments
In the United States segment, we recognized a gain on derivative instruments of $252 million during fiscal year 2021 compared to a loss of $271 million during fiscal year 2020. The gain in fiscal year 2021 was attributable to gains on cross currency swaps of $377 million, partially offset by losses on pay float interest rate swaps of $113 million and pay fixed interest rate swaps of $12 million. The gains on cross currency swaps during fiscal year 2021 were attributable to the U.S. dollar weakening against the Euro and Sterling. The losses on pay float interest rate swaps during fiscal year 2021 were primarily due to increases in applicable swap rates during the period. The net loss on pay fixed interest rates swaps during fiscal year 2021 was due to a decline in swap rates during the first nine months of the year, which was partially offset by gains during the fourth quarter of fiscal year 2021 as a result of the rise in swap rates during the quarter. In the Canada segment, we recognized a loss on derivative instruments of $23 million during fiscal year 2021 compared to a loss of $34 million during fiscal year 2020. The losses during fiscal year 2021 were due to declines in applicable swap rates during the period. See “-Derivatives” below for more information.
Gain/loss on foreign currency revaluation of debt
In the United States segment, we recognized a loss on the revaluation of foreign currency denominated debt of $430 million during fiscal year 2021 compared to a gain of $107 million during fiscal year 2020. The loss during fiscal year 2021 was primarily due to the U.S. dollar weakening against the Euro and Sterling during the period.
Income tax expense
Our consolidated effective tax rate was 24.2% for fiscal year 2021 and 29.6% for fiscal year 2020. The decrease in the effective tax rate for fiscal year 2021 was primarily due to a decrease in uncertain tax positions, offset by an increase in state taxes. 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,
2021 2020 2019
Acquired Sponsored (2)
Acquired Sponsored (2)
Acquired Sponsored (2)
(Units (1) in thousands)
United States Segment
Retail loans:
New auto 556 471 414 229 486 332
Used auto 104 36 125 21 123 26
Motorcycle and other 87 3 70 1 69 4
Total retail loans 747 510 609 251 678 362
Leases 470 416 549 436 495 438
Canada Segment
Retail loans:
New auto 51 45 58 51 63 61
Used auto 11 - 5 1 5 1
Motorcycle and other 10 9 8 7 8 6
Total retail loans 72 54 71 59 76 68
Leases 67 66 88 83 92 91
Consolidated
Retail loans:
New auto 607 516 472 280 549 393
Used auto 115 36 130 22 128 27
Motorcycle and other 97 12 78 8 77 10
Total retail loans 819 564 680 310 754 430
Leases 537 482 637 519 587 529
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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 that was 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,
2021 2020 2019
United States Segment
New auto 74 % 63 % 61 %
Motorcycle 33 % 34 % 36 %
Canada Segment
New auto 84 % 83 % 79 %
Motorcycle 29 % 30 % 29 %
Consolidated
New auto 74 % 65 % 63 %
Motorcycle 33 % 33 % 35 %
Consumer Financing Asset Balances
The following table summarizes our outstanding retail loan and lease asset balances and units:
March 31, March 31,
2021 2020 2019 2021 2020 2019
(U.S. dollars in millions) (Units (1) in thousands)
United States Segment
Retail loans:
New auto $ 27,200 $ 24,353 $ 25,201 1,587 1,510 1,569
Used auto 4,915 4,999 4,522 359 356 318
Motorcycle and other 1,328 1,145 1,104 196 192 193
Total retail loans $ 33,443 $ 30,497 $ 30,827 2,142 2,058 2,080
Investment in operating leases $ 30,036 $ 28,809 $ 27,493 1,311 1,318 1,300
Securitized retail loans (2)
$ 8,368 $ 8,977 $ 7,896 686 703 665
Canada Segment
Retail loans:
New auto $ 3,502 $ 3,195 $ 3,458 244 258 263
Used auto 290 178 226 26 24 29
Motorcycle and other 121 84 86 22 20 21
Total retail loans $ 3,913 $ 3,457 $ 3,770 292 302 313
Investment in operating leases $ 5,309 $ 5,034 $ 5,113 272 296 289
Securitized retail loans (2)
$ 415 $ 668 $ 1,177 38 58 92
Securitized investment in operating leases (2)
$ 440 $ 493 $ - 23 24 -
Consolidated
Retail loans:
New auto $ 30,702 $ 27,548 $ 28,659 1,831 1,768 1,832
Used auto 5,205 5,177 4,748 385 380 347
Motorcycle and other 1,449 1,229 1,190 218 212 214
Total retail loans $ 37,356 $ 33,954 $ 34,597 2,434 2,360 2,393
Investment in operating leases $ 35,345 $ 33,843 $ 32,606 1,583 1,614 1,589
Securitized retail loans (2)
$ 8,783 $ 9,645 $ 9,073 724 761 757
Securitized investment in operating leases (2)
$ 440 $ 493 $ - 23 24 -
_______________________
(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 increased by 23% during fiscal year 2021 compared to fiscal year 2020 primarily due to an increase in penetration rates in new auto loans with the support of incentive programs sponsored by AHM. Lease acquisition volumes decreased by 14% during fiscal year 2021 compared to fiscal year 2020 primarily due to lower AHM sales volumes. In the Canada segment, retail loan acquisition volumes increased by 1% during fiscal year 2021 compared to fiscal year 2020 primarily due to the increase in non-sponsored used auto loan acquisition volumes. Lease acquisition volumes decreased by 24% during fiscal year 2021 compared to fiscal year 2020 primarily due to the decrease in sponsored program volumes.
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,
2021 2020 2019
United States Segment
Automobile 28 % 29 % 30 %
Motorcycle 97 % 97 % 97 %
Other 18 % 16 % 20 %
Canada Segment
Automobile 33 % 36 % 35 %
Motorcycle 95 % 96 % 95 %
Other 92 % 93 % 95 %
Consolidated
Automobile 29 % 30 % 31 %
Motorcycle 97 % 97 % 97 %
Other 20 % 19 % 22 %
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,
2021 2020 2019
United States Segment
Automobile 24 % 26 % 27 %
Motorcycle 98 % 98 % 97 %
Other 7 % 6 % 7 %
Canada Segment
Automobile 31 % 32 % 32 %
Motorcycle 90 % 94 % 92 %
Other 96 % 96 % 96 %
Consolidated
Automobile 25 % 27 % 27 %
Motorcycle 97 % 97 % 96 %
Other 10 % 9 % 9 %
Dealer Financing Asset Balances
The following table summarizes our outstanding dealer financing asset balances and units:
March 31, March 31,
2021 2020 2019 2021 2020 2019
(U.S. dollars in millions) (Units (1) in thousands)
United States Segment
Wholesale flooring loans:
Automobile $ 2,396 $ 3,049 $ 3,308 83 109 121
Motorcycle 216 760 750 26 96 101
Other 39 55 59 37 56 63
Total wholesale flooring loans $ 2,651 $ 3,864 $ 4,117 146 261 285
Commercial loans $ 812 $ 1,020 $ 1,084
Canada Segment
Wholesale flooring loans:
Automobile $ 488 $ 547 $ 441 17 21 17
Motorcycle 45 91 95 5 13 13
Other 20 24 25 18 27 28
Total wholesale flooring loans $ 553 $ 662 $ 561 40 61 58
Commercial loans $ 61 $ 54 $ 65
Consolidated
Wholesale flooring loans:
Automobile $ 2,884 $ 3,596 $ 3,749 100 130 138
Motorcycle 261 851 845 31 109 114
Other 59 79 84 55 83 91
Total wholesale flooring loans $ 3,204 $ 4,526 $ 4,678 186 322 343
Commercial loans $ 873 $ 1,074 $ 1,149
________________________
(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, 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.
With the adoption of ASU 2016-13, 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 Policies-Credit Losses” 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:
As of or for the years ended March 31,
2021 2020 2019
(U.S. dollars in millions)
United States Segment
Finance receivables:
Allowance for credit losses at beginning of period (3)
$ 456 $ 194 $ 173
Provision for credit losses (65) 393 203
Charge-offs, net of recoveries (112) (228) (182)
Allowance for credit losses at end of period $ 279 $ 359 $ 194
Allowance as a percentage of ending receivable balance (1)
0.74 % 1.01 % 0.53 %
Charge-offs as a percentage of average receivable balance (1)
0.31 % 0.63 % 0.51 %
Delinquencies (60 or more days past due):
Delinquent amount (2)
$ 58 $ 91 $ 104
As a percentage of ending receivable balance (1), (2)
0.15 % 0.25 % 0.28 %
Operating leases:
Early termination loss on operating leases $ (157) $ 327 $ 98
Canada Segment
Finance receivables:
Allowance for credit losses at beginning of period (3)
$ 15 $ 7 $ 6
Provision for credit losses (4) 9 6
Charge-offs, net of recoveries (3) (5) (5)
Effect of translation adjustment 1 - -
Allowance for credit losses at end of period $ 9 $ 11 $ 7
Allowance as a percentage of ending receivable balance (1)
0.21 % 0.22 % 0.14 %
Charge-offs as a percentage of average receivable balance (1)
0.06 % 0.12 % 0.12 %
Delinquencies (60 or more days past due):
Delinquent amount (2)
$ 2 $ 3 $ 4
As a percentage of ending receivable balance (1), (2)
0.04 % 0.08 % 0.09 %
Operating leases:
Early termination loss on operating leases $ 1 $ 4 $ 3
Consolidated
Finance receivables:
Allowance for credit losses at beginning of period (3)
$ 471 $ 201 $ 179
Provision for credit losses (69) 402 209
Charge-offs, net of recoveries (115) (233) (187)
Effect of translation adjustment 1 - -
Allowance for credit losses at end of period $ 288 $ 370 $ 201
Allowance as a percentage of ending receivable balance (1)
0.68 % 0.92 % 0.49 %
Charge-offs as a percentage of average receivable balance (1)
0.29 % 0.57 % 0.47 %
Delinquencies (60 or more days past due):
Delinquent amount (2)
$ 60 $ 94 $ 108
As a percentage of ending receivable balance (1), (2)
0.14 % 0.23 % 0.26 %
Operating leases:
Early termination loss on operating leases $ (156) $ 331 $ 101
________________________
(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. See above under "COVID-19 Pandemic" for additional information.
(3)Beginning allowance includes the $101 million cumulative effect of adopting ASU 2016-13.
In the United States segment, we recognized a negative provision for credit losses on our finance receivables of $65 million during fiscal year 2021 compared to a provision for credit losses of $393 million during fiscal year 2020. The negative provision for credit losses was attributable to the reduction in the allowance for credit losses and lower than expected net charge-offs of retail loans. The allowance for retail loans at the beginning of the fiscal year ended March 31, 2021 reflected a significant increase in expected credit losses on retail loans due to the impact of COVID-19. Government measures that were enacted in an effort to slow down and control the spread of COVID-19 had a severe adverse impact on economic conditions, including a significant increase in unemployment. As a result, forecasts of weaker economic factors were reflected in this estimate, including a sharp rise in unemployment rates. However, the economic outlook improved during the fiscal year ended March 31, 2021 resulting in a reduction in the allowance for retail loans. Net charge-offs of retail loans during the fiscal year ended March 31, 2021 were favorable relative to the charge-offs that were expected at the beginning of the period, due in part to the positive effect of payment deferrals that were granted for COVID-19 related relief and various government support programs. We recognized a reversal of early termination losses on operating leases of $157 million during fiscal year 2021 compared to losses of $327 million during fiscal year 2020. The reversal of early termination losses was the result of lower than expected realized losses during fiscal year 2021 and a reduction in the estimated impact that COVID-19 will have on lessee default rates. The effect of higher unemployment rate was reduced in the modeling of estimated termination losses. See above under "-COVID-19 Pandemic" for additional information.
In the Canada segment, we recognized a negative provision for credit losses on our finance receivables of $4 million during fiscal year 2021 compared to a provision for credit losses of $9 million during fiscal year 2020. The negative provision for credit losses is primarily attributable to lower than expected net charge-offs of retail loans during fiscal year 2021. Early termination losses on operating lease assets was $1 million during fiscal year 2021 compared to $4 million during fiscal year 2020. The decrease was the result of lower than expected realized losses during fiscal year 2021.
Lease Residual Value Risk
Contractual residual values of lease vehicles are determined at lease inception based on expectations of future used vehicle values, taking into consideration external industry data and our own historical experience. 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 for 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 risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values.
We assess our estimates for end of lease term market values of leased vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles that we expect to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends, and market information on new and used vehicles. Our leasing volumes and those across the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years, which could negatively impact used vehicle prices. Adjustments to estimated residual values are made on a straight-line basis over the remaining term of the lease and recognized as depreciation expense. Additional information regarding lease residual values is provided in the discussion of “-Critical Accounting Policies-Determination of Lease Residual Values” below.
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. We did not recognize impairment losses due to declines in estimated residual values during fiscal year 2021.
The following table summarizes our number of lease terminations and the method of disposition:
Years ended March 31,
2021 2020 2019
(Units (1) in thousands)
United States Segment
Termination units:
Sales at outstanding contractual balances (2)
379 359 319
Sales through auctions and dealer direct programs (3)
89 156 155
Total termination units 468 515 474
Canada Segment
Termination units:
Sales at outstanding contractual balances (2)
84 78 65
Sales through auctions and dealer direct programs (3)
7 7 6
Total termination units 91 85 71
Consolidated
Termination units:
Sales at outstanding contractual balances (2)
463 437 384
Sales through auctions and dealer direct programs (3)
96 163 161
Total termination units 559 600 545
_______________________
(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.
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. See above under “-COVID-19 Pandemic" for additional information. 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, 2021, 2020 and 2019 includes foreign currency denominated debt which was translated into U.S. dollars using the relevant exchange rates as of March 31, 2021, 2020 and 2019, as applicable. Additionally, the amounts in this section that are presented in “C$” (Canadian dollar), “€” (Euro), “£” (Sterling) and “¥” (Yen) were converted into U.S. dollars solely for convenience based on the exchange rate on March 31, 2021 of 1.2562, 1.1727, 1.3779 and 110.74, respectively, per U.S. dollar. 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
March 31, March 31,
2021 2020 2019 2021 2020 2019
(U.S. dollars in millions)
United States Segment
Unsecured debt:
Commercial paper $ 4,615 $ 4,486 $ 5,029 0.29 % 1.83 % 2.67 %
Bank loans 2,799 3,797 3,896 0.95 % 2.21 % 3.30 %
Private MTN program 500 999 999 3.80 % 3.84 % 3.84 %
Public MTN program 28,943 25,130 24,117 1.53 % 2.07 % 2.35 %
Euro MTN programme 27 28 868 2.23 % 2.23 % 1.89 %
Total unsecured debt 36,884 34,440 34,909
Secured debt 8,149 8,710 7,671 1.37 % 2.26 % 2.41 %
Total debt $ 45,033 $ 43,150 $ 42,580
Canada Segment
Unsecured debt:
Commercial paper $ 927 $ 1,004 $ 726 0.42 % 1.73 % 2.06 %
Related party debt - 533 749 - % 1.76 % 2.18 %
Bank loans 1,253 1,141 1,066 1.15 % 2.01 % 2.62 %
Other debt 3,973 3,266 3,514 2.11 % 2.47 % 2.50 %
Total unsecured debt 6,153 5,944 6,055
Secured debt 741 1,038 1,119 0.95 % 2.13 % 2.49 %
Total debt $ 6,894 $ 6,982 $ 7,174
Consolidated
Unsecured debt:
Commercial paper $ 5,542 $ 5,490 $ 5,755 0.31 % 1.81 % 2.60 %
Related party debt - 533 749 - % 1.76 % 2.18 %
Bank loans 4,052 4,938 4,962 1.01 % 2.16 % 3.16 %
Private MTN program 500 999 999 3.80 % 3.84 % 3.84 %
Public MTN program 28,943 25,130 24,117 1.53 % 2.07 % 2.35 %
Euro MTN programme 27 28 868 2.23 % 2.23 % 1.89 %
Other debt 3,973 3,266 3,514 2.11 % 2.47 % 2.50 %
Total unsecured debt 43,037 40,384 40,964
Secured debt 8,890 9,748 8,790 1.34 % 2.25 % 2.42 %
Total debt $ 51,927 $ 50,132 $ 49,754
Commercial Paper
As of March 31, 2021, we had commercial paper programs in the United States of $7.0 billion and in Canada of C$2.5 billion ($2.0 billion). Interest rates on the commercial paper are fixed at the time of issuance. During fiscal year 2021, consolidated commercial paper month-end outstanding principal balances ranged from $3.7 billion to $6.8 billion.
Related Party Debt
HCFI no longer issues fixed rate notes to HCI to help fund HCFI’s general corporate operations. Interest rates were based on prevailing rates of debt with comparable terms. Generally, the term of these notes were less than 120 days. As of the end of March 31, 2021, there were no outstanding notes.
Bank Loans
During fiscal year 2021, AHFC entered into one fixed rate term loan agreement for a total of $200 million. HCFI entered into two floating rate term loan agreements for a total of C$600 million ($478 million). As of March 31, 2021, we had bank loans denominated in U.S. dollars and Canadian dollars with floating and fixed interest rates, in principal amounts ranging from $40 million to $600 million. As of March 31, 2021, the remaining maturities of all bank loans outstanding ranged from 15 days to approximately 4.0 years. The weighted average remaining maturity on all bank loans was 1.4 years as of March 31, 2021.
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, 2021, management believes that AHFC and HCFI were in compliance with all covenants contained in our bank loans.
Medium Term Note (MTN) Programs
Private MTN Program
AHFC no longer issues MTNs under its Rule 144A Private MTN Program. As of March 31, 2021, AHFC has one note outstanding under the Private MTN program. The note has a maturity date of September 20, 2021 and has a fixed interest rate. The note was issued pursuant to the terms of an issuing and paying agency agreement, which requires AHFC to comply with certain covenants, including negative pledge provisions, and includes customary events of defaults. As of March 31, 2021, management believes that AHFC was in compliance with all covenants contained in the Private MTN.
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 2019, AHFC renewed its Public MTN program by filing a registration statement with the SEC under which it may issue from time to time up to $30.0 billion aggregate principal amount of Public MTNs, 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 2021, AHFC issued €1.5 billion aggregate principal amount of Euro denominated fixed rate MTNs, with an original maturity range from 2.0 years to 4.5 years, £500 million aggregate principal amount of Sterling denominated fixed rate MTNs, with an original maturity of 6 years, $6.3 billion aggregate principal amount of U.S. dollar denominated fixed rate notes with an original maturity range from 2.0 to 10.0 years, and $1.6 billion aggregate principal amount of U.S. dollar denominated floating rate notes, with an original maturity range from 15 months to 3.0 years. The weighted average remaining maturities of all Public MTNs was 2.5 years as of March 31, 2021.
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, 2021, management believes that AHFC was in compliance with all covenants under the indenture.
Euro MTN Programme
The Euro MTN Programme was retired in August 2014. AHFC has one note outstanding under this program. The note has a maturity date of February 21, 2023, a fixed interest rate and is not listed on the Luxembourg Stock Exchange. The note was issued pursuant to the terms of an agency agreement which requires AHFC to comply with certain covenants, including negative pledge provisions, and includes customary events of default. As of March 31, 2021, management believes that AHFC was in compliance with all covenants contained in the Euro MTNs.
The table below presents a summary of outstanding debt issued under our MTN Programs by currency:
March 31,
2021 2020 2019
(U.S. dollars in millions)
U.S. dollar $ 22,902 $ 22,309 $ 21,210
Euro 5,032 3,076 3,969
Sterling 1,509 744 778
Japanese yen 27 28 27
Total $ 29,470 $ 26,157 $ 25,984
Other Debt
HCFI issues privately placed Canadian dollar denominated notes, with either fixed or floating interest rates. During fiscal year 2021, HCFI entered into C$1.1 billion ($876 million) fixed rate notes with an original maturity ranging from 5.5 years to 7.0 years and C$450 million ($358 million) floating rate notes with an original maturity ranging from 2.0 years to 3.0 years. As of March 31, 2021, the remaining maturities of all of HCFI’s Canadian notes outstanding ranged from 166 days to approximately 6.9 years. The weighted average remaining maturities of these notes was 3.0 years as of March 31, 2021.
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, 2021, 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 2021, we issued notes through asset-backed securitizations totaling $4.8 billion, which were secured by assets with an initial balance of $5.1 billion.
Credit Agreements
Syndicated Bank Credit Facilities
AHFC maintains a $3.5 billion 364-day credit agreement, which expires on February 25, 2022, a $2.1 billion credit agreement, which expires on February 28, 2023, and a $1.4 billion credit agreement, which expires on February 28, 2025. As of March 31, 2021, 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 ($1.6 billion) credit facility that includes a C$1.0 billion ($796 million) credit agreement, which expires on March 25, 2022 and a C$1.0 billion ($796 million) credit agreement, which expires March 25, 2025. As of March 31, 2021, no amounts were drawn upon under the HCFI credit agreement. HCFI intends to renew or replace the credit agreement prior to or on the expiration dates.
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, 2021, 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 and a requirement for AHFC to maintain a positive consolidated tangible net worth. As of March 31, 2021, no amounts were drawn upon under these agreements. These agreements expire in September 2021. 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 $72 million, $68 million and $23 million during fiscal years 2021, 2020 and 2019, respectively, pursuant to these Support Compensation Agreements and the predecessor agreements.
Indebtedness of Consolidated Subsidiaries
As of March 31, 2021, AHFC and its consolidated subsidiaries had $61.6 billion of outstanding indebtedness and other liabilities, including current liabilities, of which $16.7 billion consisted of indebtedness and liabilities of our consolidated subsidiaries. None of AHFC’s consolidated subsidiaries had any outstanding preferred equity.
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.
Off-Balance Sheet Arrangements
We are not a party to off-balance sheet arrangements.
Contractual Obligations
The following table summarizes our contractual obligations, excluding lending commitments to dealers and derivative obligations, by fiscal year payment period, as of March 31, 2021:
Payments due by period
Total 2022 2023 2024 2025 2026 Thereafter
(U.S. dollars in millions)
Unsecured debt obligations (1)
$ 43,113 $ 14,420 $ 10,556 $ 7,673 $ 4,201 $ 2,296 $ 3,967
Secured debt obligations (1)
8,902 4,918 2,776 1,074 134 - -
Interest payments on debt (2)
1,811 635 465 296 163 99 153
Operating lease obligations 74 9 8 8 8 8 33
Total $ 53,900 $ 19,982 $ 13,805 $ 9,051 $ 4,506 $ 2,403 $ 4,153
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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, 2021.
(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, 2021.
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.
New Accounting Standards
Refer to Note 1(o)-Recently Issued Accounting Standards of Notes to Consolidated Financial Statements.
Critical Accounting Policies
Critical accounting policies are those accounting policies that 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, cash flows, and results of operations. The impact and any associated risks related to these estimates on our financial condition, cash flows, and results of operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operation” where such estimates affect reported and expected financial results. Different assumptions or changes in economic circumstances could result in additional changes to the determination of the allowance for credit losses and the determination of lease residual values.
Credit Losses
With the adoption of ASU 2016-13, the allowance for credit losses is management’s estimate of lifetime expected credit losses on the amortized cost basis of finance receivables. We have elected not to measure an allowance for credit losses for accrued interest receivables. The allowance is measured on an undiscounted basis. Management evaluates the allowance, at minimum, on a quarterly basis.
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 model 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 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 model. Qualitative adjustments may also be applied if management believes the quantitative models do not reflect the best estimate of lifetime expected credit losses.
Dealer loans are evaluated on a collective basis if they have not been specifically identified as impaired. Collectively evaluated dealer loans are grouped by loan type and internal risk ratings and the allowance is measured primarily using historical loss rates. Dealer loans that have been specifically identified as impaired are excluded from the collective assessment and the allowance is measured at the individual dealer level. Dealer loans are considered impaired when it is probable that we will be unable to collect the amounts due according to the terms of the applicable contracts. Our determination of whether dealer loans are impaired is based on evaluations of the dealership's payment history, financial condition, ability to perform under the terms of the loan agreements, and collateral values, as applicable. Expected credit losses on impaired dealer loans are measured based upon the specific circumstances of each dealer considering all expected sources of repayment or the fair value of the collateral if foreclosure is probable.
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.
Refer to Note 1(e)-Finance Receivables and Allowance for Credit Losses, Note 1(f)-Investment in Operating Leases and Note 1(h)-Vehicles Held for Disposition of Notes to Consolidated Financial Statements for additional information regarding charge-offs or write-downs of contractual balances of retail and dealer loans and operating leases.
Sensitivity Analysis
Our allowance for credit losses and early termination losses on operating leases requires significant judgment about inherently uncertain factors. The estimates are based on management’s evaluation of many factors, including our historical credit loss experience, the value of the underlying collateral, delinquency trends, and economic conditions. The estimates are based on information available as of each reporting date. Actual losses may differ from the original estimates due to actual results varying from those assumed in our estimates. 10% and 20% increases in estimated lifetime expected credit losses on our consumer finance receivables would have resulted in increases to the allowance for credit losses as of March 31, 2021 of $28 million and $56 million, respectively. Similarly, 10% and 20% increases in estimated incurred losses due to defaults on operating leases would have resulted in increases to estimated early termination losses as of March 31, 2021 of $9 million and $18 million, respectively.
Determination of Lease Residual Values
Contractual residual values of lease vehicles are determined at lease inception based on expectations of future used vehicle values, taking into consideration external industry data and our own historical experience. 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 dealer are sold through online and physical auctions. We are exposed to risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values at the end of lease term. We assess our estimates for end of term market values of the leased vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles that we expect to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends and market information on new and used vehicles. Our leasing volumes and those across the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years which could negatively impact used vehicle prices.
For operating leases, adjustments to estimated residual values are made on a straight-line basis over the remaining term of each lease and recognized as depreciation expense.
Sensitivity Analysis
If future estimated auction values for all outstanding operating leases as of March 31, 2021 were to decrease by $100 per unit from our current estimates, the total impact would be an increase of approximately $73 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 $13 million in depreciation expense, which would be recognized over the remaining lease terms. This sensitivity analysis may be asymmetric and is specific to the conditions in effect as of March 31, 2021. Additionally, any declines in auction values are likely to have a negative effect on return rates which could affect the severity of the impact on our results of operations.

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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.
•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.
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, 2022 and 2021 below. Our estimates were based upon our existing receivables, debt, and derivatives as of March 31, 2021 and 2020. 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 2022 2021
100 basis point increase $68 million decrease $17 million decrease
100 basis point decrease $23 million increase $17 million increase
The net impact on pre-tax cash flows of a hypothetical increase or decrease in interest rates was higher for the period ending March 31, 2022 compared to the period ending March 31, 2021 due to the decrease in the mix of pay float relative to receive float instruments.

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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.
The required supplementary financial information is disclosed in Note 16-Selected Quarterly Financial Data (Unaudited) of Notes to Consolidated Financial Statements.

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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, 2021, 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, 2021.
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, 2021, 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.
PART III

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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
The following table represents aggregate costs for fees and services provided to us by our independent registered public accounting firm, KPMG LLP.
Years ended March 31,
2021 2020
(U.S. dollars in thousands)
Audit fees $ 6,940 $ 6,653
Audit-related fees 366 428
Tax fees - -
All other fees - -
Total $ 7,306 $ 7,081
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 1.300% Medium-Term Notes, Series A, due March 21, 2022
4.9(9)
Description of 2.625% Medium-Term Notes, Series A, due October 14,2022
4.10(9)
Description of 1.375% Medium-Term Notes, Series A, due November 10,2022
4.11(9)
Description of 0.550% Medium-Term Notes, Series A, due March 17,2023
4.12(9)
Description of 0.750% Medium-Term Notes, Series A, due January 17,2024
4.13(9)
Description of 0.350% Medium-Term Notes, Series A, due August 26,2022
4.14(26)
Description of 1.600% Medium-Term Notes, Series A, due April 20, 2022
4.15(26)
Description of 1.950% Medium-Term Notes, Series A, due October 18, 2024
4.16 (27)
Description of 0.750% Medium-Term Notes, Series A, due November 25, 2026
Exhibit
Number Description
10.1(10)
$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(11)
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.
10.3(12)
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(13)
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(14)
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(15)
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(9)
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(16)
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(17)
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(18)
$3,500,000,000 364-Day Credit Agreement, dated February 28, 2020, 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 and Citibank, N.A., as documentation agents and MUFG Bank, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citigroup Global Markets Inc. and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunners.
10.11(19)
First Amendment, dated as of February 26, 2021, 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.
10.12(20)
$2,100,000,000 Three-Year Credit Agreement, dated February 28, 2020, 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 and Citibank, N.A., as documentation agents and MUFG Bank, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citigroup Global Markets Inc. and Mizuho Bank. Ltd., as joint lead arrangers and joint bookrunners.
10.13(21)
$1,400,000,000 Five-Year Credit Agreement, dated February 28, 2020, 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 and Citibank, N.A., as documentation agents and MUFG Bank. Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, BofA Securities, Inc., Citigroup Global Markets Inc. and Mizuho Bank. Ltd., as joint lead arrangers and joint bookrunners.
10.14(22)
Keep Well Agreement between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated September 9, 2005.
10.15(23)
Support Compensation Agreement, between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated as of April 1, 2019.
Exhibit
Number Description
10.16(24)
Keep Well Agreement between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated September 26, 2005.
10.17(25)
Support Compensation Agreement, between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated as of April 1, 2019.
23.1(27)
Consent of KPMG LLP
31.1(27)
Certification of Principal Executive Officer
31.2(27)
Certification of Principal Financial Officer
32.1(28)
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2(28)
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS(27)
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(27)
XBRL Taxonomy Extension Schema Document
101.CAL(27)
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB(27)
XBRL Taxonomy Extension Label Linkbase Document
101.PRE(27)
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF(27)
XBRL Taxonomy Extension Definition Linkbase Document
104.(27)
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 the same numbered Exhibit filed with our annual report on Form 10-K, dated June 21, 2019.
(10)Incorporated herein by reference to the same numbered Exhibit filed with our current report on Form 8-K, dated March 24, 2014.
(11)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated June 30, 2014.
(12)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 13, 2015.
(13)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2016.
(14)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2017.
(15)Incorporated herein by reference to the same numbered Exhibit filed with our annual report on Form 10-K, dated June 21, 2018.
(16)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2020.
(17)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 17, 2021.
(18)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 4, 2020.
(19)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 1, 2021.
(20)Incorporated herein by reference to Exhibit number 10.2 filed with our current report on Form 8-K, dated March 4, 2020.
(21)Incorporated herein by reference to Exhibit number 10.3 filed with our current report on Form 8-K, dated March 4, 2020.
(22)Incorporated herein by reference to Exhibit 10.1 filed with our registration statement on Form 10, dated June 28, 2013.
(23)Incorporated herein by reference to Exhibit 10.15 filed with our annual report on Form 10-K, dated June 21, 2019.
(24)Incorporated herein by reference to Exhibit 10.3 filed with our registration statement on Form 10, dated June 28, 2013.
(25)Incorporated herein by reference to Exhibit 10.17 filed with our annual report on Form 10-K, dated June 21, 2019.
(26)Incorporated herein by reference to the same numbered Exhibit filed with our annual report on Form 10-K, dated June 22, 2020.
(27)Filed herewith.
(28)Furnished herewith.