American Honda Finance Corp.

08/11/2026 | Press release | Distributed by Public on 08/11/2026 11:02

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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.
References in this report to our "fiscal year 2027" and "fiscal year 2026" refer to our fiscal year ending March 31, 2027 and our fiscal year ended March 31, 2026, respectively.
Results of Operations
We assess the performance of our operations based on the two geographic regions where we operate: the United States and Canada. The measure of profit or loss used to assess the performance of our United States and Canada segments is income before income taxes and the effect of valuation adjustments on derivative instruments and revaluations of foreign currency-denominated debt. For additional information regarding our segments, see Note 13-Segment and Geographic Information of Notes to Consolidated Financial Statements (Unaudited). The following tables and related discussion are presented based on the measure used to assess the performance of our United States and Canada segments.
Operating Environment Overview
Consumer financing acquisition volumes benefited from strong new automobile sales, resulting in continued growth in our consumer financing assets during the first quarter of fiscal year 2027.
The trend in delinquencies and charge-offs continued to increase as the negative effects of higher monthly loan and lease payments caused by higher transaction prices, inflationary pressures, rising insurance premiums, and other factors are affecting consumers' ability to perform on their obligations. The conflict involving Iran has added further macroeconomic uncertainty, primarily through volatility in global energy markets and increased geopolitical risk. These conditions have contributed to higher fuel and transportation costs and renewed inflationary pressures, which may affect vehicle affordability, consumer demand, and credit performance.
Leased vehicle values for our maturing leases remained strong during the first quarter of fiscal year 2027 with return rates remaining near historically low levels. However, significant declines in used battery electric vehicle (BEV) prices across the industry, driven by rapid technological change, shifting consumer incentives, and uncertainty regarding long-term battery performance and charging infrastructure, have caused volatility in BEV residual values. Ongoing uncertainty in the BEV market-including fluctuating government incentive programs, evolving regulatory requirements, and changing consumer preferences-may continue to affect future lease profitability, consumer demand, and residual value performance.
There remains significant uncertainty surrounding tariffs and trade policies amid the revisions to and suspension of tariffs by the Trump Administration and the various retaliatory measures taken or threatened by foreign countries.
Segment Results-Comparison of the Three months ended June 30, 2026 and 2025
Results of operations for the United States segment and the Canada segment are summarized below:
United States Segment Canada Segment Total Segments
Three months ended June 30, Difference Three months ended June 30, Difference Three months ended June 30,
2026 2025 Amount % 2026 2025 Amount % 2026 2025
(U.S. dollars in millions)
Revenues:
Retail $ 707 $ 684 $ 23 3 % $ 81 $ 78 $ 3 4 % $ 788 $ 762
Dealer 60 64 (4) (6) % 5 5 - - % 65 69
Operating leases 1,666 1,562 104 7 % 201 205 (4) (2) % 1,867 1,767
Total revenues 2,433 2,310 123 5 % 287 288 (1) - % 2,720 2,598
Leased vehicle expenses 1,095 1,033 62 6 % 140 147 (7) (5) % 1,235 1,180
Interest expense 621 622 (1) - % 54 54 - - % 675 676
Realized losses/(gains) on derivatives and foreign currency debt 83 65 18 28 % 6 6 - - % 89 71
Net revenues 634 590 44 7 % 87 81 6 7 % 721 671
Other income 29 38 (9) (24) % 6 5 1 20 % 35 43
Total net revenues 663 628 35 6 % 93 86 7 8 % 756 714
Expenses:
General and administrative expenses 131 122 9 7 % 14 14 - - % 145 136
Provision for credit losses 76 98 (22) (22) % 10 5 5 100 % 86 103
Early termination loss on operating leases 49 46 3 7 % - 1 (1) - % 49 47
Income before income taxes and valuation adjustments $ 407 $ 362 $ 45 12 % $ 69 $ 66 $ 3 5 % $ 476 $ 428
The following table summarizes average outstanding asset balances, units, and yields and average outstanding debt and interest rates.
United States Segment Canada Segment
Three months ended June 30, Difference Three months ended June 30, Difference
2026 2025 Amount % 2026 2025 Amount %
(U.S. dollars in millions except as noted, units in thousands) (1)
Retail loans:
Average outstanding balance $ 45,387 $ 44,585 $ 802 2 % $ 5,065 $ 4,950 $ 115 2 %
Average outstanding units 2,245 2,289 (44) (2) % 295 297 (2) (1) %
Effective yield 6.2 % 6.2 % 6.4 % 6.3 %
Dealer loans:
Average outstanding balance $ 4,271 $ 4,029 $ 242 6 % $ 444 $ 394 $ 50 13 %
Effective yield 5.6 % 6.3 % 4.8 % 5.2 %
Operating leases:
Average outstanding balance $ 29,159 $ 27,877 $ 1,282 5 % $ 3,434 $ 3,432 $ 2 - %
Average outstanding units 975 915 60 7 % 141 154 (13) (8) %
Average monthly revenue(2)
$ 569 $ 569 $ - - % $ 477 $ 442 $ 35 8 %
Average monthly depreciation(2),(3)
$ 381 $ 382 $ (1) - % $ 343 $ 328 $ 15 5 %
Debt:
Average outstanding balance $ 59,079 $ 57,255 $ 1,824 3 % $ 6,147 $ 5,988 $ 159 3 %
Effective interest rate 4.2 % 4.3 % 3.5 % 3.6 %
_______________________
(1)Average outstanding balances and units based on month end amounts during respective periods. Effective yields and interest rates based on average outstanding month end balances.
(2)U.S. dollars per unit. Average monthly revenue and depreciation based on average outstanding month end units.
(3)Excludes gains on disposition of leased vehicles.
United States Segment
Revenues
-Revenue from retail loans increased due to higher average outstanding balances.
-Revenue from dealer loans decreased due to lower yields, which was partially offset by higher average outstanding balances.
-Operating lease revenue increased due to higher average outstanding units.
Leased vehicle expenses
Leased vehicle expenses increased due to higher average outstanding units.
Interest expense
Interest expense decreased due to lower average interest rates which was partially offset by higher average outstanding debt. See "-Liquidity and Capital Resources" below for more information.
Realized (gains)/losses on derivatives and foreign currency debt
Net realized losses during the first quarter of fiscal year 2027 consisted of losses on foreign currency revaluation of debt of $117 million, losses on pay-float interest rate swaps of $20 million and losses on pay-fixed interest rate swaps of $16 million which was partially offset by gains on cross-currency interest rate swaps of $70 million.
Provision for credit losses
Provision for credit losses decreased due to the lower increase to our estimate of expected credit losses during the first quarter of fiscal year 2027 as compared to the same period during fiscal year 2026. See "-Financial Condition-Credit Risk" below for more information.
Early termination loss on operating leases
Early termination losses on operating leases increased due to the increase in realized losses. See "-Financial Condition-Credit Risk" below for more information.
Canada Segment
Revenues
-Revenue from retail loans increased due to higher yields and higher average outstanding balances.
-Revenue from dealer loans was consistent.
-Operating lease revenue decreased primarily due to lower average outstanding units.
Leased vehicle expenses
Leased vehicle expenses decreased due to lower average outstanding units.
Interest expense
Interest expense was consistent. See "-Liquidity and Capital Resources" below for more information.
Realized (gains)/losses on derivative instruments
Net realized losses during the first quarter of fiscal year 2027 were attributable to losses on pay-fixed interest rate swaps of $9 million which was partially offset by gains on pay-float interest rate swaps of $3 million.
Provision for credit losses
Provision for credit losses increased due to the larger increase to our estimate of expected credit losses on our retail loans reflecting the increasing trend of delinquencies and net charge-offs. See "-Financial Condition-Credit Risk" below for more information.
Early termination loss on operating leases
We recognized early termination losses on operating leases of less than $1 million and $1 million during the first quarter of fiscal year 2027 and 2026, respectively. See "-Financial Condition-Credit Risk" below for more information.
Income tax expense
The consolidated effective tax rate was 26.2% for the first quarter of fiscal year 2027 compared to 26.8% for the same period in fiscal year 2026. The Company's effective tax rate for the three months ended June 30, 2026 differs from the U.S. federal statutory tax rate primarily as a result of U.S. state taxes. For additional information regarding income taxes, see Note 7-Income Taxes of Notes to Consolidated Financial Statements (Unaudited).
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:
Three months ended June 30,
2026 2025
Acquired
Sponsored (2)
Acquired
Sponsored (2)
(Units (1) in thousands)
United States Segment
Retail loans:
New automobile 150 96 150 105
Used automobile 33 13 33 13
Motorcycle and other 19 7 23 7
Total retail loans 202 116 206 125
Leases 105 104 102 70
Canada Segment
Retail loans 26 17 31 22
Leases 17 16 15 14
Consolidated
Retail loans 228 133 237 147
Leases 122 120 117 84
_______________________
(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, in each case 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:
Three months ended June 30,
2026 2025
United States Segment
New automobile 67% 65%
Motorcycle 33% 42%
Canada Segment
New automobile 80% 82%
Motorcycle 32% 33%
Consolidated
New automobile 68% 67%
Motorcycle 33% 41%
Consumer Financing Asset Balances
The following table summarizes our outstanding retail loan and lease asset balances and units:
June 30, 2026 March 31, 2026 June 30, 2026 March 31, 2026
(U.S. dollars in millions)
(Units (1) in thousands)
United States Segment
Retail loans:
New automobile $ 36,284 $ 35,852 1,636 1,640
Used automobile 7,458 7,396 404 401
Motorcycle and other 1,450 1,451 203 204
Total retail loans $ 45,192 $ 44,699 2,243 2,245
Investment in operating leases $ 29,339 $ 28,961 980 969
Securitized retail loans (2)
$ 15,279 $ 15,535 933 924
Canada Segment
Retail loans $ 5,009 $ 4,950 297 292
Investment in operating leases $ 3,408 $ 3,355 141 140
Securitized retail loans (2)
$ 512 $ 614 49 55
Consolidated
Retail loans $ 50,201 $ 49,649 2,540 2,537
Investment in operating leases $ 32,747 $ 32,316 1,121 1,109
Securitized retail loans (2)
$ 15,791 $ 16,149 982 979
_______________________
(1)A unit represents one retail loan or lease contract, as noted, that was outstanding as of the date shown.
(2)Securitized retail loans represent the portion of total managed assets that have been transferred to bankruptcy-remote special purpose entities but continue to be recognized on our balance sheet.
In the United States and Canada segments, retail loan acquisition volumes decreased by 2% and 16%, respectively, and lease acquisition volumes increased by 3% and 13%, respectively, during the first three months of fiscal year 2027 compared to the same period in fiscal year 2026. The decrease in retail acquisition volumes was primarily due to the decrease in sponsored program volumes. The increase in lease acquisition volumes was primarily due to the increase 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:
June 30, 2026 March 31, 2026
United States Segment
Automobile 29 % 30 %
Motorcycle 97 % 97 %
Other 16 % 16 %
Canada Segment
Automobile 28 % 28 %
Motorcycle 96 % 97 %
Other 95 % 96 %
Consolidated
Automobile 29 % 29 %
Motorcycle 97 % 97 %
Other 19 % 19 %
Dealer Financing Asset Balances
The following table summarizes our outstanding dealer financing asset balances and units:
June 30, 2026 March 31, 2026 June 30, 2026 March 31, 2026
(U.S. dollars in millions)
(Units (1) in thousands)
United States Segment
Wholesale flooring loans:
Automobile $ 2,060 $ 2,077 59 61
Motorcycle 575 640 66 71
Other 22 28 12 16
Total wholesale flooring loans $ 2,657 $ 2,745 137 148
Commercial loans $ 1,585 $ 1,521
Canada Segment
Wholesale flooring loans $ 402 $ 389 38 38
Commercial loans $ 43 $ 39
Consolidated
Wholesale flooring loans $ 3,059 $ 3,134 175 186
Commercial loans $ 1,628 $ 1,560
_______________________
(1) A unit represents one automobile, motorcycle, power equipment, or marine engine, as applicable, financed through a wholesale flooring loan that was outstanding as of the date shown.
Credit Risk
Credit losses are an expected cost of extending credit. The majority of our credit risk is in consumer financing and to a lesser extent in dealer financing. Credit risk of our portfolio of consumer finance receivables can be affected by general economic conditions. Adverse changes, such as a rise in unemployment or an increase in inflationary pressures, can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. We manage our exposure to credit risk in retail loans by monitoring and adjusting our underwriting standards, which affect the level of credit risk that we assume, pricing contracts for expected losses and focusing collection efforts to minimize losses. We manage our exposure to credit risk for dealers through ongoing reviews of their financial condition and payment performance.
We are also exposed to credit risk on our portfolio of operating lease assets. We expect a portion of our operating leases to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The factors affecting credit risk on our operating leases and our management of the risk are similar to that of our consumer finance receivables.
Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio, the value of collateral securing the financings, and economic and market factors that could affect the creditworthiness of dealers. We manage our exposure to credit risk in dealer financing by performing comprehensive reviews of dealers prior to establishing financing arrangements and monitoring the payment performance and creditworthiness of these dealers on an ongoing basis. In the event of default by a dealer, we seek all available legal remedies pursuant to related dealer agreements, guarantees, security interests on collateral, or liens on dealership assets. Additionally, we have agreements with AHM and HCI that provide for their repurchase of new, unused, undamaged and unregistered vehicles or equipment that have been repossessed from dealers who defaulted under the terms of their respective wholesale flooring agreements.
The allowance for credit losses is management's estimate of lifetime expected credit losses on the amortized cost basis of finance receivables.
The following table presents information with respect to our allowance for credit losses and credit loss experience of our finance receivables and losses related to lessee defaults on our operating leases:
United States Segment Canada Segment Consolidated
As of or for the three months ended June 30,
2026 2025 2026 2025 2026 2025
(U.S. dollars in millions)
Finance receivables:
Allowance for credit losses at beginning of period $ 416 $ 383 $ 20 $ 13 $ 436 $ 396
Provision for credit losses 76 98 10 5 86 103
Charge-offs, net of recoveries (68) (61) (4) (4) (72) (65)
Effect of translation adjustment - - - 1 - 1
Allowance for credit losses at end of period $ 424 $ 420 $ 26 $ 15 $ 450 $ 435
Charge-offs as a percentage of average receivable balance (1), (3)
0.55 % 0.50 % 0.31 % 0.28 % 0.52 % 0.48 %
Allowance as a percentage of ending receivable balance (1)
0.85 % 0.85 % 0.49 % 0.27 % 0.81 % 0.79 %
Delinquencies (60 or more days past due):
Delinquent amount (2)
$ 197 $ 184 $ 8 $ 8 $ 205 $ 192
As a percentage of ending receivable balance (1),(2)
0.39 % 0.37 % 0.14 % 0.14 % 0.37 % 0.35 %
Operating leases:
Early termination loss on operating leases $ 49 $ 46 $ - $ 1 $ 49 $ 47
________________________
(1)Ending and average receivable balances exclude the allowance for credit losses, unearned subvention income related to our incentive financing programs and deferred origination costs. Average receivable balances are calculated based on the average of each month's ending receivables balance for that fiscal year.
(2)For the purposes of determining whether a contract is delinquent, payment is generally considered to have been made, in the case of (i) dealer loans, upon receipt of 100% of the payment when due and (ii) consumer finance receivables, upon receipt of 90% of the sum of the current monthly payment plus any overdue monthly payments. Delinquent amounts presented are the aggregated principal balances of delinquent finance receivables. Payments that were granted deferrals are not considered delinquent during the deferral period.
(3)Percentages for the three months ended June 30, 2026 and 2025 have been annualized.
In the United States segment, we recognized a provision for credit losses on our finance receivables of $76 million and $98 million during the first three months of fiscal year 2027 and 2026, respectively. The decrease in the provision for credit losses was due to the lower increase to our estimate of expected credit losses on our retail loans during the first three months of fiscal year 2027 as compared to the same period during fiscal year 2026. The continued increase in net charge-offs primarily was due to an increase in the frequency of defaults as higher transaction prices, inflationary pressures, rising insurance premiums, and other factors are affecting consumers' ability to perform on their obligations. We recognized early termination losses on operating leases of $49 million and $46 million during the first three months of fiscal year 2027 and 2026, respectively. Early termination losses on operating leases increased due to the increase in realized losses. Higher operating lease delinquencies and loss severities contributed to the increase in our estimate of early termination losses.
In the Canada segment, we recognized a provision for credit losses on our finance receivables of $10 million and $5 million during the first three months of fiscal year 2027 and 2026, respectively. Provision for credit losses increased due to the increase in provision for retail loans as a result of higher expected losses due to an increase in the trend of delinquencies and charge-offs. We recognized early termination losses on operating leases of less than $1 million and $1 million during the first three months of fiscal year 2027 and fiscal year 2026, respectively.
Lease Residual Value Risk
Contractual residual values of lease vehicles are determined at lease inception based on our expectations of used vehicle values at the end of their lease term. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealers are sold through online and physical auctions. We are exposed to a risk of loss on the disposition of returned lease vehicles if the market values of leased vehicles at the end of their lease terms are less than their contractual residual values.
Operating lease vehicles are depreciated on a straight-line basis over the lease term to the lower of contract residual values or estimated end of term residual values. Changes to estimated end of term residual values are recognized prospectively as adjustments to depreciation expense on a straight-line basis over the remaining lease term. A review for impairment of our operating lease assets is performed whenever events or changes in circumstances indicate that their carrying values may not be recoverable. If impairment conditions are met, impairment losses are measured as to the amounts by which carrying amounts exceed their fair values. We did not recognize impairment losses due to declines in estimated residual values during the first three months of fiscal year 2027.
The following table summarizes our number of lease terminations and the method of disposition:
Three months ended June 30,
2026 2025
(Units (1) in thousands)
United States Segment
Termination units:
Sales at outstanding contractual balances (2)
87 69
Sales through auctions and dealer direct programs (3)
2 1
Total termination units 89 70
Canada Segment
Termination units:
Sales at outstanding contractual balances (2)
16 17
Sales through auctions and dealer direct programs (3)
- -
Total termination units 16 17
Consolidated
Termination units:
Sales at outstanding contractual balances (2)
103 86
Sales through auctions and dealer direct programs (3)
2 1
Total termination units 105 87
_______________________
(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, various operating and funding costs, and dividend payments, 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.
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 and loans. From time to time, AHFC also issues fixed rate short-term debt to AHM to fund general corporate operations. We incorporate a funding strategy that takes into consideration factors such as the interest rate environment, domestic and foreign capital market conditions, maturity profiles, and economic conditions. We believe that our funding sources, combined with cash provided by operating and investing activities, will provide sufficient liquidity for us to meet our debt service and working capital requirements over the next twelve months.
The summary of outstanding debt presented in the tables and discussion below in this section "-Liquidity and Capital Resources" as of June 30, 2026 and March 31, 2026 includes foreign currency-denominated debt, which was translated into U.S. dollars using the relevant exchange rates as of June 30, 2026 and March 31, 2026, as applicable. Additionally, the amounts in this section that are presented in "C$" (Canadian dollar) were converted into U.S. dollars solely for the convenience based on the exchange rate on June 30, 2026. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or that they could be converted into U.S. dollars at the rates indicated.
Summary of Outstanding Debt
The table below presents a summary of our outstanding debt by various funding sources:
Weighted average
contractual interest rate (1)
June 30, 2026 March 31, 2026 June 30, 2026 March 31, 2026
(U.S. dollars in millions)
United States Segment
Unsecured debt:
Commercial paper $ 4,537 $ 2,259 4.12 % 3.99 %
Bank loans 1,000 1,000 4.47 % 4.48 %
Public MTN Program 39,084 40,726 4.01 % 3.91 %
Total unsecured debt 44,621 43,985
Secured debt 14,447 14,783 4.32 % 4.38 %
Total debt $ 59,068 $ 58,768
Canada Segment
Unsecured debt:
Commercial paper $ 1,101 $ 670 2.65 % 2.49 %
Bank loans 1,355 1,382 3.19 % 3.19 %
Other debt 3,199 3,407 3.76 % 3.74 %
Total unsecured debt 5,655 5,459
Secured debt 461 561 3.13 % 3.12 %
Total debt $ 6,116 $ 6,020
Consolidated
Unsecured debt:
Commercial paper $ 5,638 $ 2,929 3.83 % 3.64 %
Bank loans 2,355 2,382 3.73 % 3.73 %
Public MTN Program 39,084 40,726 4.01 % 3.91 %
Other debt 3,199 3,407 3.76 % 3.74 %
Total unsecured debt 50,276 49,444
Secured debt 14,908 15,344 4.29 % 4.33 %
Total debt $ 65,184 $ 64,788
______________________
(1)Weighted average contractual interest rates for commercial paper are bond equivalent yields. Contractual interest rates approximate effective yields.
Commercial Paper
As of June 30, 2026, we had commercial paper programs in the United States of $8.5 billion and in Canada of C$2.5 billion ($1.8 billion). Interest rates on the commercial paper are fixed at the time of issuance. During the three months ended June 30, 2026, consolidated commercial paper month-end outstanding principal balances ranged from $3.6 billion to $5.6 billion.
Bank Loans
During the three months ended June 30, 2026, AHFC and HCFI did not enter into any loan agreements. As of June 30, 2026, we had bank loans denominated in U.S. dollars and Canadian dollars with floating interest rates, in principal amounts ranging from $106 million to $500 million. As of June 30, 2026, the remaining maturities of all bank loans outstanding ranged from 59 days to approximately 4.7 years. The weighted average remaining maturities of all bank loans was 2.2 years as of June 30, 2026.
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 June 30, 2026, management believes that AHFC and HCFI were in compliance with all covenants contained in our bank loan agreements.
Public Medium-Term Note (MTN) Program (the Public MTN Program)
AHFC is a well-known seasoned issuer under SEC rules and issues MTNs pursuant to a registration statement on Form S-3 filed with the SEC. In August 2025, AHFC renewed its Public MTN Program by filing a registration statement with the SEC under which it may issue up to $45.0 billion aggregate principal amount of MTNs, which includes the issuance of foreign currency-denominated notes into international markets. The aggregate principal amount of MTNs offered under the Public MTN Program may be increased from time to time.
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 the three months ended June 30, 2026, AHFC issued notes totaling $2.0 billion. The weighted average remaining maturities of all MTNs was 2.6 years as of June 30, 2026.
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 June 30, 2026, management believes that AHFC was in compliance with all covenants under the indenture.
The table below presents a summary of outstanding debt issued under our Public MTN Program by currency:
June 30, 2026 March 31, 2026
(U.S. dollars in millions)
U.S. dollar $ 30,334 $ 29,715
Euro 6,435 8,703
Sterling 2,315 2,308
Total $ 39,084 $ 40,726
Other Debt
HCFI issues privately placed Canadian dollar denominated notes, with either fixed or floating interest rates. During the three months ended June 30, 2026, HCFI did not issue any notes. As of June 30, 2026, the remaining maturities of all of HCFI's Canadian notes outstanding ranged from 90 days to approximately 4.7 years. The weighted average remaining maturities of these notes was 2.6 years as of June 30, 2026.
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 June 30, 2026, management believes that HCFI was in compliance with all covenants contained in the privately placed notes.
Secured Debt
Asset-Backed Securities and Loans
We enter into securitization transactions for funding purposes. Our securitization transactions involve transferring pools of retail loans 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 or loans, and making payments on the secured debt. Assets transferred to SPEs are considered legally isolated from us and the claims of our creditors. We continue to service the retail loans transferred to the SPEs. Investors in the secured debt issued by an 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 secured debt.
Our securitizations are structured to provide credit enhancements to investors in the secured debt 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 secured debt.
•Overcollateralization- securitized asset balances that exceed the balance of secured debt 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 secured debt.
•Yield supplement accounts- restricted cash accounts held by SPEs to supplement interest payments on secured debt.
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 transactions that were 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 secured debt issued by the SPEs.
During the three months ended June 30, 2026, we issued secured debt through asset-backed securitizations totaling $2.0 billion, which were secured by assets with an initial balance of $2.2 billion.
Credit Agreements
Syndicated Bank Credit Facilities
AHFC maintains an $8.5 billion syndicated bank credit facility that includes a $2.8 billion 364-day credit agreement, which expires on February 19, 2027, a $2.8 billion credit agreement, which expires on February 20, 2029, and a $2.8 billion credit agreement, which expires on February 20, 2031. As of June 30, 2026, 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 ($1.4 billion) syndicated bank credit facility that includes a C$1.0 billion ($704 million) credit agreement, which expires on March 25, 2027 and a C$1.0 billion ($704 million) credit agreement, which expires on March 25, 2029. As of June 30, 2026, no amounts were drawn upon under the HCFI credit agreements. HCFI intends to renew or replace these credit agreements prior to or on the expiration dates.
These 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. These credit agreements also require AHFC and HCFI to maintain a positive consolidated tangible net worth as defined in their respective credit agreements. These 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, each of 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 June 30, 2026, 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. These 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 June 30, 2026, no amounts were drawn upon under these credit agreements. These credit agreements expire in September 2026. 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. Pursuant to the Keep Well Agreements, HMC has agreed to, among other things:
•own and hold, at all times, directly or indirectly, at least 80% of each of AHFC's and 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 each of AHFC and HCFI to, on the last day of each of AHFC's and HCFI's respective fiscal years, have a positive consolidated tangible net worth (with "tangible net worth" meaning (a) shareholders' equity less (b) any intangible assets, as determined in accordance with GAAP with respect to AHFC and generally accepted accounting principles in Canada with respect to HCFI); and
•ensure that, at all times, each of AHFC and HCFI has sufficient liquidity and funds to meet their payment obligations under any Debt (with "Debt" defined as AHFC's or HCFI's debt, as applicable, for borrowed money that HMC has confirmed in writing is covered by the respective Keep Well Agreement) in accordance with the terms of such Debt, or where necessary, HMC will make available to AHFC or HCFI, as applicable, or HMC will procure for AHFC or HCFI, as applicable, sufficient funds to enable AHFC or HCFI, as applicable, to pay its Debt in accordance with its terms. AHFC or HCFI Debt does not include the notes issued by SPEs in connection with AHFC's or HCFI's secured financing transactions, any related party debt or any indebtedness outstanding as of June 30, 2026 under AHFC's and HCFI's bank loan agreements.
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 $24 million and $23 million during the three months ended June 30, 2026 and 2025, respectively, pursuant to these Support Compensation Agreements.
Indebtedness of Consolidated Subsidiaries
As of June 30, 2026, AHFC and its consolidated subsidiaries had $73.6 billion of outstanding indebtedness and other liabilities, including current liabilities, of which $22.3 billion consisted of indebtedness and liabilities of our consolidated subsidiaries. None of AHFC's consolidated subsidiaries had any outstanding preferred equity.
Material Cash Requirements
The following table summarizes our material cash requirements from contractual obligations, excluding lending commitments to dealers and derivative obligations, for the periods indicated:
Payments due for the twelve-month periods ending June 30,
Total 2027 2028 2029 2030 2031 Thereafter
(U.S. dollars in millions)
Unsecured debt obligations (1)
$ 50,390 $ 15,882 $ 11,828 $ 8,218 $ 2,602 $ 6,255 $ 5,605
Secured debt obligations (1)
14,931 7,996 4,607 2,156 172 - -
Interest payments on debt (2)
6,132 2,109 1,460 920 626 486 531
Total $ 71,453 $ 25,987 $ 17,895 $ 11,294 $ 3,400 $ 6,741 $ 6,136
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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. Projected repayment schedule of secured debt reflects payment performance assumptions on underlying assets. Foreign currency-denominated debt principal is based on exchange rates as of June 30, 2026.
(2)Interest payments on floating rate and foreign currency-denominated debt based on the applicable floating rates and/or exchange rates as of June 30, 2026.
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 8-Commitments and Contingencies of Notes to Consolidated Financial Statements (Unaudited) 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 sheets 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 (Unaudited) for additional information on derivative instruments.
Derivatives
We utilize derivative instruments to manage exposures to interest rate and foreign currency risks. Our assets consist primarily of fixed rate receivables and operating lease assets. Our liabilities consist of both floating and fixed rate debt, denominated in various currencies. Interest rate and basis swaps are used to match the interest rate characteristics of our assets and debt. Currency swaps are used to manage currency risk exposure on foreign currency-denominated debt. Derivative instruments are not used for trading or any other speculative purposes. 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 sheets 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 segment profit or loss when we evaluate segment performance. Refer to Note 13-Segment and Geographic Information of Notes to Consolidated Financial Statements (Unaudited) for additional information about segment information and Note 5-Derivative Instruments of Notes to Consolidated Financial Statements (Unaudited) for additional information on derivative instruments.
Off-Balance Sheet Arrangements
We are not a party to off-balance sheet arrangements.
New Accounting Standards
Refer to Note 1-Summary of Business and Significant Accounting Policies of Notes to Consolidated Financial Statements (Unaudited).
Critical Accounting Estimates
The application of certain accounting policies may require management to make estimates that affect our financial condition and results of operations. Critical accounting estimates require our most difficult, subjective, or complex judgments, often requiring us to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition and results of operations. Actual results could differ from these estimates which could have a material effect on our financial condition and results of operations in subsequent periods.
The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026.
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