Honda Auto Receivables 2023-2 Owner Trust: 10-K Review

Introduction

Honda Auto Receivables 2023-2 Owner Trust (the “Trust”) is a securitization vehicle formed in Delaware on May 30, 2023. Unlike a traditional operating company, the Trust does not have employees, generate operating revenues, or produce standalone net income. Instead, it issues asset-backed securities (ABS) secured by retail installment contracts on Honda and Acura vehicles. Investors in the Trust purchase notes or certificates backed by these receivables, receiving principal and interest payments as credit customers repay their auto loans.

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This review summarizes the key disclosures in the Trust’s Form 10-K for the fiscal year ended March 31, 2025. It covers the structure of the transaction, the asset pool characteristics, servicing arrangements, legal and compliance matters, and implications for investors.

1. The Trust Entity and Purpose

• Issuer: Honda Auto Receivables 2023-2 Owner Trust (CIK 0001976562)
• Depositor: American Honda Receivables LLC
• Sponsor/Servicer: American Honda Finance Corporation
• Indenture Trustee: U.S. Bank Trust Company, National Association
• Owner Trustee: The Bank of New York Mellon
• Formation Date: May 30, 2023
• Jurisdiction: Delaware

The Trust’s sole purpose is to acquire a pool of auto loan receivables from the Sponsor, issue notes to finance the purchase, service the pool on an ongoing basis, and pass through cash flows—interest and principal—to noteholders according to the priority in the governing Indenture.

2. Asset Pool Composition

• Pool Assets: Retail installment contracts originated by American Honda Finance Corporation, secured by Honda and Acura vehicles.
• Concentration: No single obligor represents more than 10% of pool principal; the Trust benefits from broad geographic and credit-score diversification.
• Credit Enhancement: The 10-K states no external credit enhancement or derivative structure is provided. Credit support is embedded via structural features such as subordination of lower-rated certificates and overcollateralization inherent in deal design.
• Performance Metrics: The 10-K omits vintage-level delinquencies or loss history, consistent with Instruction J of Form 10-K for ABS trusts.

3. Capital Structure

The Trust issues multiple classes of notes (senior and subordinate tranches) with varying payment priorities and yields. While specific tranche balances, coupon rates, and maturity dates are detailed in the Offering Documents (Form 8-K exhibits), the 10-K confirms:

• No equity issuance: The Trust has no common or preferred equity—investors acquire debt-like certificates.
• No external support: Beyond cash-flow waterfall provisions, investors rely solely on payments from the auto receivables.
• Priority of payments: Principal and interest distributions follow the order of seniority; senior tranches are paid first, while subordinate tranches absorb initial losses.

4. Servicing and Administration

• Servicer: American Honda Finance Corporation collects customer payments, enforces contracts, and handles delinquencies or repossessions.
• Administration: U.S. Bank Trust Company acts as Indenture Trustee, and BNY Mellon serves as Owner Trustee and Delaware Trustee, holding legal title to the receivables.
• Servicing Reports: The Sponsor and Indenture Trustee each submitted Servicing Reports and third-party attestation reports (KPMG LLP and Ernst & Young LLP) confirming compliance with applicable servicing criteria. No material noncompliance instances were identified.

5. Legal Proceedings & Risk Factors

• Legal Proceedings: No pending or contemplated actions material to the Trust, its Sponsor, or its Depositor relating to the asset pool or note obligations. Separate legal disclosures note U.S. Bank and BNY Mellon face RMBS litigation in their capacities as trustees—but these cases do not involve the Trust’s assets or obligations.
• Risk Factors: Item 1A risk factors are omitted per Instruction J. General securitization risks include:
• Borrower credit performance and rising delinquencies
• Potential repossession costs and losses
• Interest-rate mismatch between asset yields and note coupons
• Servicer performance and operational disruptions

6. Financial Data & Cash Flow

• Income Statement: Not provided at the Trust level—cash flows pass through to investors.
• Balance Sheet: The Trust holds receivables and funds available for distribution; no surplus or deficiency outside waterfall constraints.
• Cash Flow: The Trust is a conduit; all principal and interest received is allocated per the deal structure. There is no retained earnings or discretionary spending.

7. Risk Analysis

• Credit Risk: Auto loans generally carry moderate credit risk. Honda Finance’s underwriting standards and customer base quality are critical.
• Structural Risk: Without external enhancements, the transaction relies on subordination. Lower-rated tranches face higher default absorption risk.
• Liquidity Risk: ABS notes can be less liquid than corporate bonds; secondary market trading volume may be limited.
• Legal/Operational Risk: Trustee litigation in unrelated RMBS cases does not directly impact this Trust, but prolonged legal exposure could divert trustee resources.

8. Investor Implications

• Not an Equity Investment: This Trust issues debt-like instruments; no equity upside or dividends. Investors seek coupon yield relative to credit risk.
• Return Profile: Yields depend on tranche class. Senior notes likely offer investment-grade coupons, subordinate certificates offer higher yields but face greater loss risk.
• Suitability: Appropriate for portfolio diversification into auto ABS and income-seeking strategies. Unsuitable for equity-oriented investors seeking growth or capital gains tied to Honda Motor Company’s performance.

Conclusion

Honda Auto Receivables 2023-2 Owner Trust presents a plain-vanilla auto loan securitization structure with no recurring income or profit metrics at the Trust level. Absent traditional financial statements, investors must rely on underlying asset performance, transaction structure, and servicer track record. For fixed-income investors seeking yield from well-underwritten auto receivables, senior tranches may be appropriate, while subordinate tranches carry elevated credit risk. For equity investors, this Trust offers no participation in Honda’s corporate growth or dividend streams.

Net Profit/Loss: Not applicable—no operating results at Trust level.