Red flags are FLYING. First of all, you bought a 10-year old car with “no history.”
Then, the Toyota dealer “didn’t get it right.” We’re talking about a timing belt replacement! There is no option other than “get it right.” If the timing belt was installed other than correctly, and the engine was started, damage was inevitable.
Oil leaks have nothing to do with the timing belt. There are (were) probably seals that needed to be replaced while the timing belt was off, but I guess they didn’t replace them. Did the Subaru dealer replace the leaking seals? Your post does not say.
I want to know more about “the inner 1/4” of the timing belt shredded." The timing belt is only about 1/4 inch thick, maybe less. If the timing belt had somehow managed to “shred” 1/4" of its thickness, you’d have nothing left but a large, black, rubber band, which would drive NOTHING. Not the camshafts, not the water pump, NOTHING.
Someone has been less than truthful.
If the tensioner bolt was loose, then the person who initially replaced the timing belt is responsible, not Subaru. I’m amazed that Subaru is even talking to you, considering the age of the car.
Can I possibly hope to recoup some of the money I’ve spent on my '96 Legacy engine?