The continual quest for access to the most effective funding sources, combined with a strong company diversity programme, has resulted in a unique and innovative project from Toyota Financial Services (TFS). Utilising TFS’s Diversity and Inclusion Bond Platform with a unique structure, pairing a two-year fixed and floating rate bond with a five-year tranche to help drive broader demand, this is a most deserved winner of our 2016 Judges’ Choice category.
Photo of Patrice Altongy, Citi and Kate Oddo, Toyota Financial Services.
Toyota Motor Credit Corporation (TMCC) operates in the United States to offer retail auto financing and leasing to Toyota customers through its dealership network. TMCC has a range of products to meet dealers’ financing needs and also offers extended service contracts and other vehicle and payment protection products. TMCC currently employs approximately 3,200 team members nationwide, and has assets totalling over $115bn. It is part of a worldwide network of comprehensive financial services offered by Toyota Financial Services Corporation, a wholly-owned subsidiary of Toyota Motor Corporation.
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Toyota Motor Credit Corporation (TMCC) is always seeking to ensure continuous access to the most cost effective funding. In order to do so, the company maintains a diversified platform spanning global markets and targeting a range of investors within these markets. This diversification strategy also applies to TMCC’s banking partners.
For more than a decade, Toyota has included smaller banks in co-manager (not responsible for selling the bonds) roles on large benchmark transactions. In 2012, they elevated the role of women, minority and veteran-owned broker dealers and carved out a portion of their benchmark transactions for these firms.
Smaller firms offer an opportunity for TMCC to further diversify Toyota’s investor base and reach customers that are often overlooked by larger banks. In 2013, TMCC established a Diversity and Inclusion (D&I) Bond Platform – a programme unlike any other in the market.
One large traditional bank, Citi, was appointed to act in a stabilising role, to provide capital if necessary and manage the order book, allocations and documentation. TMCC then mandated five women, minority and veteran-owned broker dealers to take the lead underwriting roles.
Kate Oddo, Director, Debt Capital Markets, Toyota Financial Services says: “Our inaugural D&I bond, a $300m two-year floating rate note, was extremely well received by the market.” So much so that, following the inaugural bond, TMCC issued two more D&I bonds for $350m each. This brought the cumulative funding raised under the programme to $1bn and provided 11 different women, minority and veteran-owned broker dealers the opportunity to lead a TMCC transaction.
In early 2016, the fixed income market provided the perfect backdrop to take the platform to the next level. With global capital markets experiencing significant volatility, investor demand had shifted in the front-end of the yield curve. TMCC responded by adjusting the company’s issuance strategy to offer larger, shorter-dated benchmark transactions. In April 2016, TMCC was able to leverage the platform and issued a D&I bond with a unique structure, pairing a two-year fixed and floating rate D&I bond with a five-year tranche to help drive broader demand.
The market responded by driving significant interest in the D&I bonds, pushing subscription levels to 2.5 times. The end result was a $1.25bn trade, the largest corporate minority and women-owned bond ever, with well over 100 Tier 2 and 3 investors participating in the transaction.
The issuance of TMCC’s fourth D&I bond provided cost effective liquidity while setting a record for the largest corporate bond in which D&I firms play a lead role. Enabling women, minority and veteran-owned broker dealers to strengthen their experience working on high profile deals, this bond not only serves as an integral component of Toyota’s comprehensive funding programme, but also enhances Toyota’s commitment to diversity by placing a spotlight on high-quality women and minority-owned business enterprises.
Best practice and innovation
The D&I bonds elevate the stature of women and minority-owned broker dealers by giving them the opportunity to take the lead underwriting role on a bond, responsible for selling the bond to investors. The experience these firms gain through their work with Toyota Financial Services gives them the expertise and credentials to work with other large clients and grow their business.
For TMCC, Oddo says, “by diversifying our banking partners, we are able to reach a new group of investors that we would not have had access to previously. As a result, TMCC benefits from the added depth and resiliency that comes with a more diverse group of investors.”
What’s more, it exemplifies that diversity and inclusion is a crucial part of Toyota’s value system and helps set the tone for how the company conducts business and builds interpersonal relationships. As largest D&I bond ever, it highlights that women and minority-owned broker dealers can achieve best in class outcomes in the fixed income markets usually dominated by the larger players.
Access to new Tier 2 and 3 investors, aligned with corporate objective of maintaining funding diversity, identifying and developing new investor relationships.
Provision of opportunities for newer women and minority-owned firms that have been working to develop their underwriting capabilities and take on larger roles in bond sales.
Increased recognition of the value provided by diversity firms.
Aligns the funding strategy with broader corporate commitment to diversity and inclusion.