In response to Toyota’s growing US market share and Toyota Motor Credit Corporation’s (TMCC’s) growing consumer lending base, TMCC was looking for an opportunity to capture liquidity at a reasonable financing cost. However, the volatility in the global capital markets represented a significant obstacle, with the markets effectively closed to many companies. It was therefore essential to time the deal correctly.

“We routinely engage in market discovery and discussions with our global banking coverage teams, and had been keeping an eye on the European market in euros for several weeks,” says Stephen Howard, Global Head of Capital Markets at TMCC.

“We recognised an opportunity to take advantage of fairly stable market conditions and strong investor appetite with a benchmark-sized eurobond transaction. ‘Benchmark’ typically means at least €1 billion in this market. We knew going into calendar year-end that we were going to have a very busy Q1 2009, so we began work in December 2008 around targeting cities and specific investors with whom we wanted to speak about a prospective deal.”

The decision was taken to launch a week-long pan-European road show prior to executing the deal in order to give investors a better understanding of the company and how it was managing in the downturn. This was particularly important as the motor industry was struggling more than many other industries in the recession and due to the obvious general concern around financial companies. During the course of the road show, TMCC spoke to almost 60 investors. As a result of the positive feedback, TMCC moved forward with the transaction. Barclays Capital, BNP Paribas and RBS were appointed as lead managers and the benchmark-sized three and seven-year euro deal was launched in January 2009.

“The deal effectively re-opened the market for several issues and served as a model for other issues to follow.”

“In approximately three hours, the order book was well above our anticipated deal size and was dominated by high-quality investor accounts,” says Howard. “TMCC was able to price a €4.75 billion transaction at levels tighter than were initially announced to the market.”

As a result of the deal, the pressure was taken off a large near-term funding plan. TMCC was able to term out a significant volume of debt and meet its funding needs while accessing liquidity in a difficult market.

Howard attributes the success of the deal to TMCC’s strong credit profile and leading position in the auto industry. “Investors realised that they were getting great value on a top-flight credit. The deal has performed exceptionally well in the secondary market. The bonds seldom trade in large blocks; but tight bid/ask spreads are indicative of the liquidity support from the dealer community. The trades we do see are typically down into retail hands as we are one of the few frequent issuers who have our EMTN (Euro Medium Term Note) programme fully passported in the EU area.”

The deal was particularly ambitious because as well as being TMCC’s first publicly syndicated euro benchmark since the onset of the market turmoil, it was also the largest transaction ever undertaken by TMCC, and the company’s first dual-tranche transaction. The transaction also had a broader market impact.

“The deal effectively re-opened the market for several issues and served as a model for other issues to follow,” says Howard. “The deal itself was a resounding success, garnering strong demand and aggressive pricing; a great result for a financial/industrial hybrid name like TMCC that has long been a favourite of European investors.”