TFS Takes Another Step Toward a Better World

Toyota Financial Services issued a $350 million bond this past week in which the lead underwriters were minority- and or women-owned. Each of the brokerages works with TFS and Citi’s Capital Markets teams. It is the company’s third diversity and inclusion bond. The company’s stated goal is to promote diversity and inclusion on Wall Street.

The new issuance is part of TFS’s larger competitive comprehensive funding program. But company officers say too that the deal further enables women and minority firms to participate in the funding market for major corporations. They also point out that it is one more piece of a bigger push by the auto finance giant to bring diversity to an industry that’s been traditionally dominated by white males.

The dearth of diversity among financial service industry players, including auto finance, is hardly a secret. Nationwide, the number of minorities working at the management level in the in the greater financial services sector increased from 17.3% to just 19% from 2007 through 2011, according to EEOC data obtained by the Government Accountability Office.

As the numbers show, change has been happening slowly but surely. Toyota has been using its position as an industry giant to nudge that evolution along more quickly.

“The world is changing,” Michael Groff, Toyota Financial Services chief executive told Auto Finance News. “I don’t know if there’s a scenario where we have a perfect world, but I think there’s a place in it for a better world. Things do evolve with time,” he said.

Firms included in this TFS deal include CastleOak Securities, L.P.; Lebenthal & Co., LLC; Mischler Financial Group, Inc.; Samuel A. Ramirez & Company, Inc.; and The Williams Capital Group, L.P.

TFS said each of the brokerages has also worked closely with TFS as an advocate for diversity and inclusion within the industry through participation in events, panel presentation.

And as Groff explained, bonds like this one issued last week are the primary way the company gets the money it lends to customers.

“I mean, this is how we get the money that we use to operate our business,” said Groff.

He said the funding was competitively priced and that the rate was very attractive, and that from a purely numbers perspective, the deal was a win-win for all involved.

“The cheaper we can source the cash, the more competitively we can lend it to our customers, and that means the more competitive we can operate in this space,” said Kato Oddo, director of debt capital markets at Toyota Financial Services.

Broadening the Investor Base
She said the company’s objective is to not only make sure it gets cash with the best economics available, but also that it diversifies its funding sources across the spectrum. The broader the diversification of its funding sources, the broader the investor base grows that supports the bonds, which in turn, creates the better pricing.

Typically TFS funds out its bonds through the large banks. Oddo said that includes the likes of Bank of America, JP Morgan Chase and Citibank.

They use those large organizations to help underwrite the bonds and then sell them, getting the best distribution and price.

“As we think about those large banks, they are going to spend a lot of time focused on the big investors that are larger accounts, we call them our tier one investors,” said Oddo.

But she said there are smaller tier two and tier three accounts that are just as valuable to Toyota Financial from a diversification standpoint. They may have smaller interests and orders from investors with pockets that are not as deep, but those are still investors that can help the company further broaden its platform.

She said the move will help the small firms develop their capabilities, and further their presence and competiveness in the capital markets.

“We’d like to believe we are a leader on the diversity front,” said Groff.

He said with a brand such as Toyota, it’s important to show leadership in ways such as this.

The company was featured in Diversity Inc., magazine as one of the nation’s top 50 companies, coming in at number 38 this past year. And, TFS received a perfect, 100 score from LGBT civil rights organization Human Rights Campaign. TFS also offers diversity training surrounding cultural and generational differences.

With this bond issuance, the company is hoping to show other lenders that it not only makes sense from a social perspective, but an economic angle as well.

“I think success breeds success. If we’ve helped our partners become better educated in how to do these things, others will use them as well, they’ll get stronger and the whole cycle should end up taking care of itself, and in the end, I think we’ll all be better because of it,” said Groff.