TFA increases volume and targets liquidity

Toyota Finance Australia (TFA) has expanded its funding and lending presence in recent years – and continues to do so despite the impact of COVID-19 on the auto industry. Carol Lydford, TFA’s Sydney-based treasurer, discusses funding plans including the potential for a public, green-labelled securitisation.


The Australian credit market has gone from strength to strength over the last 12 months despite COVID-19­related speedbumps. As a major player in the Australian auto-finance market, what is TFA’s assessment of lending conditions?

Lending conditions remain resilient despite ongoing uncertainties from COVID-19 and other shifting landscapes in the economy. At TFA, “kaizen” – continuous improvement – is part of our DNA, so we continuously review and adjust our risk appetite and credit settings across the customer lifecycle, to respond to and mitigate against uncertainties, with customers’ needs being our strategic priority.

What has TFA’s market presence been over the last 12 months, and what is the funding strategy for the future?

TFA has undertaken two very successful domestic bond transactions in the past 12 months: a three-year, A$600 million (US$444.9 million) floating-rate note in March 2021 and another three-year, A$700 million dual-tranche, fixed- and floating-rate deal in September 2021. Both transactions were very well received in the market with exceptionally high-quality orderbooks including representation from domestic and offshore investors.

At the time, the March 2021 deal was TFA’s tightest-ever three-year spread, at 55 basis points over three-month bank bills. The September 2021 transaction’s final spread was tighter still, at 43 basis points over swap benchmarks. Both trades capitalised on the conducive market backdrop, which is currently characterised by a low-spread environment, abundant supply and strong investor appetite for corporate credit.

Looking forward, we will continue our strategy of maintaining a strong presence in the domestic market through frequent bond issuance. In addition, the bonds we issue will be strategically sized to promote greater liquidity for secondary-market trading.

“TFA continues to monitor developments in ESG funding and will look to undertake ESG-linked issuance at some time in the future. Whether this transaction is in senior-unsecured bond or securitisation format is yet to be determined.”


Other than scale of issuance, what factors contribute to secondary-market liquidity in TFA bonds?

The Reserve Bank of Australia (RBA)’s decision, in 2020, to allow corporate bonds of a certain minimum rating level to be repo eligible via application was very pleasing. Following this decision, all TFA’s outstanding bonds are now accepted by the RBA with repo-eligible status.

This increases the likelihood of secondary-market trading and the participation of financial institutions, which are now more likely to hold TFA bonds on their balance sheets.

How much interest is TFA receiving for private securitisation transactions?

TFA is frequently in discussions with its banking partners on private and public securitisation transactions. During the past year, we implemented a new securitisation system that will give TFA greater flexibility in launching new securitisation products and structures.

When speaking with our investors, there is most definitely growing interest for securitised auto loans. This is very positive for the domestic market, which has in the past been focused primarily on mortgage-backed securitisation offerings.

What engagement is TFA having with investors on environmental, social and governance (ESG) performance? Is ESG-linked issuance on the cards?

ESG is always front of mind for our investors, and as one would expect for Toyota our focus is very much on hybrid, electric and hydrogen vehicles. Significant progress is also being made regarding infrastructure and refuelling stations to support non-petrol or diesel vehicles. The key metric in this area for TFA is the number of vehicle sales, and this can be easily quantified.

TFA continues to monitor developments in ESG funding and will look to undertake ESG-linked issuance at some time in the future. Whether this transaction is in senior-unsecured bond or securitisation format is yet to be determined.