Toyota recently made the announcement that it will be launching a green bond to be backed by auto loans. As the first of its kind, the program will be specifically for the electric and hybrid car loans. Expected to increase interest among consumers in the market for a new car, the asset-backed green bond program is expected to increase interest in eco-friendly cars.
Overview of the green bond
The funding will be used to drive up interest among prospective buyers and investors looking into green transportation options. New leasing and purchases for Toyota and Lexus vehicles will be supported by this bond. According to the International Financing Review board, there will be three different ratings: A2, A3 and A4. The bond is completely backed by the cash flow of the loan portfolio. The upper portion of the deal is set to mature in 2.06 years and should yield 15 basis points. The green bond is one of the newer components of the funding program. The program is designed to incent prospective buyers into considering one of nine qualifying Lexus or Toyota vehicles.
Evaluating the benefits
Toyota can increase the number of loans available to move more low-carbon car units with the increase in lending capital. The lender can earn far less interest but stands to get paid sooner. Investors don’t get the level of interest they would otherwise get with other investments, but they get a guaranteed payment despite the performance of the auto company. Even if the auto company goes bankrupt, the investor will still be paid. Investors appreciate the low-risk bond opportunity and can use the capital to channel additional funding into long-term projects. The corporate green bond shields the investor from risk by limiting exposure to the underlying asset.
How does the program work?
The $1.75 billion TFS Green Bond will provide funding for new car purchases as well as leases. The consumer must be purchasing one of nine qualifying vehicles that meet fuel economy and emission standards. For example, each of the qualifying vehicles gets at least 35 miles per gallon on the city and the highway. Emissions requirements for these vehicles typically fall into the partial zero or zero emissions category.
As the first asset-backed bond of its kind, both investors and consumers alike stand to benefit from this program. Investors get paid and lenders can recoup their funds much sooner. More money can be created for project investment. More consumers will have access to options purchase the eco-friendly alternative vehicles. Store locations can better market to prospective buyers. This announcement is likely to provide a great investment opportunity for those interested in entering this market. Eco-conscious consumers can also benefit in having more lending options available to them.