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Toyota Financial Services (TFS) issued the auto industry’s first-ever Asset-Backed Green Bond in the amount of $1.75 billion.

The offering was upsized from $1.25 billion to accommodate demand as institutional investors demonstrated strong interest in this inaugural clean transportation investment opportunity. The Green Bond is the newest component of TFS’ broad-ranging funding program.

Proceeds of the TFS Green Bond will be used to fund new retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet specific criteria, including powertrain, fuel efficiency and emissions. There are currently nine vehicles in the Toyota and Lexus portfolio of green vehicles that qualify.

To develop the Green Bond, TFS worked closely with Citi, which has a long-standing relationship with TFS. Citi served as the structuring lead manager of the bond, and BofA Merrill Lynch and Morgan Stanley acted as joint-lead managers.

The TFS Green Bond is the first of its kind in the auto industry. Toyota currently offers hybrid editions in nearly all of its vehicle categories. At the end of 2013, Toyota’s global sales of hybrids reached more than 6 million vehicles. The latest million unit milestone was achieved in the fastest time yet for Toyota, taking just nine months.

Since the launch of the first Prius in 1997, Toyota’s hybrid vehicles have resulted in approximately 41 million fewer tons of CO2 emissions than would have been emitted by gas powered vehicles of similar size and driving performance.

Tyler Dickson, global head of Capital Markets Origination at Citi, said, “We see excellent investment opportunities for the growing interest among investors and consumers alike in environmentally friendly, energy efficient, clean transportation.”

TFS will commit to use the proceeds of the Green Bond toward the purchase of retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet high green standards as established by three criteria:

•Gas-electric hybrid or alternative fuel powertrain;
•Minimum EPA estimated MPG (or MPG equivalent for alternative fuel vehicles) of 35 city / 35 highway; and,
•California Low-Emission Vehicle II (LEV II) certification of super ultra-low emission vehicles or higher, which would include partial zero emissions vehicles and zero emissions vehicles.

Qualifying models from Toyota include: Prius, Prius c, Prius v, Prius Plug-in, Camry Hybrid, Avalon Hybrid, and RAV4 EV. From Lexus, qualifying vehicles are CT 200h and ES 300h.

Published in the May 2014 Edition of American Recycler News