On the heels of this past week’s near record-breaking investment grade corporate debt issuance courtesy of multiple Fortune companies who are seizing the moment insofar as the current low rate regime, Toyota Motor Credit Corp (TMCC), the financing arm of the world’s largest car maker did something different yesterday in the course of floating a 3-tranche, $2.5billion offering: TMCC designated the industry’s top five minority firms who specialize in debt capital markets to co-lead the 3 part transaction, for which Citigroup Global Markets served as stabilizing lead.
Why did TMCC defer underwriting and distribution of a $2.5bil issuance to minority-certified dealers who can only aspire to “6-Pack” notoriety and presence? After all, a $2.5bil isn’t just chopped liver. One reason is that the leaders of Toyota’s North American division have long held that a corporate culture that puts diversity and inclusion (D&I) on a pedestal is a critical component to being a best-in-class corporation. They aren’t alone. SoCal Ed, Exelon, Entergy, Southern Companies are other non-financial companies that promote this notion. In the financial industry, BNY Mellon, Citi and Goldman are most frequently mentioned for their embracing the importance of diversity across their ranks.
That said, TMCC has made it a point of repeatedly demonstrating they ‘get the joke’ when it comes to D&I. This is best illustrated via their global employee count, the profiles of their dealership operators and obviously, their customer base. Corporate Leadership experts have repeatedly documented via an assortment of metrics that the most successful companies within industry peer groups are those whose intellectual and financial investment towards promotion of D&I are the greatest.
This isn’t to suggest there are not a big bunch of big name companies who claim to embrace D&I, yet in reality, merely pay lip service to the concept. After all, nearly every Fortune 100 company and many of the ‘500’ have a senior executive whose title is Head of Diversity & Inclusion. It makes for great branding and corporate communications. That said, when it comes to capital market transactions (versus vendors who provide office supplies), mandates are handed out to minority firms in a manner similar to handing out crumbs ala a Charles Dickens novel. A large number of Fortune CFOs and Corporate Treasury officers generally defer to their lead 6-pack banks for underwriting and will posit that any D&I goals their companies might have “don’t include their job responsibilities.”
Many will argue that type of attitude is a big mistake, if only because, as TMCC executives have long acknowledged, the importance of placing bonds or new issue stocks with middle-market investment managers, such as public plan sponsors is a critical objective. Issuers want to place their offerings with folks having long term outlooks vs. opportunistic or activist managers. And, because bulge-bracket investment banks now primarily focus on the largest investment management firms, those 2nd and 3rd tier investment management firms often do not get covered by the big banks, and consequently, do not have the opportunity to participate in primary debt issuance. Too frequently, they are relegated to buying safer fixed income products in the secondary market–at a mark-up vs. the original issuance.
As noted in a post-transaction color commentary courtesy of Ron Quigley, Head of Fixed Income Syndicate for TMCC co-lead manager Mischler Financial Group, the sell side’s oldest service-disabled veteran owned/operated firm:
“Toyota’s Treasury team made their objectives and ground rules abundantly clear last week on a joint call. TMCC’s National Manager, Debt Capital Markets, Kate Oddo said, “TMCC is looking at this deal for best execution and via underwriters who meet our corporate needs insofar as diversity and includsion. Towards that objective, we are looking to differentiate our investor base from the bulge bracket underwriters. As markets continue to evolve and shift while remaining volatile, TMCC also sees a shift in its front end strategy. We are no longer seeing the typical front end reverse inquiry that we saw in the past.” Ergo TMCC announced yet another D&I or Diversity and Inclusion new issue. “
The minority firms selected in TMCCs group for the third time included Mischler Financial Group, Inc., the nation’s oldest Service Disabled veteran broker-dealer and 3x winner of Wall Street Letter’s Annual Award for Best BrokerDealer/Research along with, CastleOak Securities, Lebenthal & Co., LLC, Samuel A. Ramirez & Company, Inc., The Williams Capital Group, L.P.
For the full commentary and deal drill down courtesy of Mischler’s Ron Quigley, please click here