From the November 2011 issue of Treasury & Risk magazine

Bronze AHA Winner in Enterprise Risk Management

Automating Debt Compliance: Toyota Financial Services

Toyota Financial Services (TFS) built an automated platform to manage debt compliance requirements, which grew increasingly complex following the financial crisis and the company’s loss of its triple-A rating.

“With a triple-A, we relied on unsecured debt to meet most of our funding needs, and we had only six related documents for compliance purposes,” says Paul Boodee, director of the Americas region at TFS. “It was a much simpler time.”

The liquidity crunch during the financial crisis and the company’s downgrade to AA-minus prompted TFS to diversify its funding further. It now faces compliance requirements for 80 transaction documents with more than 5,500 clauses. They include covenants that, if breached, could result in a technical default, the need to restate financials and reputation risk that could impact future financings.

TFS looked at vendor solutions to manage its compliance process but found them costly, and some required entry of compliance related clauses into their proprietary systems.

So the auto financing company, which issued $21.9 billion in debt securities during fiscal 2011 and had $77.3 billion in total outstanding debt as of March 31, built its own system. The goal was to automate the compliance confirmation process starting at deal execution, query compliance issues across its entire document inventory, identify and manage “trigger events,” provide management with comprehensive reports and meet audit requirements.

TFS built a SQL database to perform those tasks, overcoming challenges including the treasury staff’s lack of compliance experience. The company organized the compliance requirements of complex debt transactions and summarized compliance reports to support officers’ compliance certifications.

Previously, compliance review was a multi-departmental effort, but now it’s handled by one or two dedicated staff. And the scalable platform easily supports new types of funding transactions TFS has pursued. “Management has confidence in our debt compliance processes, allowing us to continue our aggressive funding strategy,” Boodee says.



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