March 3, 2009 / 12:35 AM / 8 years ago

UPDATE 4-Toyota seeks govt-backed loan for finance arm

5 Min Read

* Toyota Financial seeks state help to lower funding costs

* Paves way for other Japanese firms to follow

* Toyota says may seek public support from other countries

* Shares end down 0.3 pct in slightly weaker market (Adds CDS background, Toyota funding cost)

By Mayumi Negishi and Nobuhiro Kubo

TOKYO, March 3 (Reuters) - Toyota Motor Corp (7203.T) has applied for a loan backed by the Japanese government to help its finance arm cut funding costs as the global crisis tightens access to credit, a company official said on Tuesday.

Toyota, facing an operating loss of $4.6 billion this business year, was seeking a loan of about $2.1 billion through its wholly owned car-loan financing firm Toyota Financial Services, public broadcaster NHK TV reported earlier.

Chronic fear of default is making low-cost funds harder to come by, especially in the United States, even for cash-rich companies such as Toyota.

"Toyota is not in danger. It's out to get the lowest price for funding that the strength of its credit can get," said Yasuaki Iwamoto, an analyst at Okasan Securities. "On the balance sheet, it doesn't matter if the funds are private or public."

The cost of debt at the world's top automaker has gone up in the past year, with a five-year bond sold by Toyota Finance in December offering a subscriber's yield of 1.248 percent, up from 1.106 percent for debt in the same maturity sold in April 2008.

Mio Sugito, an official at Toyota's business management group, said Toyota Financial Services is in talks with the state-backed Japan Bank for International Cooperation for a loan to help cover rising credit costs.

No decision has been made on the size of the loan, the timing or the currency denomination, she said.

Toyota is also considering applying for public support from other countries, she said, without elaborating.

Japan to Help Companies

With credit markets worldwide in turmoil, Toyota's move may make it easier for other Japanese companies to follow suit and turn to state-backed loans prior to the closing of books for the business year at the end of March.

Japan said on Tuesday it plans to use some of its foreign exchange reserves to help Japanese companies exposed to the global credit squeeze. [ID:nT216136]

The heat is on financial services firms catering to automakers, which need to secure cheap financing to supply zero- and low-interest loans to woo reluctant consumers.

Toyota Financial Services, whose assets totalled 14.3 trillion yen ($147 billion) as of the end of September, providing car leases around the world and home loans and asset management services in Japan.

Credit default swaps on automakers in Asia and Europe have jumped in price as investors worry about liquidity and short-term debt maturities at carmakers' financial services operations.

The Moody's CDS implied rating for Toyota was six notches lower than its actual rating of Aa1. [ID:nL2520864]

But Toyota is in a much better position than its competitors, which have a higher percentage of loans in arrears, said Okasan's Iwamoto.

Five-year credit default swaps on Toyota were at 215 basis points on Monday, meaning it cost $215,000 a year to protect $10 million of debt, way below the 674 basis points of its rival Nissan Motor Co (7201.T), according to Markit Intraday.

Carmakers worldwide are reeling from a collapse in consumer demand since last year that has forced them to cut production and shed jobs.

U.S. auto sales for February, due later on Tuesday, are expected to show sales down about 40 percent and hovering near 27 year lows. [ID:nN02403884]

Finance company GMAC, the main lender to struggling automaker General Motors Corp (GM.N), has been hit by losses in its auto and mortgage units, but won a $6 billion government bailout in December and a ticket to tap lower-cost funding.

Among other Japanese firms, heavily indebted companies such as chipmaker Elpida Memory Inc 6665.T have said they are considering seeking emergency government funds under a separate scheme aimed at bolstering nonfinancial companies.

Shares of Toyota fell 0.3 percent to 3,060 yen, compared with a 0.7 percent fall in the Nikkei average .N225. ($1=97.31 Yen) (Additional reporting by Rika Otsuka in Tokyo and Eric Burroughs in Shanghai; Editing by Michael Watson)

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