In 2004, following a period of rapid growth, Toyota Financial Services (TFS) faced a substantial increase in its annual funding requirements. Its treasury staff knew that seeking added liquidity through its traditional capital market sources would come at a steep cost, despite the company's triple-A credit ratings. And since senior management had just requested that treasury work to lower the company's overall cost of funds, treasury had to start thinking out of the box.

The solution came through a program of expanded issuances in the structured finance market, a market dominated by issues of federal agencies like Fannie Mae and Freddie Mac. "The difficulty that we had to overcome was the fact that accounting and tax requirements associated with structured trades are more complex, especially for a corporate issuer like us," says senior financial analyst Bill Pang. TFS's treasury established a cross-functional team, including members from accounting policy, operations, risk management, legal and tax to analyze and approve new structured opportunities. These transactions often involved complex embedded derivatives and were swapped back to USD three-month LIBOR to avoid incremental currency, rate or structure risk. To achieve hedge accounting under SFAS 133, many of the structures required the use of "long haul" accounting, under which the relationships between the hedged item and the derivative is documented and continuously monitored, instead of "short haul" techniques. From 2004 to 2005, as Toyota Financial launched its structured notes program, the group's cost of funds declined by 7.2 basis points, adding some $23 million in shareholder value. From 2005 to 2006, funding costs further improved by another 2 basis points and $13 million more in shareholder value was created. All the while, the company maintained full accounting compliance.