Oct. 26 (Bloomberg) -- General Electric Capital Corp. and Toyota Motor Credit Corp. have each increased market share in the shrinking U.S. structured notes market, selling more than twice as many of the securities as the same period last year.
General Electric Capital, the largest non-bank structured note issuer in the U.S., sold $525 million of rate-linked structured notes this year, 3.5 times more than last year, according to data compiled by Bloomberg. Toyota has sold $215 million in rate-linked notes, more than twice as much as in 2011.
Investors are buying more structured notes from non-bank issuers this year because their credit ratings are typically higher than those of financial firms, said Bill Pang, manager of derivatives and structured finance at Toyota Motor Credit Corp in Torrance, California. Since structured notes rely on the issuer’s promise to pay its obligation, investors want to have different kinds of issuers, he said.
“What we’re doing this year is capitalizing on investor demand of increasing yield while diversifying bank-sponsored deals whose ratings have suffered over the year,” he said in a telephone interview.
Toyota Motor Credit is rated Aa3 with a negative outlook by Moody’s Investors Service. General Electric Capital is rated A1 with a stable outlook. Bank of America Corp., the largest U.S. issuer of structured notes, is rated Baa2 with a negative outlook.
In 2007, Toyota sold more than $2.5 billion in structured notes, the most in a calendar year for the company and 11 times what has been sold this year, Pang said. That number includes notes registered with the U.S. Securities and Exchange Commission and private transactions, he said.
“One of the key reasons there hasn’t been a lot of issuance is that there is a lot of cash on hand in these entities,” said Ian Merrill, director of U.S. investor solutions at Barclays Plc in New York. “Tactical acquisitions have been contemplated for a long time, but they’re still not doing them because of uncertainty” in the economy, he said.
Sales of structured notes in the U.S. are down 19 percent, compared with the same week last year, Bloomberg data show.
“We look at all options all the time -- it’s business as usual for us,” said Russell Wilkerson, spokesmen for GE Capital, in an e-mail.
Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
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