Toyota CDS at seven-month high after global recall

The cost of buying protection on Toyota Motor Corporation's debt hit a seven-month high this week as its recall woes widened, but borrowing costs at the cash-rich automaker are not expected to jump substantially.

Credit ratings agencies have put Toyota and its group companies on watch for a possible downgrade and analysts say its credit default swaps (CDS), derivatives used to insure against default, are likely to widen further if negative news about the firm continues.

Toyota has recalled more than 8.5 million vehicles for problems ranging from unintended acceleration to braking in the worst ever safety crisis at the world's largest car company. The Toyota group, which is rated AA by Standard and Poor's, has nearly $72 billion (Dh264.4bn) in bonds outstanding, according to Reuters data.

Toyota Motor's domestic cash bonds have traded 20 to 30 basis points over Japanese Government bond yields in the past few days, barely changed from before the first recall announced in January.

Toyota's cash and cash equivalents as of the end of December were $24bn.

It has estimated a knock of ¥180bn (Dh7.3bn) at the operating level for the cost of recalls and loss of sales in the fiscal year to March. Five-year CDS on Toyota debt were quoted at 95-115 basis points yesterday after trading at 103 basis points on Tuesday this week.

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