Is Equipment Right for You? EQUIPMENT LEASING & FINANCE OUN DAT IO N Your Eye On The Future

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EQUIPMENT LEASING & FINANCE OUN DAT IO N Your Eye On The Future IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

Table of Contents

Executive Summary ...... 1

Introduction and Overview ...... 3

How Does Lease Backed Securitization Work? ...... 4

Who Securitizes Equipment ? ...... 7

What Leases are Candidates for Securitization? ...... 9

Summary ...... 9

About the Researcher ...... 11

Appendix—Leading Equipment Lease Securitizers ...... 12

EQUIPMENT LEASING & FINANCE FOUNDATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

Is Equipment Lease Securitization Right for You?

EXECUTIVE SUMMARY 2. The securitization of equipment leases sold into the What is lease securitization, how can a lessor get in - public markets is limited to a small list of equip - volved in securitizing its equipment leases, and how ment manufacturers and large finance companies. can it decide whether to do so? These are fundamen - Private placements provide an opportunity for tal issues faced by every lease originator that has not smaller firms to utilize lease . yet engaged in lease securitizations. To add perspec - tive on these issues and to help those who are consid - 3. Over the last decade the equipment lease securiti - ering the use of lease securitization we address the zation industry has suffered some rather difficult following basic questions in this paper: growing pains related to general economic condi - tions and fraudulent actions by some lease securi - 1. What is equipment lease securitization and how tizers. More recently, the problems in the does it work? sub-prime finance market has dealt yet 2. What types of companies are the most active in se - another blow to the continued growth of this mar - curitizing their equipment leases and what can we ket. Even so, the industry appears to be poised to learn from current industry practice? experience growth commensurate with the growth 3. What types of firms securitize their equipment in equipment sales as the major securitizers are leases and what types of lease contracts do they now comprised of larger, more established firms. use? 4. Not all equipment leases are right for securitiza - Among the more important findings of the study are tion. In general, operating leases (with the excep - the following: tion of aircraft, shipping containers, and railroad cars) are not used in securitizations. Moreover, the 1. Equipment lease securitization is one of the oldest types of finance leases that are generally securitized non-mortgage forms of asset backed securitization incorporate rather severe restrictions designed to dating back to 1985. The equipment lease (like a assure the continuity of lease payments, (e.g., triple mortgage) serves as the basis for the issuance of se - net, hell or high water, and non-cancellable finance curities that are then purchased by investors either leases) in the public financial markets or in a private placement.

EQUIPMENT LEASING & FINANCE FOUNDATION 1 IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

Introduction and Market Overview

The issuance of securities backed by equipment nancing schemes used by Enron who declared bank - lease receivables is but one of a growing list of securi - ruptcy on December 4, 2001. tizations otherwise known as structured financing However, the equipment leasing industry has had its methods in use today. The securitization industry own of problems with the involv - began in the early seventies and now represents ap - ing fraud at National Century Financial Enterprises 2, proximately seven trillion dollars in securitized assets. DVI, Inc. 3, and NorVergence 4. Although fraud is not a Mortgage and card receivables make up of securitization per se, these failures have had a two of the more popular types of assets that are regu - sobering effect on the market for securitized equip - larly used in securitizations. An equipment lease se - ment leases and reminded investors of the atten - curitization involves the creation and issuance of dant to the securitization of assets. securities, or bonds, whose payments of principal and The period 1998-2006 saw a shake-out in the set of are derived from cash flows generated by a firms that engaged in securitizations of equipment pool of equipment lease contracts. leases. Of the 59 issuers engaged in equipment fi - The market for securitized equipment leases has ex - nancing securitization during this period 11 were ac - perienced slow and erratic growth since its inception quired by firms that are not engaged in securitization, although equipment leases were among the first non- 7 filed , 5 ceased operations and left the in - mortgage assets to be securitized. The 1985 securiti - dustry, and 16 no longer use securitization as a fund - zation of Sperry’s computer equipment leases marked ing source. The firms that continue to utilize the beginnings of this market. However, the market securitization tend to be larger and better capitalized did not take off until 1993 and it peaked in 1999 with firms with lengthy and successful track records. 35 transactions totaling $13.6 billion before dropping Finally, in 2007 the collapse of the subprime lend - off precipitously in 2002. By 2006 the market had re - ing market which was securitized heavily has had a covered somewhat with twelve public and private is - spillover effect on equipment lease securitizations. sues representing $8.4 billion, but this was still The loss of investor confidence in subprime ABS, al - considerably below the 1999 peak. 1 though not directly linked to equipment lease securi - The market for equipment lease securitizations was tizations has, nevertheless, had a chilling effect on the adversely affected by investor concerns about com - market for all securitizations. plex off-balance sheet financing following the rash of In summary, growth in the securitization of equip - corporate failures in 2001-2002 in which some very ment leases has been hampered by (i) opportunistic large and high profile firms attempted to disguise behavior by some early adopters, (ii) the stigma at - their true financial condition through the use of off- tached to special purpose entities following the col - balance sheet structured financing arrangements. lapse of Enron and the impending SEC disclosure Most notably this included the off balance sheet fi - requirements through AB, (iii) the fallout

1Data for 2006 are from John H. Bella, Jr.; Ravi R. Gupta; and Du Trieu, Rating U.S. Equipment Lease and Securitizations, FitchRatings, May 31, 2007. In addition, the Appendix contains a listing of the issuers of equipment lease securitizations for the period 1985 through October 18, 2007.

2A number of health-care providers relied on National Century to provide working capital by selling future receivables for cash. NCFE, in turn, relied heavily on securitization markets for their own funding. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

3DVI, Inc. leased medical equipment to health-care providers and securitized the leases. The issuer regularly repurchased delinquent leases from its securitization pools and also routinely sub - stituted leases to allow lessees to upgrade their equipment. When DVI failed, the performance of the securitized pools deteriorated because it no longer repurchased delinquent leases and be - cause customers could no longer upgrade their equipment. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

4NorVergence compounded the idiosyncratic risks seen at other failed firms by having a fraudulent business model. The firm created some $230 million in equipment leases for its Matrix de - vice which was sold as a means of reducing the cost of telecommunications services to small to medium size businesses. The device, however, turned out to be little more than a firewall and modem that routed long-distance calls through Qwest and Sprint. Although 7,200 Norvergence customers were locked into leases, Norvergence already got its money through the sale of the leases to leasing and banking companies. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

EQUIPMENT LEASING & FINANCE FOUNDATION 3 IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

from the economic downturn following 9/11, and (iv) three steps and illustrate its effects on the balance the more recent subprime debt market problems of sheets for the parties involved: Niece, the special pur - 2007. The future of securitization in the equipment pose vehicle used to securitize the lease receivables leasing industry depends largely on the awareness of (AAA-SPE), and the investor (AAA-Investor) who potential adopters of the benefits of the financing tool purchases the lease backed securities. and whether those benefits prove to be of real eco - nomic significance. Step 1: Niece purchases equipment for $15 million The remainder of this paper is organized as follows: that is to be leased to a local manufacturing In Section 2 we provide a brief overview of how lease client. The balance sheet for Niece appears backed securitization works. The objective here is to as follows after the acquisition of the equip - identify the key players and the issues that arise in ment and it’s financing: carrying out a successful securitization program. In Section 3 we discuss the participants in the equip - Niece Equipment Leasing Company ment securitization market. As we noted above, the firms that now engage in this form of securitization has decreased dramatically over the last decade. Sec - Equipment $ 15m Debt $ 5m tion 4 describes the types of lease contracts that are Equity 10m typically involved in securitizations, and Section 5 contains summary comments. Total $ 15m Total $ 15m

How Does Lease Backed Securitization Work? Step 2: Niece enters into long-term lease contract for the equipment with present value lease The general category into which lease backed secu - payments of $20 million. Following the ritizations fall is called asset backed securities (ABS). completion of the lease agreement Niece’s Specifically, asset backed securities are securities cre - balance sheet appears as follows: ated by pooling loans or leases other than first-lien Niece Equipment Leasing Company mortgage loans. 5 The three largest sectors of asset backed securities in the US are securities backed by receivables, auto loans, and home equity Lease Kx $ 20m Debt $ 5m loans. To illustrate the process by which lease backed Equity 15m securities are created, consider the hypothetical case of Niece Equipment Leasing Company. Total $ 20m Total $ 20m LEASE SECURITIZATION EXAMPLE To keep our example as simple as possible we will assume that the Niece Equipment Leasing Company was formed to enter into a single equipment lease, Step 3: Niece sells the present value of the lease which it then sold into a pool of other equipment payment stream from the lease contract leases against which equipment lease backed securi - for $18 million to a special purpose entity ties were issued. We describe the whole process in (AAA-SPE). The SPE then issues securities

5The securitization of first-lien mortgage loans gives rise to a special class of ABS known as mortgage backed securities.

6For simplicity we have not specified the relationship between Niece and AAA-SPE. If Niece were one of the larger leasing companies it would both originate and securitize its own leases. Alternatively, Niece might act as a conduit for smaller, regional leasing companies by acquiring their equipment leases and loans and including these assets in its securitized pool.

4 EQUIPMENT LEASING & FINANCE FOUNDATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

backed by the lease contract (in practice this Let’s now look at the balance sheet of the investor would be a pool of lease contracts). 5 AAA- who buys the equipment lease backed securities. SPE’s balance sheet appears as follows: We will assume, for simplicity, that a single investor purchases all of the equipment lease backed securities AAA-SPE, Inc. (ELBS) and that they finance the acquisition by bor - rowing $5 million and investing an added $13 million in equity funds, i.e., Lease Kx $ 18m Lease Backed securities 18m AAA Investor Total $ 18m Total $ 18m

ELBS $ 18m Debt $ 5m Equity 13m

Niece’s post-sale, balance sheet now appears as fol - Total $ 18m Total $ 15m lows (before retiring any debt):

Niece Equipment Leasing Company

Cash $ 18m Debt $ 5m Note that we assume that the investor now has $5 Lease Kx $ 2m Equity 15m million in debt (just as Niece once did). If the securi - tization process worked as planned, however, the in - Total $ 20m Total $ 20m vestor’s debt has lower risk than Niece’s debt. This is because the investor’s debt is based on an asset with lower default risk than if Niece owed the debt. Since the same collateral is involved in both in - Note that Niece still has $2 million in assets related to stances, how can this be? The answer lies in the fact the lease contract. This represents the value of the that the of the lease itself may not be as service contract plus any residual interest that Niece high as Niece’s credit risk. Consequently, separating might retain in the lease. A key observation at this the lease from Niece and its higher risk of default point is that Niece has converted the series of lease allows the market to price the lease as a stand-alone payments into cash. Assuming that Niece’s debt was . To explore this question further and many secured by the lease contract then the debt must be others that can arise in the use of the securitization repaid when the lease is sold such that Niece’s balance process for equipment leases we now discuss “what sheet will appear as follows: can go wrong?”

Niece Equipment Leasing Company

Cash $ 13m Debt $ 0m Lease Kx $ 2m Equity 15m

Total $ 15m Total $ 15m

EQUIPMENT LEASING & FINANCE FOUNDATION 5 ISEQUIPMENTLEASESECURITIZATIONRIGHTFORYOU?

The Potential Advantages Of ABS Using backed securities against them. For this to work Equipment Leases7 there are a number of potential obstacles that must be Four advantages are often cited for the securitiza- overcome. tion of equipment leases: The first is that securitizing can provide an inexpensive source of financing for the Problem #1: Isolating Equipment Leases From lease originator8 since it allows them to tap the capital Originator’s Creditors markets which otherwise would not be possible be- The essence of lease securitization is that it isolates cause of the size or credit standing of the firm. This the cash flows from the leases that underlie the secu- can work where securitizing separates the leases from ritization from the bankruptcy risk of the originator the firm that originated them. Thus, the risk to the (lessor). If the lessor were to declare bankruptcy, it investors who purchase the lease backed securities de- would be disastrous to the holders of the equipment pends only on the quality of the leases and not on the lease backed securities should the assets of the issuer originator of the lease contracts who typically contin- of the equipment lease securities be consolidated in ues to service them. Second, securitization may pro- the lessor’s reorganization proceedings. If the lessor’s vide a source of liquidity that may not otherwise be creditors are able to lay claim to the leases in the available to the small to medium sized firm as it al- event of default by the lessor, the riskiness of the lease lows them to tap the public capital markets. Third, if contract will reflect both the risk of the underlying the lease securitization is structured as a sale it may asset as well as that of the lease originator. Should enable the originator to remove the asset and the se- this occur, the potential cost savings from financing curities evidencing in the asset pool from its based on the lease contract would be lost. balance sheet. Finally, where a group of leases are To mitigate concerns about isolating the leases from pooled into a single securitization the risks of the the originator, two legal opinions are typically ob- pool can be less than the individual leases due to di- tained. The first is the “true sale opinion”. This versification in the pool. The extent of the benefits of opinion states that in the event of the bankruptcy of diversification depends, of course, on the diversity of the originator, the lease will not be re-characterized as the leased assets that are combined in the pool. a financing by the originator and was, in effect, a true sale of the leases to the special purpose vehicle (issuer Potential Problems With Equipment of the lease backed securities). Among other require- Lease Securitization ments this opinion requires that the lease backed se- Securitization leads to a reduced cost of financing curity holders cannot have recourse to the lessor or where it separates low default risk lease assets from any affiliate (except the issuer itself) for any credit their originators (lessors) who might face a much losses beyond a nominal amount that is generally 10% higher risk of default. This allows the leases to be re- of the fair market value of the assets transferred to the financed at the low rates of interest they would com- issuer. mand as an independent asset. Very simply, Niece The second legal opinion also relates to the risk of may have a low , but this does not mean bankruptcy of the originator. The opinion is known that it cannot originate assets (leases) that can com- as the “non- opinion” which states that mand high credit ratings and consequently lower in the event of the bankruptcy of the originator, the costs of financing. One way for Niece to get the bene- special purpose vehicle that issued the lease backed fit of the low risk leases it originates, is to sell the securities and the originator will not be treated as the lease contracts to another entity that packages them same entity or pooled into its bankruptcy. with other lease contracts and issues equipment lease

7The discussion in this section is based on Peter Humphreys and Howard Mulligan, Lease Securitization: New Challenges for Issuers, Mcdermott Will & Emery, http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/6edcc18b-81bb-4675-aad6-9c15e60ac8dd.cfm (April 8, 2005).

8Lease originators include independent leasing and finance companies, banks, and subsidiaries of equipment manufacturers.

6 EQUIPMENT LEASING & FINANCE FOUNDATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

Problem #2: Assuring The Credit Quality Of the rating agencies will evaluate a servicer’s collection The Lease procedures and effectiveness as part of its rating due Some measure of is generally diligence. The importance of providing uninter - required if the ABS securities are to receive a high rat - rupted service for the securitized leases has led to the ing from the rating agencies. The amount of the over - rating of the servicers by credit rating agencies and all credit enhancement is generally equal to a multiple also the practice of requiring back-up service agree - of the historical loss experience on the lessor’s entire ments with an unaffiliated company if the rating is portfolio. below the required threshold. The latter adds cost Credit enhancements come in many forms and may to the transaction. be used in various combinations in any given securiti - zation. The alternative forms of credit enhancement include a reserve account, partial guaranty by the les - Who Securitizes Equipment sor if it is highly rated, pledge of equipment residual Leases? values by the lessor, or some type of third-party insur - ance or . As we noted above, however, the amount of the losses that can be born by the les - There are two avenues that can be taken in the secu - ritization of equipment leases and it turns out that the sor are generally limited to 10% or less of the fair firms that use each are quite different. The first av - market value of the leased assets. More than 10% enue is comprised of securitizations in which the runs the risk that the true sale opinion (noted above) lease backed securities are sold into the public capital may not be available. markets. To date the public ABS market for equip - Problem #3: Continued Reliance On The Lease ment leases remains relatively small when compared Originator For Servicing The Leases with more popular forms of asset securitizations in - volving mortgages or credit card receivables. 9 The is - It is not sufficient that the lease originator identify suers in this market come from one of three groups: and enter into good quality lease agreements. Even in (i) subsidiaries of agricultural and construction the case of long-term financial lease contracts there is equipment manufacturing companies including John always the risk that the lease will be terminated early, Deere, Caterpillar, and CNH (previously Case and in which case the lessor (who typically services the New Holland); (ii) large finance companies including lease contract) must re-lease or sell the asset. - commercial and consumer finance giant CIT 10 and GE term operating leases magnify the issues arising with Capital; and (iii) small independent leasing compa - regard to servicing the lease assets. Consequently, the nies including Marlin, Frontier Leasing, and US Ex - ability of the originator to service the lease receivables press Leasing. Issuers in the latter group are found in a timely manner can be critical to the overall suc - almost exclusively in the private securitization market cess of the securitization. In a securitized transaction (i.e., private conduits) since the costs of a public se - servicing the leases includes tracking billings, curity issue are prohibitive. collections, repossessions, and non-payments, as Table 1 summarizes the volume of total equipment well as remarketing assets that come out of leases asset backed securitization deals done over the period either through re-leasing them or selling the 1998 thru 2006. 11 Over this nine year period a total of underlying asset. $88.1 billion in equipment financing securitizations Consequently, the quality of the lease security were issued. This total consisted of $52.825 billion in portfolio depends importantly upon the capabilities lease backed transactions and $35.275 billion in of the equipment lease originator. For this reason

9This is based on private correspondence between the author and Edward Reardon of JP Morgan.

10 For example, CIT raised over $800 million in a public offering of lease backed securities in March 2005, and another $741 million in November 2006.

11 The summary data for asset backed securitizations of equipment financing come from John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Securitizations, FitchRatings (May 31, 2007).

EQUIPMENT LEASING & FINANCE FOUNDATION 7 IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

equipment loan backed securitizations. Table 2 details tained in Tables 1 and 2 understate the total amount the lease backed securitizations by year. Although of lease backed securitizations since they do not in - there is significant variation in the composition of clude aircraft ($46 billion), shipping container $3.7 loan versus lease securitizations, leases tend to domi - billion), and rail car ($1.5 billion) operating lease se - nate. It is important to point out that the data con - curitizations completed over the 1998-2006 period.

TABLE 1. ASSET BACKED SECURITIZATION (ABS) ISSUES CLASSIFIED BY TYPE OF EQUIP 1998-2006 A total of $88.134 billion of equipment lease and loan backed securitizations were done over the period 1998-2006. The transportation industry (Trans) comprised 12% of the total, construction and agricultural equipment (Const & Ag.Eq) made up 39% and the remaining 49% were comprised of small ticket items and medical equipment (Small and Med).

Source: John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Securitizations, FitchRatings (May 31, 2007).

TABLE 2. EQUIPMENT BACKED SECURITIZATIONS—LOANS VS. LEASES: 1998-2006 Equipment securitizations reported in Table 1 consist of both loans and leases. This table breaks these two categories out.

Source: John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Secu - ritizations, FitchRatings (May 31, 2007).

8 EQUIPMENT LEASING & FINANCE FOUNDATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

What Leases Are Candidates 4 Hell or high water —this provision obligates the For Securitization? lessee for all periodic payments regardless of loss, theft, destruction of the equipment, lessor default, or bankruptcy. Not all leases are equal when it comes to securitiza - 5 Triple net —obligates the lessee to pay all insur- tion. Specifically, there are two dimensions of leases ance, taxes, and charges associated with the that are important. The first relates to whether the equipment. Moreover, lessees are often required lease is an operating or financial lease with the latter to obtain for a minimum of the unpaid being preferred except for some specific types of as - balance and, in some cases, the fair market value sets. The second revolves around the specific terms of the equipment. of the lease contract itself that specify the responsibil - 6 Noncancelable —the leases cannot be canceled ities of the lessee under the lease. The latter are di - by the lessee. rected toward standardizing the terms of the leases 7 Reletting provision —requires the lessee to in- included in the securitization. form the lessor near the end of the lease term if Leases can be structured as operating or finance the lessee is planning to return or purchase the leases where finance leases are full payout leases such equipment. If the lessee fails to notify the lessor, that the present value of the lease payments covers at the lease is automatically renewed for some least 90 percent of the original cost of the equipment. predetermined period of time. Operating leases, in contrast, have payments whose present value constitutes less than 90 percent. Both Clearly, not all leases are good candidates for securi - types of lease contracts provide cash flows in the form tization. of periodic rental payments and the residual value. However, the amount that is securitized is typically only the present value of the periodic lease or rental Summary payments which restricts the usefulness of operating leases for securitization. 12 Consequently, only limited types of assets are securitized under operating leases. We began this research project with three basic These include aircraft, railroad cars and shipping con - questions in mind and will summarize in terms of our tainers. 13 answers to each: The second factor that determines the type of lease used in securitizations relates to the specific terms 1. What is equipment lease securitization and how does of the lease. Specifically, to assure the continuity of it work? lease payments the following four provisions are typi - Securitization is a process in cally included in the lease agreement: 14 which assets, receivables or financial instruments are 1 At least one month of seasoning —the greater acquired, classified into pools, and offered as collat - the seasoning the greater is the likelihood that eral for third-party . It involves the selling the leases will perform. of financial instruments (that often are equipment 2 No receivable more than 30-60 days past due at leases), which are backed by the cash flow or value . Lease contracts are current. of the underlying assets. The objective in engaging 3 No lessee can be bankrupt . Lessees must be in securitization is to open an alternative source of operating out of bankruptcy. financing to lease originators. Traditionally, lessors

12 The The residual value of the asset is typically either used as a form of credit enhancement or not included in the securitization at all.

13 Over the period 1998-2006 equipment lease securitizations using operating leases included $46 billion for aircraft, $3.7 billion for shipping containers and $1.5 billion for rail cars.

14 Carrie Heilweil, Equipment Lease ABS, MBS an ABS Research, Lehman Brothers, August 26, 1999; and Wendy Cohn and Drew Nugent, Rating Equipment Lease Securitizations, www.fitchibca.com, September 10, 1998.

EQUIPMENT LEASING & FINANCE FOUNDATION 9 IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

have used banks, finance companies, and other tradi - Since the volume of lease securitization in 2006 had tional financial intermediaries as their primary source only recovered to 62 percent of the 1999 volume it of credit to support their operations. With lease secu - appears that the market has itself shrunk. ritization the public capital markets are tapped thereby offering the lessor access to a more diverse 3. What types of firms securitize their equipment leases and and larger source of capital. what types of lease contracts do they use? The third question relates to the types of firms that 2. What types of companies are the most active in securitiz - find securitization most attractive and types of leases ing their equipment leases and what can we learn from their that are securitized. In the post-2006 world it would experiences? appear that only the very largest and most financially Equipment lease securitization has a very long his - stable finance companies and the large agricultural tory. In fact, Sperry’s securitization of computer lease and construction equipment manufacturers are able rental contracts represented one of the earliest in - to securitize financial leases. In addition, financial stances of non-mortgage backed securitizations. leases provide the primary type of lease used in secu - Moreover, equipment securitizations vary directly ritizations. Only operating leases originated in aircraft with the demand for equipment leases which largely leasing, railroad car leasing, and the leasing of ship - follow the state of the general economy. For example, ping containers find their way into securitization. the economic slow-down following the dot.com crash of 2000 resulted in a dramatic drop-off in lease backed securitizations as the volume of new equip - ment leases itself shrunk. During this period the number of firms engaging in lease backed securitiza - tions dropped by two-thirds from a high of 35 in 1999 to 11 in 2006. Moreover, the type of company that participates in the lease securitization has changed rather dramatically in recent years as the weaker and smaller firms have exited leaving larger and more sta - ble firms. The contraction in the number of firms engaged in equipment lease securitization has meant that the pri - mary lessors who use securitization have contracted.

10 EQUIPMENT LEASING & FINANCE FOUNDATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU?

About the Researcher

John D. Martin, PhD is professor of finance and holder of the Carr P. Collins Chair in Finance in the Hankamer School of Business at Baylor University. He is a prolific writer and researcher ranking 47th among 17,573 finance scholars spanning the period 1953-2002. His academic publications include papers published in the Journal of , Journal of Finance, Journal of Monetary Economics, Journal of Financial and Quantitative Analysis, Financial Management, and Management Science. His profes - sional publications include papers in Directors and Boards, Financial Analysts’ Journal, Journal of Portfolio Management, and Journal of Applied . In addition, Professor Martin has co-authored several books, including Value Based Management (Harvard Business School Press), Financial Management , 10th edition (Prentice Hall Publishing Company), Foundations of Finance , 5th Edition (Prentice Hall Publishing Company), Financial Analysis (McGraw Hill Publishing Company), The Theory of Finance (Dryden Press), and most recently, Valuation: The Art and Science of Making Strategic (Addison Wesley).

* This study was funded by the Equipment Leasing & Finance Foundation (Washington, DC). In preparing this paper the author had conversations with a wide variety of individuals engaged in the lease securitization industry. Some of these are mentioned specifically in footnote references, however some are not. Specifically, the author was the beneficiary of conversations with Kent Becker (Moodys); John Detweiler (Standard and Poor’s); Mike Jewesson (Andrews Kurth LLP); David Martin (Highland Capital); Theresa O’Neill (Merrill Lynch); Al Niece (Niece Equipment Company); Christopher Flanagan and Edward Reardon (JP Morgan); Robert Rinek (Piper Jaffray); and Brad Voss (Highland Capital). Author contact information: John D. Martin, Baylor University, One Bear Place P.O. Box 98004, Waco, TX 76798. Office: 254-710-4473. Fax: 254-710-1092. [email protected]

EQUIPMENT LEASING & FINANCE FOUNDATION 11 12 S I

Appendix—Leading Equipment Lease Securitizers P I U Q E T N E M S A E L E T A Z I T I R U C E S O I N R T H G I R O F ? U O Y EQ UIPMENT LEAS ING & F IN AN CE FOU ND ATION IS EQUIPMENT LEASE SECURITIZATION RIGHT FOR YOU? . c n I , s e i t i r u c e S n a g r o M . P . J : e c r u o S

EQUIPMENT LEASING & FINANCE FOUNDATION 13 EQUIPMENT LEASING & FINANCE OUN DAT IO N Your Eye On The Future

Future Focused Research for the Equipment Finance Industry Presented by the Source for Independent, Unbiased and Reliable Study

The Equipment Leasing & Finance Foundation • Identifying Factors For Success In the China The Equipment Leasing & Finance Foundation, established • Renewable Energy Trends and the Impact on the in 1989 by the Equipment Leasing Association, is dedicated Equipment Finance Market to providing future-oriented, in-depth, independent re - • Long-Term Trends in Health Care and Implications for search about and for the equipment finance industry. Infor - the Leasing Industry mation involving the markets, the future of the industry • Why Diversity Ensures Success and the methods of successful organizations are researched • Forecasting Quality: An Executive Guide to Company to provide studies that include invaluable information for Evaluation...and so much more! developing strategic direction within your organization. Journal of Equipment Lease Financing Your Eye on the Future Published three times per year and distributed electroni - The Foundation partners with corporate and individual cally, the Journal of Equipment Lease Financing is the only sponsors, academic institutions and industry experts to peer-reviewed publication in the equipment finance indus - develop comprehensive empirical research that brings the try. Since its debut in 1980, the Journal features detailed future into focus for industry members. The Foundation technical articles authored by academics and industry ex - provides academic research, case studies and analyses for perts and includes Foundation-commissioned research and industry leaders, analysts and others interested in the articles. Journal articles are available for download through equipment finance industry. the Foundation website. Subscriptions are available at The Foundation’s resources are available electronically or www.leasefoundation.org in hard copy, at no cost to Foundation donors and for a fee to non-donors. The Foundation website is updated weekly. Web Based Seminars For more information, please visit www.leasefoundation.org Many of the Foundation studies are also presented as web Resources available from the Foundation include the fol - seminars to allow for direct interaction, in-depth conversa - lowing research and emerging issues (check the website tion and question and answer sessions with the researchers for a complete listing): and industry experts involved in the studies. Please visit the Resources: Research Studies and White Papers Foundation website for details on upcoming webinars at • US Equipment Finance Market Study www.leasefoundation.org • Propensity to Finance Equipment – Characteristics of the Finance Decision Donor Support and Awards Program • Business Differentiation: What makes Select Leasing The Foundation is funded entirely through corporate and Companies Outperform Their Peers? individual donations. Corporate and individual donations • Annual State of the Industry Report provide the funds necessary to develop key resources and • Evolution of the Paperless Transaction and its Impact trend analyses necessary to meet daily business challenges. on the Equipment Finance Industry Corporate and individual donors are acknowledged pub - • Indicators for Success Study licly and in print. Major giving levels participate in a distin - • Credit Risk: Contract Characteristics for Success Study guished awards presentation. Giving levels range from $100 • Study on Leasing Decisions of Small Firms to $50,000+ per year. For information on becoming Resources: Identification of Emerging Issues a donor and to see a list of current donors, please visit, • Annual Industry Future Council Report www.leasefoundation.org/donors

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