Wednesday, August 19, 2009
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MericapCredit closing down
MericapCredit, Lisle, Illinois, led by Craig Weinewuth and Jim Freund reportedly has reached an agreement to sell its remaining portfolio to Main Street Bank, Kingwood, Texas. Reportedly a few of the remaining Mericapcredit employees will be transitioning out over the next couple of months.
According to a well-informed source, the remaining sales personnel have been laid off.
The founders of the company have a background with American Business Finance and the SierraCities/American Business Finance relationship with Main Street Bank key staff.
James B. Freund
Marquette Business Credit continues downsizing
Marquette Business Credit Inc., part of Marquette Financial Companies, closed its Minneapolis Branch, with eleven of the twelve employees let go, according to a company spokesperson, effectively closing this branch.
Marquette Business Credit has two remaining offices, the Dallas headquarters and a branch in Los Angeles.
"Marquette Financial Companies is comprised of banking, commercial finance, and real estate construction lending businesses with assets totaling $2.5 billion and equity capital in excess of $222 million, the organization has nearly 500 employees in 26 states."
Employment in the Leasing Industry
I recently wrote a column regarding the changing of the trend back toward "direct salesmen" rather than independent brokers. Several readers thought it was an opinion piece about brokers, which it was not. It traced the trend of no brokers, to some brokers, to brokers getting more calls from funders than funders were calling customers direct. To today, where the trend is "direct sales" rather than independent brokers.
The lack of sources and the number of brokers brought up in an "application only" world has changed the market place. There also are many leaving the industry itself. Twenty year veteran Kathy Jackson, who has worked with Bank of America Leasing and Capital, GATX Capital Corporation, among others, just became chief executive officer of Second Harvest Food Bank of Santa Clara and San Mateo Counties, right here in the heart of Silicon Valley.
How can you substantiate the statement many are leaving the leasing industry? Easy, while most of our readers go to our mailing list (and were first to receive the news of CIT's $1.62 billion quarterly loss late Monday afternoon), many are on our mailing list, and they tell us:
"I am no longer involved in the leasing business and cannot benefit from receiving the Leasing News. I wish to be taken from your distribution list and also want to commend you on your faithfulness in getting the News out on such a consistent and timely basis.
"Leasing requires a lot of time and effort I cannot devote at this time in my life. I have a nice retirement from my previous employer, and I need to work at something that I can do at my leisure, i.e. I do mortgage loans from my home and am involved in real estate investing while the prices are low and the market is gutted with foreclosures and other super deals.
"I bid you Godspeed in all your future endeavors. Keep up the good work.
"Thanks so much,"
(name with held)
"As of 8/17/2009, please contact Doug Jones, Vice President Sales at Ervin Leasing. Doug Jones can be reached at (800) 348-9196 and firstname.lastname@example.org.
"I have enjoyed working with all my customers and vendor accounts over the many years at Ervin Leasing. Thank you to all of you! I have accepted a new position outside of the leasing industry.
"Doug Jones and Ervin Leasing will continue to provide you excellent service as we have done since 1978.
In addition to telling us they are leaving the industry, they also inform us they have left a company. When we receive a number of them, it lets us know they Key or US Bank is letting people go, as well as other companies, such as:
"Ted Levinson is no longer with Warren Capital. Please contact Scott Shapiro (email@example.com) or Clay Stephens (firstname.lastname@example.org) for immediate assistance.
"Hello! As of July 15, 2009 I no longer work at Odyssey Equipment Financing Company. Please contact Robin Richards at Robin@oefc.net or john Torbenson at John@oefc.net or call either of them at 888-607-6800 for assistance.
"Would you be kind enough to forward your daily news letter to my home email address, which is email@example.com. Up until a couple of weeks ago, I was employed for 11 years at Butler Capital Corporation where I enjoyed receiving your daily news. At Butler I was VP - Sr. Credit Officer and worked together with a friend of yours, Don Blody until he left the company this past January. Prior to that I was a seasoned lender of 23 years at the former Signet Bank/Signet Leasing Corporation.
"Can you send your Leasing news to my personal email address at **********
"Don't know how much longer I will be here.
(name with held)
Readers also let us know by asking for an email address change to where they are now working:
"Here is my new email firstname.lastname@example.org please put me back on the list!
"Thank you Sir! "
John T. Sullivant
"I have a new email address. Please add my company to your email list.
Kenneth J. Pringle
The changes to the Leasing News mailing list give a good barometer as to employment changes in the leasing industry.
Direct Sales vs. Independent Broker:
Should you buy stock in a leasing company?
There are three United States companies actively involved in lease financing traded on the stock exchange. There are many that are part of other financial institutions, including banks, and from time to time Leasing News includes them. The performance of the leasing companies rarely has any influence (unless bad) on the parent, so to rate LEAF Corporation part of Resource America or American Capital, holding company of Financial Pacific, may not be indicative of the value or performance of the leasing company.
Chesswood Income Fund (CHW.UN-T) is on the Canadian exchange, and is composed of four operating companies, each of which has separate management, each of which has separate management; one is Pawnee Leasing located in the United States. They are included here because their stock has improved since the last visit and readers should take that into account.
Chesswood Income Fund
Unfortunately most publically held leasing companies have not done well for long term investors. To those playing the ups and downs, hitting it right, they seemed to have done well.
As for the long terms, things have not changed very much from ten years ago, as evidenced by seven leasing companies who went public in 1997:
HOW DO THE PROBLEMS OF PUBLICLY-OWNED LEASING COMPANIES IMPACT YOUR COMPANY?
By Bruce Kropschot
(originally written for the June, 2000 edition of the Monitor and reprinted with the permission of the author.)
Most readers of the Monitor have followed with interest the several initial public offerings of equipment leasing companies in recent years. However, you might not realize how the performance of publicly-owned leasing company stocks may impact the health of the leasing industry in general and your company in particular.
Let's look at the following stock market performance of the 7 equipment leasing companies that went public since May 1, 1997:
63.1% It is obvious that the last 7 equipment leasing company IPOs have been poor performers. Even the 2 giant companies, CIT and Heller, have declined over 30% since their IPOs. The other 5 IPOs in the past 3 years, which have declined an average of 74.8%, include 4 independent leasing companies and one new company, UniCapital, which went public simultaneous with its roll-up acquisitions of 12 independent leasing companies.
Industry-Specific Valuation Factors
There are a number of reasons why the latest leasing company IPOs, and public leasing company stocks in general, have been poor performers in a period when the overall stock market averages, until recently, have had phenomenal growth. The earnings and earnings growth potential of SierraCities.com (formerly known as First Sierra Financial), T&W Financial, LINC Capital and UniCapital when they went public were heavily dependent on continued use of gain on sale accounting for lease securitizations. The accounting rules promulgated by the Financial Accounting Standards Board require securitizations that meet certain tests to be accounted for off balance sheet with a gain on sale recognized. Many lessors and other securitizers structured their securitizations to meet these tests so they could record more income up front and keep securitization debt off their balance sheet. In 1998, this gain on sale accounting method lost favor among investment analysts who follow leasing companies, largely as a result of gain on sale accounting problems experienced by other types of specialty finance companies.
A number of sub-prime auto finance companies and home equity lenders were forced to take major bad debt losses when the loss reserves factored into their securitization accounting assumptions proved to be inadequate. Also, as interest rates declined in 1997 and 1998, many mortgage lenders experienced higher levels of prepayments than anticipated, necessitating a reversal of previously recognized securitization gains. A number of investment analysts and the investors who follow their recommendations fail to distinguish that it is much easier to forecast losses accurately in commercial lease transactions than in sub-prime consumer loans and that most commercial leases either do not permit prepayments or require prepayment penalties which mitigate against adverse securitization accounting adjustments.
Faced with increasing pressure from the investment community, SierraCities.com, T&W Financial, LINC Capital and UniCapital all announced in late 1998 and early 1999 plans to discontinue the use of gain on sale accounting for securitizations by changing their securitization structures. Going off gain on sale accounting for securitizations has greatly reduced earnings for these 4 companies, and it will take several years for earnings to recover to the levels they would have reached had the companies remained on gain on sale accounting. Since stock prices are heavily dependent on reported earnings and analyst forecasts, the adverse impact on the stock prices of these 4 companies has been dramatic.
Stocks of leasing companies have also suffered because the entire financial services sector has been out of favor while much of the attention of investors has been focused on internet-related stocks. The stocks of many strong banks reporting record profits declined over 40% from their peaks to their lows in the past year. There are investor concerns that the Federal Reserve Board's interest rate increases will eventually result in an economic downturn that would produce higher credit losses for leasing companies and banks. Investors are particularly fearful that those leasing companies who lease to less credit-worthy businesses will be especially vulnerable.
The possibility of a recession also increases investor concerns as to the continued availability of funding for some leasing companies. The international financial turmoil in the summer and fall of 1998 effectively closed down the lease securitization market and resulted in higher interest rate spreads over U.S. Treasuries when the securitization market reopened. Not having access to the lease securitization market for an extended time could be disastrous for those leasing companies that do not have adequate funding alternatives.
Company- Specific Valuation Factors
There are of course many company-specific reasons for movements in stock prices for the last 7 leasing company IPOs. SierraCities.com had outstanding market performance spurred by publicity about their e-commerce initiatives in a stock market enamored by almost any company labeled as an e-commerce company. However, SierraCities, which went public at 8, has sunk from 1998 and 1999 highs above 30 to around 4, likely due to investors' impatience for earnings and concerns about the poor performance of the entire leasing sector.
T&W and LINC both tried to find an acquirer amid growing credit losses and liquidity concerns. Neither succeeded in being acquired, and T&W is now in liquidation and LINC announced in March 2000 that it is downsizing and has made the strategic decision to de-emphasize its traditional leasing activities.
One of the reasons investors have battered UniCapital's stock is investor concerns over the sustainability of its substantial trading profits in the cyclical business of selling commercial jet aircraft and engines by its Big Ticket Division. These concerns appear to have been warranted because UniCapital announced in May 2000 that it was taking major valuation write-offs in its Big Ticket Division and had decided to exit this business.
CIT's stock has been under pressure since it acquired Newcourt Credit Group in November 1999. The stock of Newcourt, also a public company, had fallen drastically before CIT first announced plans to acquire the company in March 1999 on investor concerns about Newcourt's credit quality, liquidity and earnings, and it fell further amid concerns that the acquisition would be called off because of Newcourt's lower than expected earnings for the first quarter of 1999. The acquisition was finally completed after the acquisition price was negotiated downward, but investors have not been kind to CIT's stock, possibly because of concerns about the ability of CIT to integrate such a large acquisition smoothly and the adverse impact on CIT's earnings of discontinuing Newcourt's extensive reliance on gain on sale accounting for lease securitizations.
Newcourt is not the only more-seasoned public leasing company to experience a significant stock price decline. Finova, which had been regarded as one of the best public leasing and commercial finance companies, recently hit a stock price low of under 8 in May 2000 after being above 62 in February 1999. The most precipitous part of this drop was in response to the news of a $70 million charge off of one bad account and investor concerns as to possible other credit problems and funding problems. Leasing Solutions is another once highly recommended stock that fell out of favor quickly when it reported substantial losses, due largely to overly aggressive assumptions on end-of-lease values for computer equipment on operating leases. The stock, which was above 30 in 1998, traded for a few pennies a share after filing for bankruptcy and being delisted by the New York Stock Exchange in late 1999. Prime Capital is another company where accounting surprises have caused a sharp drop in the stock price. From a 1997 high above 7, the stock dropped to as low as 0.25 in May 2000 due to recurring credit loss problems and resulting liquidity concerns.
The recent demise of two venture capital-backed leasing companies, BankVest and USA Capital, due to excessive credit losses and cash flow problems further hurts the reputation of the equipment leasing industry. The venture capital firms that invested in BankVest and USA Capital are likely to be very cautious on future leasing company investment opportunities, and the lenders to these two companies will likely scrutinize credit decision processes more closely for their other leasing company customers.
Implications for Other Leasing Companies
What are the implications of the dismal leasing company stock market performance and the failure of several public and venture capital-backed leasing companies for other leasing companies?
First, equity capital, the fuel that powers asset growth for equipment leasing companies, will be more difficult to obtain and more expensive. Privately owned leasing companies will be less likely to be able to go public in the next few years because of the poor results of the most recent leasing company IPOs. Privately owned leasing companies will also find it harder to attract venture capital due to the losses incurred on leasing company investments by several venture capital investors and the uncertainty as to when and whether a leasing company will be able to have an IPO to provide an exit opportunity for the investors. Those companies already public will experience lower stock valuations than they might have had; even if they do not have the problems of some of the other public leasing companies, there is guilt by association because investors have experienced too many unpleasant surprises from leasing companies. They will also find it harder and more expensive to raise equity through secondary stock offerings.
Second, some debt sources will drop out of the market and others will impose stricter lending standards. Leasing company cash flow could be adversely impacted if funding sources increase their spreads and/or reduce their advance percentages on their loans to leasing companies. A leasing company without a solid net worth and a long history of favorable static pool performance may be unable to access the securitization market, and many issuers will find securitization interest rates and conditions to be less favorable than they formerly were.
Third, acquisition prices for leasing companies will decline. Price/earnings multiples accorded privately owned leasing companies when acquired generally are related to, and often lower than, the price/earnings multiples of comparable public companies, so the decline in public leasing company multiples has a direct adverse impact on the value of privately owned leasing companies. Acquirers will be highly selective and will likely be extra careful in performing due diligence now that they have seen how quickly leasing company fortunes can change.
Companies using gain on sale accounting for a major portion of their lease originations will likely be penalized by acquirers in the valuation process. Most potential leasing company acquirers do not use gain on sale accounting, and they may find it difficult to justify acquiring a leasing company if conversion off gain on sale accounting produces a loss in the first year.
It should also be noted that SierraCities.com and UniCapital were the 2 major acquirers of leasing companies in recent years; together with LINC and T&W, these 4 recent IPO companies accounted for about 50 acquisitions in less than 3 years. None of these companies are likely to make leasing company acquisitions in the near future. Leasing company acquisition pricing will thus be further dampened because some of the more aggressive bidders in the past are no longer in a position to consider acquisitions.
Despite reduced acquisition prices, many privately owned leasing companies likely will choose to be acquired in the next few years. Their pressing needs for equity capital and lower-cost debt sources do not allow them to wait until the IPO market is again receptive to leasing company stocks.
Avoiding the Pitfalls
What can your leasing company do to avoid the highly publicized pitfalls experienced by so many publicly-owned leasing companies and a few venture capital-backed companies? The leasing industry's credibility is at issue, and it is in every leasing company's best interests to work to restore that credibility with equity investors and funding sources. Leasing companies cannot achieve acceptable profitability and growth levels without access to new equity investors and competitively priced debt.
Credibility is based upon trust, and that trust must be earned. Leasing companies need to be candid with their investors and lenders; bad news should be disclosed sooner rather than later. Accounting practices should be conservative and not aggressive. Bad debt reserves must be maintained at adequate levels and residual valuations should err on the low side.
It may be tempting, especially for public companies, to use aggressive accounting practices when necessary to meet earnings targets. However, the ramifications of losing credibility are so severe that no leasing company executive should ever consider issuing financial statements that are misleading. Investors and lenders have reason to be skeptical about leasing company accounting practices. Companies that are not forthright in their financial reporting hurt not only themselves but also the entire leasing industry. Investors and lenders want to be involved with leasing companies that have a history of consistency and predictability of results.
Why is it that public leasing companies, with their greater access to capital, appear to get into more financial difficulties than the larger privately owned leasing companies? There is pressure from the investment community on public companies to achieve earnings per share growth each quarter. Managing a leasing company for short-term profitability is often not in the company's best interests. A leasing company should be willing to sacrifice short-term profitability to invest in activities that will produce superior returns over a 3 to 5 year time horizon, but this is easier said than done at many public companies. The use of gain on sale accounting, although proper, means that companies have to increase lease originations each quarter in order to maintain earnings growth. Public companies using gain on sale accounting may have more temptation to relax credit standards to meet the quarterly lease originations goal.
Just as a leasing company cannot be successful over the long term unless it maintains its credibility, it also cannot be successful without a strong and cohesive management team. Management must emphasize strong credit controls, because bad credit decisions are the leading cause of leasing company crises and failures. The next economic downturn will likely claim a number of leasing companies whose management did not have the strength to say "no" to credit submissions they should have declined. Management must be profit driven, not volume driven. Too many leasing companies appear overly anxious to win the lease rate battle while not realizing they are losing the war, because without an adequate return on equity a leasing company will not survive over the long term. Many leasing companies lose control over expenses during good times; enlightened management will maintain tight budgetary cost controls at all times. Management needs to develop long term market strategies and financial plans and then ensure that the company develops the diversified and competitive debt sources and the equity backing required to achieve those plans.
Every leasing company has a stake in improving the credibility of the leasing industry. The problems of a number of publicly-owned and venture capital-backed leasing companies reflect poorly on the potential of the industry for equity investors and lenders. To help restore the industry's credibility with capital sources, leasing companies need to follow conservative accounting practices, make timely and complete disclosures to investors and lenders, maintain strong credit controls and manage for long-term profitability.
* * * * * * * * * * * * * * *
Bruce Kropschot is President of Kropschot Financial Services of Stuart, Florida, a merger and acquisition advisory firm for the equipment leasing and financing industry that he founded in 1986. He left the firm in late 1997 to become Vice Chairman - Mergers and Acquisitions of UniCapital Corporation, where he was also President of UniCapital Business Credit Group; in April 2000 he returned to Kropschot Financial Services. Kropschot Financial Services has arranged over 125 acquisitions of equipment leasing and specialty finance businesses and has been ranked as the leading provider of merger and acquisition advisory services in this sector. Previously Mr. Kropschot was President and an owner of Master Lease Corporation (now known as De Lage Landen Financial Services) and Executive VP of HBE Leasing Corporation.
Mr. Kropschot is a CPA and holds BBA and MBA degrees in accounting and finance from the University of Michigan. He has served on the Board of Directors of ELA, EAEL and UAEL and is a founding member of International Merger & Acquisition Professionals, an organization of leading M&A intermediaries located throughout North America and Europe.
Chronologically, following the list: American Express Travel Related Services Co. unit paid $107.5 million or $5.68 cents per share for about 18.9 million shares outstanding of SierraCities, so originally investors lost $2.20. Later American Express sued RW Professional as part of the portfolio for $20 million, plus had other difficulties. The president and several officers wound up in jail. Later the company was sold to Key Equipment Finance.
T&W Financial went bankrupt, the president indicted for tax evasion.
Linc Capital went bankrupt, investors found for years over assets.
CIT Group Holding, company later became part of Tyco for $9.5 billion purchase price. In its sale, Tyco received $4.6 billion with 200 million shares going out at $23.
General Electric Capital Corp. July, 2001 buys Heller for $5.3 billion or $53.75 per share. Original investors made $35 a share.
UniCapital went bankrupt.
MicroFinancial now at $3.25. Original investors lost $11.75
It should be noted these numbers do not include dividends, nor investors who bought and sold as the stocks went up or went down during the time period, but are based solely on the original IPO.
Perhaps the company hit the hardest recently is:
November, 2003, Marlin IPO was $14.00.
July 29: Public Leasing Company Stock
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ELFA Prevails! Feds Extend TALF
The Federal Reserve Board and the U.S. Treasury Department have approved an extension to the Term Asset-Backed Securities Loan Facility, but do not expect to open the program to new types of collateral. The Equipment Leasing and Finance Association (ELFA) commends the decision.
"At the request of the ELFA, in March 2009 the Federal Reserve and the Treasury expanded TALF to include asset backed securities (ABS) backed by equipment leases and loans," a spokesman for ELFA said." This decision made equipment leases and loans eligible for the April 2009 launch of the program and was a critical step in providing much needed liquidity to the secondary market for equipment finance assets while unlocking the equipment finance ABS market.
"The ELFA called for an extension of the TALF program beyond its original December 31, 2009 expiration date and its extension through March 31, 2010 will enhance much needed liquidity to the secondary market for equipment finance assets while continuing to unlock the equipment finance ABS market."
New CMBS deals will be covered through June 30, 2010. Previously, TALF loans were authorized through Dec. 31, 2009.
Vehicle Leasing Originations Tumble
Auto lease deals this year are expected to slip well below the 2-million mark for the first time in more than a decade, says Tom Webb, chief economist of Manheim Consulting, a branch of a major auction firm.
With a continued decline in new-vehicle deliveries and a further retrenchment of lease penetration rates, he's estimating new lease originations will reach only 1.2 million units in 2009. That compares with a peak 3.7 million in 1999.
The effects of less leasing now will be felt in two to three years. "This is setting up the wholesale market for a dramatic falloff in off-lease volumes in 2011 through at least 2013," Webb says.
Industry lease penetration rates are just above 10% this year. That compares with more than 20% in the beginning of 2008.
New-vehicle lease penetration rates, which began to fall sharply in second-half 2008, continued to decline in first-half 2009, according to Manheim tracking.
Given the reduced access to capital and the residual-risk exposure, it is unlikely leasing will soon, if ever, return to previous highs, Webb says in Manheim's Mid-Year Used-Car Market Report.
But he adds that leasing remains an important financing option, especially for high-line vehicles and can be a "win-win-win" for auto makers, dealers and consumers, "if done right."
Some major auto makers, notably Chrysler LLC and General Motors Co., abandoned leasing last year because of problems with financial stability and falling residuals on several vehicle models.
GM is inching back into leasing, but not to drive volume nor dramatically lower monthly car payments, says Mark LaNeve, the auto maker's sales chief.
OneWorld Leasing Joins Finance Name Change
The first formal leasing cooperative OneWorld Leasing is changing its name to OneWorld Business Finance. A press release states, "to better indicate the wide range of financial services their one-of-a-kind organization can make available to its members." The new web site is: www.oneworldbusinessfinance.com.
While there are many affiliated groups, partnerships, independents who have joined together for non-recourse and recourse lines, OneWorld Business Finance "is a business cooperative created to help independent equipment leasing and finance companies further their common interests and to obtain greater marketing strength and funding power in the industry.... operates on a cooperative basis and is owned and controlled by its members who use its services.... motto is "Strength in numbers," and its goal is to leverage the volume of the co-op to provide members with revenue opportunities, business services, national vendor programs, best practice activities and access to funding sources that may be unobtainable individually."
"Some of our members are brokers, some are lessors, and some are both. Some of our members are mid-sized companies, some are small companies. Some of our members are vendor driven, some are end-user driven.
"All of our members are experienced, competent, independently-owned companies, each of whom has committed to maintain the highest ethical standards."
Stan Ragley, Leasing Resources, North Carolina is chairman.
Lou Manitzas remains as president (email@example.com ).
Current membership is:
Full List of members and their companies
Oct 12-14 Dallas Network of Executive Women
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Smart Sara Blakely (left) founder of Spanx, will tell you how she turned an "aha" moment into a $150 million-a-year company.
Fast Kim Feil (center), chief marketing officer for Walgreens, will explain how to manage your career and move up in today's fast-moving economy.
Flexible Denise Morrison (right), president of North America Soup, Sauces and Beverages for the Campbell Soup Company, will tell you what it's like to reinvent a 140-year-old, $8 billion-a-year institution.
CIT has become a customer to itself as to what it originally started as a "factoring company." It has become the government's sacrificial lamb of the commercial finance industry.
In its second quarter SEC filing, a 152 page event, "Funding and Liquidity Updates" takes three pages, page 42-45, and "Risk Factors" takes eight pages, page 83-93.
This is by no means a synopsis or even a "study," as the entire 152 page PDF follows for readers who want to take the time to read the filing in entirety. Here are excerpts, which the title aptly labels "baggage:"
"Given the accelerated economic downturn and its deepening impact on our customers and credit exposures, combined with our inability to make significant progress on lowering funding costs, we do not expect to return to profitability during 2009."
"The Credit Facility contains provisions (i) requiring the Company and the Steering Committee to work together in good faith to promptly develop a mutually acceptable restructuring plan for the Company and its Subsidiaries and (ii) requiring the Company to adopt a restructuring plan acceptable to the majority in number of the Steering Committee by October 1, 2009. The Company currently expects to complete development of and begin executing on the restructuring plan prior to October 1."
"In aerospace, we continued to perform well given the global economic recession. High lease rates, (negotiated during the peak of the cycle) have mitigated the impact of some industry softness primarily from certain Mexican airlines, whose passenger loads were impacted by health concerns resulting from the swine flu outbreak. At June 30, 2009, our commercial aircraft portfolio was fully utilized. For the remainder of the year we expect pressure on margin, reflecting softened lease rates on new deliveries and newly remarketed aircraft; and on asset sale gains, as continued illiquidity in the market impacts buyers and their ability to finance used aircraft."
"Rail continued to experience deteriorating lease rates and utilization. As leases expire, fewer cars are being renewed, and those that are renewed are done so at lower rates and periods. Keeping rail cars on lease continues to be a priority; we ended the second quarter at 91% utilization. We will continue to deploy a strategy where keeping cars on lease takes priority as we look to best positioning our cars for a market recovery and cycle turning point. Other income opportunities have been extremely limited as there is virtually no secondary market for discrete rail car sales. Also, our ability to scrap cars has been severely hampered due to lower scrap steel prices."
"On July 13, 2009, Microsoft Corporation notified CIT that they were terminating its vendor finance program agreement with the Company. Existing finance leases as of June 30, 2009 totaled approximately $649 million. The termination of the vendor finance program is not expected to have a material impact on the Company's net income for 2009."
"The Company does not include in the previous table unused cancelable lines of credit to customers in connection with select third-party vendor programs, which may be used solely to finance additional product purchases. These uncommitted lines of credit can be reduced or canceled by CIT at any time without notice. Management's experience indicates that customers related to vendor programs typically do not seek to exercise their entire available line of credit at any point in time. These lines of credit include vendor finance programs for Dell customers."
"Until December 31, 2007, CIT was a partner with Dell Inc. ("Dell") in Dell Financial Services L.P. ("DFS"), a joint venture that offered financing to Dell's customers. The joint venture provided Dell with financing and leasing capabilities that were complementary to its product offerings and provided CIT with a source of new financings. In December 2007, Dell exercised its right to buy CIT's interest and the Company sold its 30% ownership interest in the DFS joint venture. We maintain the right to provide 25% (of sales volume) funding to DFS in 2009. We also retain the vendor finance programs for Dell's customers in Canada and in more than 40 countries outside the United States that are not affected by Dell's purchase of our DFS interest. CIT has certain recourse to DFS on defaulted contracts. Financing and leasing assets related to the DFS program included in the CIT Consolidated Balance Sheet (but excluding certain related international receivables originated directly by CIT) were approximately $1.9 billion at June 30, 2009 and $2.2 billion at December 31, 2008. Securitized assets included in owned and securitized assets were approximately $0.1 billion at June 30, 2009 and $0.2 billion at December 31, 2008. CIT also has a joint venture arrangement with Snap-on Incorporated ("Snap-on") that has a similar business purpose and model to the DFS arrangement described above, including limited credit recourse on defaulted receivables. In July 2009, Snap-on notified CIT that it was terminating the joint venture agreement, which had been scheduled to terminate January 2010. Under the terms of the agreement, Snap-On will acquire CIT's interest in the joint venture for a payment of approximately $8 million and will continue to service the portfolio owned by CIT. The termination of the joint venture is not expected to have a material impact on CIT's origination volume, asset levels or net income prior to the first or second quarter of 2010. CIT and Snap-on have 50% ownership interests, 50% board of directors' representation, and share income and losses equally. The Snap-on joint venture is accounted for under the equity method and is not consolidated in CIT's financial statements. Financing and leasing assets were approximately $1.0 billion at both June 30, 2009 and December 31, 2008."
"Since December 2000, CIT has been a joint venture partner with Canadian Imperial Bank of Commerce ("CIBC") in an entity that is engaged in asset-based lending in Canada. Both CIT and CIBC have a 50% ownership interest in the joint venture, and share income and losses equally. This entity is not consolidated in CIT's financial statements and is accounted for under the equity method. CIT's investment in and loans to the joint venture were approximately $341 million at June 30, 2009 and $385 million at December 31, 2008."
"In the first quarter of 2007, the Company formed Care Investment Trust Inc. (Care), an externally managed real estate investment trust (RE1T), formed principally to invest in healthcare-related commercial real estate. In conjunction with a June 2007 IPO, CIT contributed approximately $280 million of loans to Care in return for cash and a 36% equity investment in Care, currently carried Item 1: Consolidated Financial Statements 31"
"CIT GROUP INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"On July 16, 2009, the Lead Plaintiff filed a consolidated amended complaint alleging violations of the Securities Exchange Act of 1934 ("1934 Act") and the Securities Act of 1933 ("1933 Act"). Specifically, it is alleged that the Company, its CEO, its CFO, its former Vice Chairman, and its former Executive Vice President and Controller, violated Section 10(b) of the 1934 Act by allegedly making false and misleading statements and omissions regarding CIT's subprime home lending and student lending businesses. The allegations relating to the Company's student lending businesses are based upon the assertion that the Company failed to account in its financial statements or, in the case of the preferred stockholders, its registration statement and prospectus, for private student loans related to a helicopter pilot training school, which, it is alleged were highly unlikely to be repaid and should have been written off. The allegations relating to the Company's home lending business are based on the assertion that the Company failed to fully disclose the risks in the Company's portfolio of subprime loans. It also is alleged that its CEO, its CFO, its former Vice Chairman and its former Executive Vice President and Controller violated Section 20(a) of the 1934 Act as controlling persons of the Company. Lead Plaintiff also alleges that the Company, its CEO, its CFO and its former Executive Vice President and Controller and those Directors of the Company who signed the registration statement in connection with the October 2007 CIT-PrZ preferred offering violated Sections 11 and/or 12 of the 1933 Act by making false and misleading statements concerning the Company's student lending business as described above. It also is alleged that its CEO and its CFO, as well as the Directors who signed the registration statement, violated Section 15 of the 1933 Act as controlling persons of the Company."
"PILOT TRAINING SCHOOL BANKRUPTCY
"CIT GROUP INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"RESERVE FUND INVESTMENT
"The weak economic environment is directly impacting our credit costs. The provision for credit losses, non-accrual accounts and charge-offs increased from the prior quarter. In light of these trends, year to date, we have increased our reserve for credit losses by $442 million. We expect non-accrual loans and charge-off levels to remain elevated through at least the remainder of 2009. The decline in interest margin slowed during the second quarter after compressing 25 basis points during the first quarter. The second quarter reflected lower interest expense on lower debt balances and somewhat better funding costs and yield-related fees, which were offset by termination fees on certain borrowing facilities and higher nonaccruals. We expect margins to remain under pressure from high non-accrual loan balances and other factors, including operating lease rental declines, increased cost of borrowings due to credit rating downgrades and recent funding arrangements."
"The Company has significant maturities of unsecured debt in both the near term and future years. Estimated unsecured debt funding needs for the twelve months ending June 30, 2010 total approximately $8 billion. In the second half of 2009, the Company has unsecured debt maturities of approximately $3 billion. Estimated secured facilities maturities (which are generally repaid in tandem with underlying receivable maturities) are $6 billion for the twelve months ending June 30, 2010 and $4.5 billion for the second half of 2009. There are two facilities with approximately $1.6 billion of availability at June 30, 2009 that is subject to renewal over the next six months. If the facilities are not renewed, the assets already held will remain outstanding and the obligations will be repaid out of the cash flows from the assets. In order to satisfy the Company's funding needs, the Company will need to extend debt maturities, or potentially sell assets to generate sufficient cash to retire the debt."
"As of June 30, 2009, CIT had U.S. federal net operating losses of approximately $5.5 billion which will expire beginning in 2027."
"The Company experienced higher draws on committed loan facilities, most notably during the week of July 13 - 17, which included draws of approximately $0.7 billion, about twice the normal activity. During the following week, the draws normalized and some repayments were received. During the same period, there was higher than normal requests for advances on factoring credit balances by customers in the Company's Trade Finance segment."
"The Company has significant maturities of unsecured debt in both the near term and future years. Estimated unsecured debt funding needs for the twelve months ending June 30, 2010 total approximately $8 billion. In the second half of 2009, the Company has unsecured debt maturities of approximately $3 billion. Estimated secured facilities maturities (which are generally repaid in tandem with underlying receivable maturities) are $6 billion for the twelve months ending June 30, 2010 and $4.5 billion for the second half of 2009. There are two facilities with approximately $1.6 billion of availability at June 30, 2009 that is subject to renewal in the next six months. If the facilities are not renewed, the assets already held will remain outstanding and the obligations will be repaid out of the cash flows from the assets. In order to satisfy the Company's funding needs, the Company will need to extend debt maturities, or potentially sell assets to generate sufficient cash to retire the debt."
Full Second Quarter SEC Filing (152 pages):
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CIT: The Facts
### Press Release ##########################
Ivory Launches mobile pricing tool--QuickTRUMP
WALNUT CREEK, CALIF., -Ivory Consulting announced today that it has released a new pricing tool to help equipment leasing and finance executives close deals fast from any location. At the same time, Ivory reported it has launched a new Web site (http://www.ivorycc.com) to highlight its array of sophisticated pricing and analysis software.
For financial services professionals, having loan and lease origination pricing information on hand at the moment they are ready to close a transaction is a critical business imperative. The tool was tested over the summer and is expected to be widely received as more and more sales and marketing professionals want to have all of their operational tools available from wherever they are meeting their customers.
"The dilemma we wanted to solve for our financial services customers was this: How do we get sophisticated and accurate pricing to people in the field for opportunities where a stand-alone application or a complete origination system isn't called for?" said Joseph Moore, director of sales and marketing for Ivory. "This is a leading-edge approach to providing pricing functionality for new or underleveraged sales opportunities."
Ivory's QuickTRUMP is a centrally-managed, highly customizable way for anyone with Web access to do sophisticated equipment finance pricing. By configuring the interface to provide only those pricing options appropriate to the task at hand, equipment finance companies can put highly specialized and sophisticated quoting power within ready reach of anyone who needs it, even those with little or no lease pricing experience. The pricing calculations, which remain under management's complete control, can be as sophisticated as needed, including taxes, tax credits, complex look-ups, RAROC - whatever is required.
Powered by Ivory's SuperTRUMP Server, QuickTRUMP also enables managers to configure and control all pricing calculations and reports behind the scenes. Access to a pricing Web page can be controlled through log-in, and quotes can be saved off into a central database, enabling management review and analysis.
About Ivory Consulting
Since 1983, Ivory has pioneered the development of lease pricing and analysis software, delivering exceptional results and customer service in the process. In partnership with the top leasing software companies in the industry, Ivory provides thousands of users with enterprise-wide pricing intelligence through desktop-, server-, and Web-based systems.
#### Press Release #############################
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