Tuesday, September 18, 2012
New ---IFC Credit BK Trustee Complaint
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New ---IFC Credit BK Trustee Complaint
From Bob Robichaud, CLP
“In response to the bulletin board complaint in today’s Leasing News, we have also had some issues with the way the IFC Trustee went after the IFC Lessees.
“We purchased the stream of payments only on a number of IFC contracts back in early 2009. As soon as some of these started to payoff we quickly found out this was happening when the Lessee called us to complain that the trustee refused to accept the $1.00 purchase option and kept on billing.
“We decided we needed to inform all the lessees so back in October 2010 we sent out a notification to ‘all’ the Lessees we still held contracts on this to put them on notice that they needed to protect themselves. In April of this year we sent it out again as a second reminder to the few remaining accounts we still held.
((Here is a draft of the letter that was sent (1).) As far as I know Illinois law and a number of other states as well, still allows this. In my opinion, it’s nothing more than ‘legalized theft’.
Not only does it put the lessee in jeopardy it causes problems for the lender who discounted the deal because the lessee is always going to blame you as well.
Bob Robichaud, CLP
September 14, 2012
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Fifty “First Time” Attendees at NEFA Funding Symposium
The National Equipment Finance Association’s (NEFA) annual Funding Symposium in Washington DC held September 13th – 15th drew 181 attendees, of which well over half were brokers and/or lessors. Many of the fifty “first time” attendees came as part of a multiple representation of a funder or service member. There also were attendees from Canada, showing NEFA President Hugh Swandel’s influence.
The Funding Symposium drew a wide range of exhibitors which in addition to several well-known ”A” lenders included many offering unique funding for hard to place applications. Many of the NEFA members are lessors and hold certain leases on their own lines; however, they certainly could place most any deal they chose not to hold with one of the diverse specialty lenders represented
NEFA’s “United Association of Equipment Leasing” (UAEL) and “Eastern Association of Equipment Lessors” (EAEL) origins were evident with long time core members of each of those former associations serving on the board, presenting the breakout sessions, and participating on the committees planning NEFA’s future.
The well attended breakout sessions offered advice on competing in the present environment as a broker or lessor and how to build your company to profitably discount or hold portfolio as a lessor
NEFA’s net revenue has increased under the guiding hand of Executive Director Gerry Egan and the balance sheet was described as stable and strong.
Randy Haug of LeaseTeam, Inc. was named member of the year and accepted the award now named for his close friend and greatly missed industry stalwart, the late Chris Walker, CLP
Chris Walker, CLP
There was an upbeat, positive, buzz to the meeting with many of the broker/lessors mentioning that the return to the industry of funding sources would allow placement of their recent growth in applications.
Optimism included speculation that the traditional EAEL funding expo scheduled for the November 4-5 in Teaneck, New Jersey would be well attended.
Dwight Galloway, CLP
NEFA Elects New Officers
Elected to lead the National Equipment Finance Association (NEFA)
Executive Committee for 2013
John Rosenlund, CLP, Director--Risk Management at
Kyle Gilliam, CLP, President, Arvest Equipment Finance,
Tara Aasand, Business Development at Great American Insurance,
John Donohue, Senior Vice President at Direct Capital Corporation,
2012 NEFA President, Hugh Swandel, Senior Managing Director – Canada The Alta Group,
Elected as Directors for NEFA for 2013 were: Mike Coon, Vice-President, Equipment Leasing Division of TAB Bank; William Ford, Jr., of Ford Financial Services, Inc.; Brad Harmon, CLP, President of First Star Capital; Terey Jennings, CLP, Senior Vice President of Financial Pacific Leasing, LLC; Jesse Johnson, of LeaseTeam, Inc.; Jim Merrilees, CLP.; Tim Mathison, Vice-President of P&L Capital Corp; David Normandin, CLP, Senior Vice-President of PacTrust Bank Equipment Finance; Bruce Smith, Owner of Diversified Capital Credit Corporation; Gary Souverein, CLP, President/COO of Pawnee Leasing Corporation; and Diane Williams, of Bankers Leasing Company.
Honored for their Board Service as they completed their terms this year.
Chris Enbom, CLP, CEO of Allegiant Partners,
Frank Peretore, of Peretore & Peretore Law Firm
Honored for her successful efforts as Conference Chairperson:
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Career Crossroad---“Use verbs in my resume?”
Question: I have heard that I need to use verbs in my resume, can you explain what this means?
Answer: I believe you mean ACTION verbs … Resumes are a reflection of your success with your current / previous employers. For example, using words such as:
Just to name a few, will demonstrate that you have accomplished certain tasks (which will follow the Action word); e.g. “Collaborated in the creation of a new IT system which led to a 30% increase ...”
Each sentence or bullet-point should begin with an ACTION Verb to give your resume more punch. Make sure these words include skills or attributes that you believe a potential employer would want to see and hold valuable in the role you are seeking. Your resume should demonstrate that you are able (have experience) to employ these qualities, skills and talents they deem important.
NOTE: When using these ACTION verbs, make sure the verb tense is consistent e.g. “ed” or “ing”, etc…
For more examples, please do not hesitate to request more.
Career Crossroads Previous Columns
“What is the Agreement Definition?”
Often time’s people question the difference between a loan, a lease, and a rental. Especially when they see common language and documents that are long and confusing.
A “loan” is a transaction where the ownership is in the customer’s name and he pledges only his interest or equity in the equipment for collateral to arrange the loan. In the case of a default the lender uses Article 9 of the Uniform Commercial Code to exercise his rights to repossess the equipment after following the procedures outlined in the Article. One of the key issues is that the borrower is the owner of the equipment and therefore has rights that the lender must honor. Such as returning any excess value after the loan balance is satisfied. In addition as owner of the equipment, they were responsible for selecting the equipment when it was purchased, paying all assessed taxes, and insuring the equipment and providing a loss payable to the lender. The borrower is also responsible to correctly maintain the equipment during the term of the loan.
A “rental” is a transaction where the rental company provides the equipment and is therefore responsible for its performance. The term of the rental is usually short and while the renter provides short term insurance, the rental company is responsible for long term insurance and must pay all assessed taxes. They must maintain the equipment in good condition because it is the equipment’s performance that they are really renting and must replace the equipment if the rented equipment fails to perform properly.
Now we come to a “lease”. A lease is a transaction that has a lot of similarities to a loan because we require the lessee to select the equipment, arrange for the insurance and, pay all the assessed taxes. However, the lessor pays for the equipment and becomes its owner. Then we request, in addition to the loss payable, an additional insured endorsement from the lessee’s insurance company. Usually the lessee’s insurance company represents the leasing company if any action is taken against the leasing company due to injury or property destruction but the lease also contains a requirement that the lessee indemnify the lessor against all claims brought on by the use of the equipment.
The confusion resulting from a lease agreement and a loan or a rental is a result of a lot of things. Usually using the term “rental” in a lease agreement instead of “lease payment” and the lack of communication between the leasing company and the lessee about the lessee’s responsibilities add to the problem.
The type of lease adds to the problems as we provide different options in the lease agreement. This requires some discussion with your customer so they understand what type of transaction they are entering into.
Mr. Terry Winders, CLP, has been a teacher, consultant, expert witness for the leasing industry for thirty-five years and can be reached at email@example.com or 502-649-0448
He invites your questions and queries.
Previous #102 Columns:
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by Tom McCurnin, Esq.
Junior Creditor/Lessor Which Buys Equipment in a Sale/Leaseback is Held
Platte Valley Bank v. Tetra Financial Group, LLC, 682 F.3d 1078 (8th Cir. 2012)
I always thought when collateral of a secured lender is sold, and the proceeds deposited into a bank account, as they always are, the secured nature of the original loan attaches to the proceeds and to the funds on deposit at the bank. This case demonstrates the conflict between those two competing interests—the interests of the original secured lender, the interests of a bank in which the funds were deposited after a junior creditor’s sale/leaseback.
Platte Valley Bank loaned $1mm dollars to its customer, Heggem Construction for construction equipment, secured by a broad form UCC-1. An equipment lessor, Tetra Financial Group, sought to provide Heggem with additional financing, and requested that PVB subordinate. PVB refused.
Tetra then structured a junior loan on the same collateral through a sale/leaseback agreement (SLA) with Heggem. PVB’s collateral was sold for the sum of $565,430. Oddly, the borrower never received the proceeds. Instead Heggem allowed Tetra to keep the $565,430 and deposit it an interest bearing account. Heggem would get the funds back after it made all the payments on the lease. On a business level, I have no idea why a business would sell and leaseback collateral for the possibility of getting $565,430 at the end of the lease term. It is equally mystifying why Tetra would take such a speculative junior position behind a perfected senior creditor. This was 2007, and construction equipment value was dropping like a rock. This deal makes no sense to me on any level.
Tetra’s SLA acknowledged that Tetra’s security interest was junior in priority to PVB's security interest in those same assets. The sale proceeds, $565,430, were held back to be “used as a security deposit pursuant to SLA to be held at Republic Bank in the name of Heggem. The transfer of the CD was very unclear, and it seemed to me that there never was a CD, and that Tetra simply kept the money and ultimately transferred to its assignee.
The transaction was subsequently assigned to Republic Bank and Tetra received $555,899, but deposited it, and another $9,531 and brought the holdback account up to the correct amount of $565,430. The funds were on deposit at Republic Bank apparently in the name of Heggem.
Heggem then defaulted on the loan. PVB located all the collateral, and with Heggem’s assistance, repossessed it, and sold it at a foreclosure sale.
After the foreclosure sale, in which there was a deficiency, and PVB found out that Heggem had had sold the equipment to Tetra for $565,430.
PVB sued, claiming (1) Tetra had no right to make a lease junior to PVB’s without PVB’s consent; and (2) PVB had a security interest in the proceeds of the sale of the collateral and therefore was entitled to those lease payments and holdback account.
The trial court ruled that Tetra did nothing wrong, except perhaps make a bad loan from its own proceeds. Certainly a borrower has the right to double finance collateral, and if a junior creditor endeavors to make a risky second position loan like this, that’s its business. The UCC contemplates multiple security interests in the same collateral and devised a system for determining the priority of those interests should they ripen. See U.C.C. §§ 9–317 to 9–339.
The trial court also ruled that while titling of the holdback account was screwy, PVB could not claim an interest in it, because a security interest in deposit accounts are perfected by control, not filing and Republic Bank had control over the account. Consequently, PVB’s lawsuit was dismissed. The 8th Circuit Court of Appeal affirmed.
The 8th Circuit got the right result. Because Republic Bank loaned money to Tetra, on the strength of that lease and deposit, the deposit account was moved to Republic Bank, subject to its security interest via assignment. Under UCC § 9-327, the Bank would seem to have control over that account, notwithstanding the fact that the monies were “proceeds.” The Court noted that Comment 3 to this section, specifically gives banks priority in a deposit account they control, even if the monies are identifiable proceeds.
Ultimately, the UCC framers had to choose between two competing interests, the secured party who lost priority due to the sale, or the bank who received the proceeds without notice of the tainted proceeds. The UCC framers picked the bank. Usually, the laws impose liability on the entity which first dealt with the miscreant, or perhaps the banks had better lobbyists. You pick.
Ultimately, there is nothing new here to learn for secured lenders. There is nothing PVB could have done to prevent Heggem from double dipping the equity in the equipment, except by documenting the matter as a true lease. As unfair as the result seems to me, the UCC makes it clear that the bank wins.
The lessons for the junior secured lender are less obvious, because normally there is little equity in a junior position in personal property. But for the huge security deposit which Tetra took, the lessor might have taken a large loss on the lease.
Or was something else intended from the very beginning (if you have the time, view the deposition)
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Court Case (10 pages)
Deposition (4 on a screen, enlarge to read, total 108 pages)
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The four branches of Truman Bank, St. Louis, Missouri were closed with Simmons First National Bank, Pine Bluff, Arkansas, to assume all of the deposits
Formed originally June 20, 1923 and then part of the Templar Fund, Inc., August 1, 1988, there were 56 full time employees at their three St. Louis offices and one in Saint Peters. In 2006 year-end, Truman Bank had 106 full time employees at their four offices with net equity of $46.3 million, a profit of $3.1 million for the year with only $38,000 in charge offices and $3.1 million in non-current loans.
June 30, 2012 Truman Bank had Tier 1 risk-based capital ratio of 2.54%. Since 2008, the bank lost $61 million, and had gone from a high net equity year-end of $47.8 million in 2007 to $5.9 million, June 30, 2012.
Missouri's Commissioner of the Division of Finance Richard Weaver said in a statement, according to the St. Louis Post-Dispatch: "The demise of this bank is the result of aggressive, imprudent lending decisions made by prior management," the state official said in the statement. "Many of these loans were in high-risk commercial real estate and development projects that proved uncollectible."
The St. Louis Post Dispatch also reported "Truman had the highest level of bad loans of all St. Louis chartered banks, with 19 percent of its loans classified as nonperforming, according to data released by the Federal Reserve Bank of St. Louis. The average figure was 3 percent for St. Louis-based banks.
September 28, 2011 a letter reached the newspaper from a past director: “Daniel Slavin, a real estate manager, said in the letter that Richard Miller, chairman of the bank's holding company, Truman Bancorp, interfered with past and present bank presidents, crippling their ability to do their jobs so that the bank could succeed."
The FDIC year-end numbers show large land and construction charge offs, as well as other real estate, perhaps reflective of the area as the main culprit of the major losses was in the very high non-current loan column:
(In millions, unless otherwise)
Construction and Land, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.
As of June 30, 2012, Truman Bank had approximately $282.3 million in total assets and $245.7 million in total deposits. In addition to assuming all of the deposits of the failed bank, Simmons First National Bank agreed to purchase essentially all of the failed bank's assets.
The FDIC and Simmons First National Bank entered into a loss-share transaction on $117.8 million of Truman Bank's assets. Simmons First National Bank will share in the losses on the asset pools covered under the loss-share agreement
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $34.0 million.
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