September 2, 2004

In the “small ticket” era of the 70's, 80's, and 90's, the leaders of this period were Advanta, Denrich, Foothill, IFG, Manifest, to name a few, but the most innovative and one that lasted the longest was Colonial Pacific Leasing, until they were purchase by General Electric.

From our Archives: December 11,2001

The History of Colonial Pacific Leasing

by Christopher “ Kit “ Menkin

Colonial Pacific Leasing Company of Portland, Oregon traces its roots to a captive finance company formed in Massachusetts in 1961. The original name of the company was Colonial Leasing Company of New England. Its specialty was transactions under $2,200; the small ticket marketplace.

In the 1960's, Ford Industries, a subsidiary of Roseburg Lumber Company of Roseburg, Oregon, placed the financing for a number of its “Code-A-Phone” interconnect systems through Colonial Leasing of New England. When Colonial ran onto hard time in 1967, a time of recession, Roseburg Lumber bought the company, thinking it could finance its equipment themselves, and moved it to Portland in 1971 ( the 11 month recession ended November, 1970, ) changing the name to Colonial Pacific Leasing. According to published records, it had a $6 million portfolio, and 10,000 leases, primarily all small ticket items.

Roseburg Lumber operated Colonial Pacific on a limited basis. By 1976, the portfolio was $3.5 million, serviced by four employees. Late in 1976, the manager of Colonial Pacific retired and Roseburg Lumber made the decision to become more active in the marketplace. John W. Thorne, president, was hired. He was given the goal to increase the company portfolio to at least $15 million. In 1981, he built it to $50 million in "outstandings" with 52 employees.

Thorne built this portfolio by attracting lease brokers. Instead of having lease salesmen, which was the trend in the 1970's, Thorne saw having a “commission only “ salesman as the most cost affective manner in attracting business. Instead of going after vendor business direct with your own sales force, he decided it was more cost effective to establish a lease broker network. This was quite different than the times, as the main two leasing associations did not accept members who were not full recourse lessors or managed their own portfolios.

In 1979, lasting through 1980 ( the country came out its six month recession in July ) into early 1981, there was a West Coast Brokers Associations, an ad hoc group ( no dues )that numbered up to their top growth of forty members when it disbanded, with original members such as Mont Gates of Leaserite, Salt Lake City, Utah, Jim Harris of Oregon,: George Masters in Reno, Nevada, Jim Swander

( perhaps the first chair of the United Association of Equipment Leasing's broker group) and Duane Russell of San Jose, California, Pat McConnell at Hamilton Leasing, Louis Funston Marin County, California, and Kit Menkin of American Leasing. As stated earlier, no association would accept an independent lease broker, who were all quite independent and scattered all over the country. This was before

the National Association of Equipment Leasing Brokers.

Thorne had much experience working with larger leasing companies, forming two of them before coming to Colonial Pacific. Before his arrival, it is noted he had been a partner in a multistate firm of lease brokers. He brought with him the idea to build a company through broker transactions, and knowledge of how to do this.

In early 1979, Colonial bought Seattle-based World Wide Leasing, Inc. It installed a man as the general manger of that operation who had owned Transworld Leasing in Albuquerque. ( sorry, no record of the person's name. ) The Albuquerque company was retained as a branch location and World Wide continued. The concept was to form other branch locations, but using independent lease “super brokers,” who were part of the exclusive network.

Thorne's idea was to look a personal credit scores and not collateral. Literature from him to the outside sales force he was created said CPL “... considered all transactions except aircraft and automobiles at the time. Our marketplace was $2,500 to $50,000, requiring the lessee to have at least three years in business, along with good credit.”

Thorne actively courted broker transactions, particularly in the smaller amounts. The company was the first note to require financial statements on lease transactions below $15,000 ( it was the policy that financial statements may overcome the “application only” submission). The idea was to create faster approval time, and attract more lease brokers.

Colonial Pacific continued its vendor programs, almost all on a recourse basis. CPL ran all credit investigations. Vendors were screened for this program, and according to literature of the time, “ Since it does not require financials of the lessee, it must place a great deal of trust in that vendor. The vendor's ability to service the equipment and its reputation for doing so are essential ingredientsin Colonial's protection.”

Colonial maintained its own sales force, but in the first four years since

Thorne took over, more and more business was coming from lease brokers. The change started taking place were Dennis Doyon, Gordon Roberts, and others become more “broker coordinators.” Thorne then had the idea to open territories.

According to literature of the day, “ In order to prescreen brokers in cities distant from its headquarters, Colonial will establish one of its brokers in each city as a “broker screen”. Any broker unknown to the company who approaches Colonial from one of those cities will be asked to submit his transaction through the broker screen until such time as the company feels comfortable dealing with him directly.”

This was the start of what was later to become the Pegasus program. There were several “super brokers” who built up “fiefdoms,” based primarily from lease brokers who could not qualify due to volume, experience, or perhaps credit, to represent Colonial. The lease broker went through a super broker, who not only “filtered,” but with a volume would increase the commission or percentage shared ( often including the residual of the lease ).

“ Colonial also protects its brokers. If a transaction is brought in from a vendor originally introduced to Colonial through a broker, Colonial will protect the broker,” said literature in 1981.

Thorne attracted many brokers, as he was the first in the industry to actively pursue this marketplace. Until this time, lease brokers were considered not experienced or reliable, and vendor business through direct leasing salesmen was the key to leasing business.

“In its price range, Colonial does very little rate bargaining,” Thorpe said. “ In all other areas, however, it will negotiate. It will doe skips and almost anything else consistent with good credit decisions to make the deal. It prefers to retain Investment Tax Credit since the shelter requirements of Roseburg Lumber are very large, but it is perfectly willing to pass ITC for an increase in rate.”

CPL underwent several changes in management again. Roseburg both faced the changing lumber industry, plus a capital program for a growing leasing company.

According to a press release of this event, “ Colonial-Pacific Leasing Co. is a wholly-owned subsidiary of RLC Industries Co. of Roseburg, Oregon. The parent company is one of the nation's major producers of lumber, plywood, paneling, particle-board and wood chips for pulp and paper manufacturing doing business as Roseburg Forest Products Co.

The ownership of RLC Industries co. recently decided to concentrate its investments in the wood products bushiness. Thus Colonial-Pacific, its only financial service business, does not fit into RLC Industries Co.'s future plans even though Colonial-Pacific's financial results and tax benefits have produced an excellent return on RLC Industries Co.'s investment. The sale of the business is contemplated to be structured as a sale of the stock of Colonial Pacific. “

Again, along came a company who thought their product, postage meters, which had catapulted U.S. Leasing, could be of better financial

benefit if they also controlled the financing.

Bruce Kropschot, on our Leasing News Advisory Board, formed Kropschot Financial Services in 1986. His first client was Colonial Pacific. He arranged the sale to Pitney Bowes Credit Corporation, which was finalized on December 31,1986. According to public records, at their fiscal year-end of March 31, 1986, prior to the completion of the sale, the company had net lease receivables of $92 million. Mike Burns was the president.

In February 1987, “ James Merrilees accepted a newly created position of vice president of operations for Colonial Pacific Leasing Corporation., The company was the first to use a “wide area network,” before the days of the internet. BLISS was the first available for brokers and lessors. It was a telephone direct “dial-up” to the CPL main frame computer. Rich Viola, Chief Financial Officer, named the program: Broker-Lessor Information System Support. It revolutionized the processing of applications and fundings of transactions.

Express Lease was trade marked by Pitney Bowes Credit/Colonial Pacific Leasing. Merrilees enjoyed the support of the parent company. ( After he left, he said in a conversation it was the happiest time of his career and had many good things to say about Pitney Bowes. )

At this time, the volume was $215 million a year. While General Electric was the largest in the industry, there is no doubt at this time Colonial Pacific was the leader in the broker network.

Merrilees also set the goal to have a portfolio of 20% “commercial” and 80% “application only.” While 95% of the transactions may have been by credit application, the 5% “financial statement”

submission applications brought in 20% each year to the portfolio. Curt Lynse with his staff was responsible for the growth of the commercial division, who's ability were not advertised, but those that knew financial statement credit, came here.( Lynse was manager of commercial credit, then sales manager, bringing the commercial division to 25% of the portfolio, and in 1998 moved to the small ticket division. He is leaving the end of this month and will reportedly be staying in the Portland area. In this period, the commercial division grew to 33% of the portfolio. )

Merrilees had inherited a vendor program. While other leasing companies had two divisions, such as Lyon Financial and Manifest Financial, Merrilees saw this as a conflict, particularly to attract the “cream” of the broker business. This was the beginning of brokers being accepted into leasing associations, to becoming more educated, some actually building their own leasing porfolio's, to leasing companies using third parties rather than their own salesmen, and computers were starting to change the way everyone was doing business, including the leasing business.

Pegasus was his answer. Colonial chose their six top lease brokers, gave them the vendor accounts, and actually let them operate with the CLP logo. The transition was controversial, and meetings were held in the regions of the new Pegasus dealers to explain the program to all Colonial brokers. While Merrilees did not attend, each Pegasus “dealer” ran the program, I can personally testify that if you made a complaint or had some questions, he heard about it, and would personally call you on the telephone as he wanted this program to work. It did.

In 1992, Merrilees was the San Francisco WAEL Conference Chairman, and president of Colonial Pacific Leasing Corporation, Tualatin, Oregon. The credit scoring system, which was started in 1987, was in full swing, with Steve Dunham's Leasing Associates as one of the top producers. Speed was king. Dunham, among others, was turning the world around in small ticket volume, based primarily on re-brokered transactions.

January, 1994 he left. The spring edition of the 1994

WAEL shows Merrilees did “ roll along” and became president and general manager of Nations Financial Business Leasing Group, Beaverton, Oregon. ( aka Greyrock and Nations Credit ). This group was purchased by Textron Financial and became their Vendor Finance Division ( 1999 through July 2001)

At the time of his departure, Merrilees told everyone he was leaving because of “this great opportunity.” He was reportedly very happy. Ironically, Mike Cingari had quit Pitney Bowes and gone to work for Nations Credit. It was he who recruited Jim Merrilees. Cingari later was to become president of Colonial Pacific. He would then leave, start MCM Leasing, bankrupting it in the near future. The situation of Merrilees leaving and Cingari taking over has been viewed as the CPL “jump the shark” key event, and perhaps the start of its demise.

As Merrilees left, Colonial had an application only produce named “Express Lease” which was approximately 80% of new volume. The remaining business was financial statement business termed the “Commercial Program.” Pegasus was formed to run vendor programs through six of the existing Colonial brokers. This program later was used to do the bulk of the rebrokered transactions.

NOTE: the BLISS system was introduced to the brokers as an on-line application process during this time. Everything was in place. A few key people did follow with Merrilees, but the company was humming. Pitney-Bowes hired Mike Cinagri to lead Colonial in 1994.

Small ticket scoring, or “application only” transactions grew to $150,000 for returning customers.

1998 United Association of Equipment Leasing Newsline, Summer, Conference Edition, “ Curt Lysne, CLP, a former manager and account executive at CPLC has returned as director of the company's Commercial Strategic Business Unit ( SBU ). With over 12 years of experience in the leasing industry, Lynse has owned his own brokerage firm and independent contracting business and worked for various funding sources.”

October 12, 1998 Press Release

-- General Electric Capital Corp. has agreed to buy Pitney Bowes Inc. unit Colonial Pacific Leasing Corp. for just over $800 million in cash, according to Charles McBride at Pitney Bowes. The unit will be added to GECC's Vendor Financial Services unit, and will bring approximately 250 employees, and a nationwide network of 355 brokers and lessors to Vendor.

Founded in 1961 and based in Portland, OR, Colonial Pacific has assets of approximately $750 million and finances small-ticket leases on a variety of commercial equipment, from medical imaging machines to computers. Its average ticket size is around $30,000.

The company had revenues of about $75 million for the six months ended June 30, following 1997 full-year revenues of $191 million. Year-to-date leasing volume was roughly $500 million at June 30.

For GE Capital, the acquisitions adds what Fox-Pitt Kelton analyst E. Reilly Tierney calls "an established player rather than a younger, faster-growing" competitor. Tierney added that Colonial Pacific brings with it a solid customer base and a demonstrated track record.

Pitney Bowes, based in GECC's home town of Stamford, CT, produces postage meters, mailing systems, copiers and other equipment, and is in the midst of a year-long restructuring, of which the sale of Colonial Pacific is only the latest move. In August 1997, it sold off $300 million in aircraft and other leases, and contributed another $800 million in leases to a joint venture it created with GATX Corp.

Recent shake-ups in the equity markets may leave companies like GE Capital, which have the comforting support of a gigantic, out-of-sector parent, in a prime position to capitalize on softness elsewhere in the industry. While many members of the usual host of in-sector buyers may be suffering from weakness in stock price, GE Capital, with its deep, all-cash pockets, could be doing some bargain hunting.

January 2, 2000 Press Release

– Jim Svinth has been named General Manager/ President of GE Capital Colonial Pacific Leasing, a leader in the small ticket equipment leasing industry.

Svinth takes over at CPL after recently serving as Senior Vice President, Institutional Lending at GE Capital Mortgage Services, Inc. (GECMSI) in Cherry Hill, NJ. Among his many contributions at GECMSI was the digitization of the business' origination front-end, providing customers with on-line access to pricing, application, approval, status and funding confirmation.

"I'm excited at the opportunity of leading a business that has been so dedicated to the broker market," Svinth notes." I look forward to working with our customers and finding ways to help them grow and succeed, so we can too."

In his role at GE Capital Mortgage Services, Svinth was the senior leader of Correspondent and Broker Originations responsible for national sales and operations. In addition, he was responsible for Cooper River Funding, a $1 billion secured warehouse-lending facility. GECMSI, which funded $11 billion in 1999, purchases loans on a flow and bulk basis ($5 million to $100 million) from intermediaries.

Prior to joining GE, Svinth held senior level positions in capital markets, risk management and product management with several leading lending institutions, including Wells Fargo (formerly Norwest), Prudential and Citigroup.

Svinth grew up in the Northwest earning his Bachelors Degree at the University of Washington and his Masters Degree at Washington State University, both in business and finance.

Colonial Pacific Leasing is a part of GE Capital's Vendor Financial Services division, a global leader in providing financial and service solutions to equipment manufacturers, dealers, distributors and end-users. GE Capital is a global financial services company consisting of 28 niche-focused businesses focused on consumer services, specialty insurance, equipment management, specialized financing and mid-market financing.

April 6, 2000 , this announcement was made by fax: “Sub-broker business will no longer be accepted." Discounting commission limits have been lowered as well as broker commission limits.

In reality, a few were allowed to accept “re-brokered business.” One

of them was Steve Dunham's Leasing Associates, one of the first to use BLISS and the company used first to test programs, including the Pegasus program, was allowed to submit re-brokered deals. His story in the leasing business would make fascinating reading, and perhaps when he retires, he could even write a book about.

Dunham's company was not considered a “super broker,” but a proven marketing arm for Colonial Pacific.

Readers can see from the Leasing News List

http://www.leasingnews.org/list.htm

At about this time all major leasing companies were having troubles. Discounters couldn't place the “C” and “D” paper, deals from the previous year were started to jump back up and bite portfolio's, as collectors were having a tougher and tougher time and the roller coaster was over. It would be by Fall that the list grew even more serious with fallouts, mergers, fraud, foul play, and what was once a fun business, too easy to get into, was fulfilling the Robert Morris Associates analysis of equipment leasing that lenders and certainly

the stock market had ignored.

February 6, 2001, noon, Colonial Pacific closed former Tilden operation in Hauppauge, New York and Anaheim, California,

It reportedly came as a surprise to employees, we were told. They were not "upset," but surprised. They specifically did not want to talk "on" or "off" the record.

We had reported in Leasing News, September 21,2000: "Tilden in its current form will be closed down and folded into GE\Colonial Pacific."

http://www.leasingnews.org/archives/September/9-21-00.htm

With the recent consolidation, and from the original news in September, this was not a surprise to regular readers of Leasing News. Many brokers were surprised as being “cut off.”

The official announcement read:

CPL announces closure of Tilden Financial

Some of you may be aware that we announced last Fall that GE Capital Tilden Financial was transitioning to become a part of GE Capital Colonial Pacific Leasing. After continued assessment and evaluation, we came to the conclusion that it was best it we consolidated the entire business into one location.

Therefore, effective today at noon Eastern Time, the offices of Tilden Financial in both Hauppaugo, New York and Anaheim, California will be closed and all business activities will be relocated to Colonial Pacific Leasing in Portland, Oregon.

We made this decision for the following reasons:

o We can expand our product offering to our customers, including the addition of Tilden's expertise in processing structured transactions.

o We are able to leverage synergies between the two businesses and eliminate any confusion in the marketplace of having two separate GE businesses focusing on the same origination channel.

o We can gain efficiencies by eliminating redundancies, reducing costs and fully utilizing the capacity at CPL.

We think you'll benefit from having one location to send all your lease transactions-everything from App-Only to commercial to structured transactions.

Our commitment to servicing your needs is as strong as ever. The people and resources are in place to make a smooth transition of Tilden's operations into our offices in Portland.

May 18, 2001 Press Release

- Denise Egloria has been named Account Manager for GE Capital Colonial Pacific Leasing, reporting to Jay McBee, Sales Manager.

Egloria will service brokers of GE Capital Colonial Pacific Leasing in the Midwest. She comes to Colonial Pacific with over nine years of experience in the financial industry, including positions in sales, customer service and operations.

Egloria's experience includes serving as Operations Manager at Pacific One Bank and then Branch Customer Service Manager for Bank of the West.

GE Capital Colonial Pacific Leasing is a leading financial services company, providing businesses with practical financing solutions through a nationwide network of brokers and lessors.

The above is the last press release on the Colonial Pacific web site. Nothing else from this date is noted.

With the acquisition of Mellon and Heller, a large rooftop was created in Chicago, meaning capacity, and GE simply wanted the leasing operation under one rooftop.

CPL/GE at the beginning of the month had over 500 brokers, according to a highly reliable source. Some 15% to 20% were chosen to remain, based solely on volume and profitability. There is no appeal process. The rumor about attracting new broker business the first of the year was questioned as to why GE would go through this, and then start again. Basically Leasing News was told this was not true. There is not plan to revamp. There is no plan to repeat the procedures in Portland, Oregon, meaning broker protection from return business, customer or vendor accounts.

As one past president, who does not want to be “quoted” said: “The company served the broker community for years like no other company has. It was a good, long run for the brokers, lessors and employees.”

It is said the General Electric buys not the leasing company or its people, but the portfolio. They are like the Borg in Star Trek, you either fit in, or eventually you are squeezed or transferred out. For instance, today there is no more broker program at GE that service these CPL “agencies,” including Steve Dunham's Lease Associates.

Coda: Leasing News would like to thank Bruce Kropschot for his help. If it is “public information,” he is very helpful. If it is confidential or private, I guarantee he doesn't even want to give us background or even talk about it. Confidentiality is his business. There were others who also contributed, but did not want to be quoted or acknowledged. There were many who we contacted who evidently did not want to contribute, after attempting twice to obtain a comment “on” or “off the record.”

We were unable to confirm that Mr. John Thorne had become ill, and subsequently died of a “brain hemorrhage.” If there is any corrections or additions for our “on line” version, we welcome it. editor )