Wednesday, January 4, 2012
How Sale/Leasebacks Get Respect
######## surrounding the article denotes it is a “press release” and was not written by Leasing News nor information verified, but from the source noted. When an article is signed by the writer, it is considered a “by line.” It reflects the opinion and research of the writer. It is considered “bias” as it is the writer’s viewpoint.
Leasing News Person of the Year 2011
John C. Deane
John Deane's contributions to the leasing industry, both in the United States and internationally, have been great over a long leasing career.
He is recognized for his outstanding leadership as CEO of The Alta Group with many accomplishments, especially this past year, including development of a formal structure binding the geographic units of the organization together, including expansion not only in North America, Central America, the United Kingdom, Europe, the Middle East, Africa, but now South America, China, as well as Asia Pacific; developing strong relationships by attracting very talented and well-known leasing experts to the Alta Group.
He is an ex-banker as wells as CEO of both Great Western Leasing and BancOne Leasing as well as having served as the CFO and president of several major financial corporations, well-known lecturer on economics, as well as his long time association with the Equipment Leasing and Finance Association, serving as its chairman in 1991 of its predecessor---the American Association of Equipment Lessors. Here is a leader in his field, literally now world wide.
His website biography best describes him:
"John Deane thrives on the intellectual challenge of navigating the multi-dimensional complexities of the equipment leasing and finance industry. A founder of The Alta Group, John judges the value of Alta's work not just in the breadth and depth of the information it gathers for its clients but in helping them select and execute strategies that put that industry intelligence to work in an organization."
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PacWest Bancorp (Nasdaq:PACW) yesterday afternoon announced that on January 3, 2012, its subsidiary, Pacific Western Bank, completed the acquisition of Marquette Equipment Finance, or MEF, a specialty equipment leasing company located in Midvale, Utah. The division has been reportedly available for one year. There are approximately 71 employees and the main thrust is in the $100,000 to $5 million range and higher.
The press release stated Marquette has "$166 million in gross leases outstanding, with no leases on nonaccrual status. It had been a subsidiary of Meridian Bank, also under control of the Marquette family, and now has the opportunity to perhaps double their 2011 numbers.
According to the press release, "leases are spread across 18 industries, with the top three being financial services/insurance, manufacturing, and health care and representing 68% of the lease portfolio balance. The weighted average yield on the lease portfolio at year end was approximately 9% and its weighted average remaining maturity was 34 months. In addition, Pacific Western Bank assumed $154 million in outstanding debt and other liabilities.
FDIC reports Pacific Western Bank had 937 full-time employees with 78 offices in California, primarily Southern California, and one in Scottsdale, Arizona, as of September 30, 2011; net worth $635 million, profit $42.6 million, non-current loans $132.9 million, charge offs $34.2 million ($23.6 nonfarm, nonresidential property, $3.2 million commercial and industrial, $3.998 other loans, $1.39 construction and land development) $1.2 multifamily residential property); Tier 1 risk-based capital ratio 14.63%
FDIC reports Meridian Bank had 259 full time employees at its seven offices in Arizona as of September 30, 2011; with a net worth of $185 million, net income of $12.99 million, non-current loans $19,188 with charge offs of $11.8 million ($6.4 1-4 family residential properties, $4.4 million construction and land development, $47,000 nonfarm-nonresidential, $305,000 commercial and industrial, lease financing receivables, $47,000; Tier 1 risk-based capital ratio 19.90%.
Matt Wagner, Chief Executive Officer of PacWest Bancorp, commented, "Marquette Equipment Finance is a terrific fit for Pacific Western Bank. Its conservative approach to credit and the strength of the management team have made Marquette Equipment Finance into a solid performing equipment leasing company. MEF's leasing platform provides a valuable additional growth channel for us and enhances both the categorical and geographical diversification of our loan portfolio. We look forward to adding their expertise to our organization and giving them the opportunity to grow further."
Vic Santoro, Executive Vice President and Chief Financial Officer of PacWest Bancorp, stated, "The acquisition of MEF augments our commercial loan assets, deploys excess liquidity into higher yielding assets and will have a positive effect on our net interest margin. We expect that we will enhance MEF's overall profitability through the use of our low-cost funding base."
Jim Christensen, President of Marquette Equipment Finance, said, "MEF is thrilled to be part of the PacWest organization. The MEF employees look forward to making a meaningful contribution to the combined organization going forward."
"MEF will continue operating under the name Marquette Equipment Finance as a subsidiary of Pacific Western Bank on a temporary basis. Pacific Western has committed to change MEF's name within one year. MEF will maintain its focus on equipment finance. Pacific Western has retained all 71 MEF employees. MEF's president, Jim Christensen, and its executive vice president and chief financial officer, Christian Emery, will continue in those responsibilities with MEF.
PacWest currently operates two commercial finance companies as a result of the acquisitions of BFI Business Finance, an asset-based lender located in San Jose, CA, in 2007 and First Community Financial Corp., an asset-based lender and factoring company located in Phoenix, Arizona, in 2004.
Dorran Sampson, Vice-President/Broker Relations, told Leasing News "Marquette confirms our commitment to the leasing broker community."
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“Business Tax Increase for 2012 affects Leasing”
Congress did not extend for 2012 the President Obama stimulus 100% bonus depreciation benefit (1), this then becomes a tax increase, eliminates a stimulus also to acquire equipment, perhaps catches higher taxes in early disposal of equipment as per the IRS guidelines, and definitely affects the equipment leasing and finance industries. It is not helpful to small business in the United States.
Existing short term “true leases” are still available, but those leasing for cash flow with a bargain purchase option, we are back to MACRS depreciation and the percentages of the original fair market value allowed for each year based on the allowed term.
Here is a copy of the IRS’s depreciation schedule that gives you the asset class life and the allowable depreciation percentage for each year based on the class life. (2)
Prior to 2012 the business tax payer could fully deduct the equipments cost in the year it was acquired up to specific dollar amounts, as regulated and defined by IRS guidelines. With less depreciation available in 2012 from assets purchased the last few years, clearly the income tax bill will be higher. In addition if a business decides to replace any asset, the selling price will be fully taxable because the tax basis (undepreciated value) will be “0” because they took 100% of the purchase price off their taxes when they acquired it. So with limited deductions the business tax bill will be much higher.
Some will use the like-kind exchange program (IRC Code section 1031) and acquire like kind replacements so the tax burden is deferred into the future. Kicking the can down the road so to speak. The requirements are to qualify as a Section 1031 exchange; a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction). Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.
Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks.
An example of a like-kind exchange comes when a company wants to acquire a replacement piece of equipment. Let’s say they have an asset they wish to replace that was 100% depreciated in the year they purchased it. Now it has a sale value of 50% of its original cost. If it was just sold it would be taxable event at a 35% rate. In a like-kind exchange the new equipment purchase value will be 100% minus 50% so it will go on the books as a 50% asset and that amount will be depreciated according to MACRS with no tax effect. Then if the second asset is sold in the future, its lower tax bases may cause a taxable event unless they do an additional like-kind exchange on it.
It is important to know that taking control of cash or other proceeds before the exchange is complete may disqualify the entire transaction from like-kind exchange treatment and make ALL gain immediately taxable. If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only to the extent of the proceeds that are not like-kind property.
One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete. Be careful in your selection of a qualified intermediary as there have been recent incidents of intermediaries declaring bankruptcy or otherwise being unable to meet their contractual obligations to the taxpayer. These situations have resulted in taxpayers not meeting the strict timelines set for a deferred or reverse exchange, thereby disqualifying the transaction from Section 1031 deferral of gain. The gain may be taxable in the current year while any losses the taxpayer suffered would be considered under separate code sections.
When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.
Because of the complex nature of like kind exchanges and the outside expense for a qualified intermediary most of these transactions are going to be for higher transactions.
Of course none of this has anything to do with a lease because title must rest with owner each time unless it is a bargain option lease where the lessor is one and the same each time.
A true lease may help a lessee from the heavy tax burden instead of a like-kind exchange when the use of the equipment is much shorter than the asset class life for federal income tax. A true lease will increase the tax write off if the term of the lease is short or a higher/lower rent stream is arranged. This would allow the lessee to expense the rents that should be higher than MACRS depreciation.
If cash flow is a problem because of the higher taxes leasing can offer a low/high rent program to lower payments in the months requiring tax payments. True Leasing is a very flexible product when considering how the payments are expensed for tax purposes. However the new accounting rules will flatten it out for book purposes.
(1) Accounting Web on Business Tax Credit
(2) IRS Depreciation Schedule (personal property)
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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Forged Corporate Resolution Stings Creditor
I can’t speak for every leasing and banking lawyers, but there isn’t a year that goes by that I’m given a deal to collect upon with screwed up corporate resolutions. Often it’s an LLC without any reference to the membership, other times, the resolution is for a person different than the lease signer.
The recent case of Regions Bank v Bric Construction, 2011 WL 6288033 (Tenn. Ct. App. December 13, 2011), the creditor was faced with a resolution which was admittedly forged, although notarized. The case provides some valuable lessons for leasing underwriters and lawyers to know your customer and to develop policies to insure the authenticity of your customer’s signatures. It is one thing to use signatures by mail and fax for smaller deals, but it transactions over $500,000, specific policies probably need to be developed. This creditor had no such policies and as a result, the case was sent down for a re-trial of the signature issues. The facts follow.
Bric Construction was a Limited Liability Company, and was “member managed.” The sole member was Ms. Patricia McIntosh.
Bric Construction signed a series of lease agreements and equipment financing agreements with Regions Bank, but Ms. McIntosh’s signature on the corporate resolution was not genuine, although it was notarized. It was unknown who actually signed the documents, although there was some evidence that her husband may have signed Ms. McIntosh’s name, and he had his assistant notarize the signature.
However, the creditor was helped by the fact that Bric Construction acknowledged receipt of the monies and equipment, and made payments on the obligations for over a year, before defaulting.
At trial, the lessee claimed two things. First, Bric Constructions claimed that the lease and equipment finance documents were forged and that because the signatures were not genuine. Second, the lessee claimed that the Bank also lost its security interest in the collateral, which included a very expensive Bentley sedan and an excavator which was improperly described in the security agreement.
The trial court saw through the charade and ruled squarely in favor of the lessor, ruling that Ms. McIntosh ratified her signature by knowledge of the event and making payments for a year. However, the creditor’s victory was short lived.
On the first issue, the Court of Appeal ruled that, the bank’s lawyers failed to develop the testimony that Ms. McIntosh was aware of a certain $400,000 disbursement, and why, if she was signing checks, the obligation was paid as agreed for over a year, if she disputed her signature. Therefore, while she may have ratified the signature, there was not enough evidence to support the trial court’s verdict, and the Court of Appeal sent the case back down for re-trial on this issue.
On the second issue, the Court of Appeal ruled the sufficiency of the description of the collateral, was governed by Uniform Commercial Code § 9-108 which sets forth the detail of description required in a security agreement, which must “reasonably identify the collateral.” Although the description could have been better, there was evidence that the parties were not confused about which excavator was purportedly being pledged, notwithstanding the lack of identifying numbers.
The lessons for the leasing underwriter are many here.
First, know your customer and make sure that the right people sign the corporate resolution. To insure the company against identity theft and/or forgery, obtain copies of the driver’s license of the signer. On larger sized transactions, compare the signatures on the lease or loan documents with known signatures, such as a driver’s license.
Second, while notaries provide some minimal level of protection, the notaries connected with the lessee are often dishonest and the limit of liability to the notary might be his or her notary bond, which is between $10 and $20,000 in most states. If the leasing company is involved in a large transaction, it is probably worth having the documents signed in front of the creditor or notarized by an independent notary or signing service which can’t be bribed.
Of course, telephone audits of all signatories would also go a long way to spotting the forgery or proving ratification.
Finally, when putting together the lease schedule, include every possible identifying feature of the collateral, including make, model, serial number and VIN. An onsite equipment verification, like QuikTrak, will go a long way to establishing your collateral, especially when it is tagged and photographed.
I have one real example which parallels this case. About two years ago, he tried a case for a well known national leasing company financing exercise equipment where the principal’s supposed partner’s signature was forged and notarized by that partner’s notary. While such activities make nice police reports, suing the notary for her bond wouldn’t get leasing company its $3 million dollars. What puzzled us was the fact that this was a huge deal for this leasing company, and we couldn’t ever figure out why such a large transaction would not warrant a formal closing, rather than obtaining signatures by mail. The excuse was press of business.
The lessons for leasing lawyers who have to litigate these matters with faulty lease documents are three fold. First, try to establish knowledge of the principal of the lease through telephone audits, witnesses to the signing, or truly independent notaries. Second, if the unauthorized signer approved lease payments, that signer should be vigorously cross-examined so his or her knowledge and ratification becomes an issue of fact for the judge or jury to decide. Character matters, and when reading the decision, I got the impression that the lessees were playing musical chairs with signatures to game the system.
The bottom line to the Regions Bank case is “know your customer” and if the deal is over a threshold, the creditor should have guidelines to insure the signatures on the documents are genuine. It amazes me why the largest of deals are treated with routine signature policies, which should not be the case.
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One of Most Influential Women in Leasing Says Goodbye
What has been floating around the month of December, 2011, has become official now that the Certified Leasing Professional (CLP) Foundation announces that the Executive Director of the CLP Foundation, Cindy Spurdle, will leave by April. She told Leasing News she has other interests to follow and considers the move "semi-retirement." This is a major event following the death of its president Chris Walker in 2011.
Originally started by the then Western Association of Equipment Leasing, which became the United Association of Equipment Leasing, the CLP program became a foundation and Cindy Spurdle became part-time executive director in 2000.
Leasing News named her one of the Most Influential Women in Leasing (1)
"Cynthia 'Cindy'" Spurdle ---Long time executive director of the Certified Leasing Professional Foundation, who began her career in 1982 Wrigley Group Ltd., a family owned leasing company started by her father. Her late husband and she purchased the business in 1988. 'In 1990 I was working on a transaction with a broker in Albany, NY, Gerry Oestreich, who later became President of the National Association of Equipment Leasing Brokers. He told me about a brand new association called the NAELB just getting underway in Atlanta." She took the position as the first Executive Director of the NAELB in 1998 and took over the management of the entire association, except the books, and all of the conferences and meetings for two years. She then went to the Cindy went to the United Association of Equipment Leasing office, helped with the conferences, but main job was the Certified Financial Professional program, which is now a "foundation" that she is the executive director. She is active at many conferences for all the associations, a hard worked, always in the background, gets the job done, above and beyond what is asked of her.
In a press release, the CLP thanked her for the "countless hours of work, ideas and contributions to the development of the Foundation," which went beyond her paid part-time salary.
According to Leasing News archives there were 223 Certified Lease Professionals in 2004--- The year 2011 ended with 168 members, a slight drop from the previous year of 174 members.
Incoming president Rosanne Wilson, CLP, B.P.B., is planning an aggressive year, especially with the new perquisite of three years:
A test is required as well as renewal to remain a member. More information is available here:
Why I Became a CLP:
(1) Most Influential Women in Leasing
((Please Click on Bulletin Board to learn more information))
Top Stories December 28
Here are the top ten sorties opened by readers:
(1) Placard---Leasing is Like Living with a Girl
(2) Loose Ends:
(3) Salvation Army Kettle Donors
(4) Fallout from CMC Continues in Nevada Federal Court
(5) Leasing 102 by Mr. Terry Winders, CLP
Leasing Notables Who Passed Away 2011
During his tenure in the Senate, Fenig played a key role in the consideration and enactment of the Tax Reform Act of 1986.
Bruce Kropschot, The Alta Group
Many also may remember he was the 1986 President of the Western Association of Equipment Leasing (WAEL), today the National Equipment Finance Association. In an early biography it said he had been in leasing for 30 years, add another ten and it was 40 years at the time he retired in 1996. He also was one of the first Certified Leasing Professionals.
"Jeffrey was an entrepreneur, an entertainer & a friend to those in need. He is survived by his wife of 23 years, Toby Taylor; two daughters, Jordana Hazel & Moira Taylor; two step-children and their spouses, George & Elizabeth Friedman and Carrie & Doug LeBow; and three step-grandchildren." http://www.legacy.com/obituaries/azcentral/obituary.aspx?n=jeffrey-taylor&pid=152190898
Jeff Taylor photos
Tony Golobic, GreatAmerica Leasing
Chris was president of the Certified Leasing Professional Foundation, a member of the National Equipment Finance Association Board of Directors, an accomplished musician. Survivors include his wife, Jean, a daughter, Madeline; his mother Joann Walker; two sisters, Cindy (Dennis) Nodorft and Patty Walker and a brother Michael.
Hugh Swandel NEFA 2012 President
Hugh Swandel, Managing Director of the Alta Group in Canada, is the 2012 President of the National Equipment Finance Association. He is an active, long-time member, recently serving as vice-president.
He serves also on the board of directors of the Canadian Finance and Leasing Association (CFLA). He also is a member of the Equipment Leasing and Finance Association of America (ELFA). He currently serves on the Advisory Board of Leasing News. In 2006 and again in 2010, Hugh received the Canadian leasing industry’s highest honor when he was named “CFLA Member of the Year.”
Prior to founding his firm, Swandel and Associates, in 2001, Hugh served as president and chief operation officer of Electronic Financial Group (EFG). EFG was a Canadian company that launched a multi lending web based credit system. Earlier, Hugh spent 10 years with National Leasing Group in a variety of senior positions. National Leasing Group is a privately held Canadian lessor that has won numerous awards for excellence in management and innovation.
Chris Enbom, CLP, CEO of Allegiant Partners, remains on the
The following also serve on the Executive Board, John Rosenlund, CLP, of Portfolio Financial Servicing Company, as Vice President; John Donohue, of Direct Capital Corporation, as Treasurer; and Frank Peretore, of Peretore & Peretore, P.C., as Secretary.
NEFA 2012 Directors include Tara Aasand, Great American Insurance, William Ford, Jr., Ford Financial Services, Kyle Gilliam, CLP, Arvest Equipment Finance, Brad Harmon, CLP, First Star Capital, Terey Jennings, CLP, Financial Pacific Leasing, Jesse Johnson, LeaseTeam, Tim Mathison, P&L Capital Corp, Jim Merrilees, CLP, Inspection
Services Division of RTR Services, David Normandin, CLP, Normandin Consulting, Bruce Smith, CLP, Diversified Capital Credit Corp., Gary Souverein, Pawnee Leasing Corp.
2012 Leasing Conference---Save the Dates
Leasing Association 2012 Conferences
National Equipment Finance Summit
Lynne Wicker, Conference Chairperson
April 26-28, 2012
AGLF/ELFA Public Sector Finance Forum
Palm Desert, California
To view Leasing Association Events-Meetings Open to All, please click here.
Reno, Nevada -- Adopt-a-Dog
Breed: Terrier (Unknown Type, Small)/
I am already neutered, up to date with shots, and good with dogs.
"MILES rescued from local county shelter. Has allergies will require quality grain free food. Loving and sweet. $75 adoption fee. Adopted in Reno/Sparks community only. Call in Reno 852-7111 for details and application. For Pets Sake conducts a home visit and fence check prior to adoption. Thank you.
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How Sale/Leasebacks Get Respect
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