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August 10, 2001 Headlines--- Happy Birthday, John Kruse: ---Capital Stream Announces Cuts in Staff Comdisco Receives Court Approval of Bidding Procedures Finova Bankruptcy Judge Approves Recovery Plan Friday—Odds and Ends
THE FINANCIAL INSTITUTIONS CONSULTING LEASING NEWSLETTER AUGUST 3, 2001 We print the entire newsletter for readers who might want to subscribe. Last Day to Register: No “At the Door.” Financial Resource Conference Or a full story by Leasing News: http://www.leasingnews.org/archives/August01/8-07-01.htm --------------------------------------------------------------------------------------------- Capital Stream Announces Cuts in Staff ( CapitalStream.com provides Internet-ready applications to funding sources, brokers, vendors, manufacturers and B2B portals, enabling them to offer flexible financing programs, improve customer service, and increase their competitiveness. Rates, terms, and content can be dynamically managed by finance companies, allowing them to go online with personalized credit programs that respond to the wide range of relationships they have with customers. Using CapitalStream's "virtual private market" solution to the credit origination process within its Internet sites. ) I wanted to write and give you a heads-up regarding a staff reduction here at CapitalStream. News travels fast and I wanted to make sure you have accurate information. Like many successful large and small companies, CapitalStream is taking precautionary measures because we don't see an immediate resolution to the economic downturn. We still remain financially healthy, and believe that reducing our capacity is a prudent business decision. Our sales pipeline continues to grow in spite of the economic uncertainty that virtually everyone is experiencing in today's market. This reduction, in no way, will limit CapitalStream's ability to grow and provide exceptional service to its current and future customers. Our staff will continue to service our existing customers, build on our technology and secure new customers.
Sincerely, John Kruse VP of Account Development www.capitalstream.com e-mail - jfk@capitalstream.com Direct - 206.548.1603 Fax - 206.545.1273 ( Thank you. We need to all look at the news in a more positive manner. We need to see the leadership, the strong belief, and businesslike approach more often as demonstrated here. This is a solid company. Its investors believe in it, and they raised were successful recently in raising more capital. The company has re-defined their marketplace. We hear compliments, raves from your customers and former employees communicate with you still, as if you are a family. Thank you for the heads up. Also a belated birthday as I understand you turned 40 last Friday. editor ) --------------------------------------------------------------------------------------------- Finova Bankruptcy Judge Approves Recovery Plan By Jeff St.Onge, Bloomberg Finova Group won a judge's approval of a Chapter 11 recovery plan proposed by Warren Buffett's Berkshire Hathaway and Leucadia National, clearing the way for the finance company to emerge from bankruptcy. The plan is based on a $6 billion loan from Berkadia LLC, a joint venture of Berkshire Hathaway and Leucadia. Scottsdale, Arizona-based Finova will use the loan plus its cash reserves to pay $7.35 billion to creditors. In return for the $6 billion loan, Berkshire and Leucadia will get up to 50 percent of Finova's shares and pick the majority of the company's board of directors. U.S. Bankruptcy Judge Peter J. Walsh in Wilmington approved the Berkadia transaction in June. "The next big step is getting the transaction with Berkadia closed later this month," said William J. Hallinan, Finova's chief executive. "After that, the reorganization becomes effective." Finova's bankruptcy filing in March was the eighth largest in U.S. history and the largest ever in Delaware, a frequent site for corporate bankruptcies. The company listed $12.4 billion in assets and $11.3 billion in debts in court papers. "The plan before the court today is the culmination of the work of hundreds of thousands of people over a very short time," Jonathan Landers, a New York attorney representing Finova, told Walsh. "We believe it's unprecedented in bankruptcy history." Under the plan, unsecured creditors will be paid cash for 70 percent of their claims, and Finova will issue eight-year senior notes with a 7.5 percent interest rate to cover the rest. After the recovery plan goes into effect, Berkshire will begin a tender offer for up to $500 million of the new senior notes. Holders of $115 million of trust-originated preferred securities, or "TOPrs," issued by a Finova unit will be paid about 75 percent of their claims. Finova's shares, reinstated under the Berkadia proposal, will represent around 49 percent of the company's outstanding common stock after the plan goes into effect. An earlier version of the plan provided for 51 percent of Finova's shares to go to Berkadia. The amount was reduced to 50 percent to avoid a change in control of the company, which would have prevented the company from taking advantage of tax credits for losses. Finova reported a $436.4 million loss for the quarter ended June 30 in a recent regulatory filing. "It's a great plan for shareholders," said Andrew Rahl, an attorney representing Finova shareholders. "I'd be surprised if there's ever been a larger recovery" for shareholders in a Chapter 11 case. Walsh also allowed Finova to settle a class-action lawsuit filed in U.S. District Court in Phoenix by company shareholders. Terms of the settlement haven't yet been made public. Berkadia is helping to manage the company's operations under a 10-year agreement reached before Finova filed for Chapter 11 protection. The company said in court papers that it plans an "orderly liquidation" of its loan portfolio and foresees having just $4.27 billion in assets by 2005. Finova isn't taking on any new loan business, Hallinan said. Berkadia and a venture between General Electric's GE Capital unit and Goldman Sachs Group vied for Finova until June when creditors accepted the Berkadia proposal. Finova began in 1954 as Greyhound Financial, a subsidiary of the intercity passenger bus company. The company was spun off in 1992 and became Finova in 1995. Finova's losses mounted after some clients were unable to repay loans after the U.S. economy slowed. Finova's primary line of business is financing the purchase of used aircraft. Unlike a bank, which uses deposits to fund its lending, Finova is a commercial finance company that depends on selling bonds and borrowing money. --------------------------------------------------------------------------------------------- ### ############### ################ ###### Comdisco Receives Court Approval of Bidding Procedures for Sale of Availability Solutions to Hewlett-Packard
ROSEMONT, Ill.--(
Comdisco Employee Retention, Incentive and Severance Programs and Worldwide Cash Management Programs Approved Comdisco Authorized To Continue Full Scale Services, Leasing and Ventures Ordinary Course Operations Including Payment of Certain Prepetition Claims, Sale and Leasing of Assets, and Management of Loan Portfolios Final Orders Approved On First-Day Motions Comdisco, Inc. (NYSE: CDO) announced yesterday that the U.S. Bankruptcy Court for the Northern District of Illinois approved consensual bidding procedures proposed by the Company related to the proposed sale of Comdisco's Availability Solutions (Technology Services) business to Hewlett-Packard Company. The bidding procedures were supported by the Company's Official Committee of Unsecured Creditors and several prospective bidders that had earlier filed objections to the bidding procedures. Among other matters, the Court accepted Comdisco's proposed bid deadline of September 30, 2001 and auction date of October 11, 2001 for competitive bidding to determine whether a higher or otherwise better offer should be considered, and set October 23, 2001 as the sale hearing date to consider approval of the Hewlett-Packard or alternative transaction. In the event that the Court approves the proposed sale to Hewlett-Packard, the transaction is scheduled to close on November 16, 2001, approximately thirty days later than the original closing deadline. As announced on July 16, 2001, Comdisco has reached a definitive agreement to sell this business to Hewlett-Packard Company for $610 million. Norm Blake, Chairman and Chief Executive Officer, said: "We are pleased that the bankruptcy court and our creditor representatives are continuing to be supportive of our efforts to move Comdisco through the reorganization process in an efficient and effective manner. Just three weeks into our reorganization cases, approval of the bidding procedures for the sale of the Availability Solutions business is an important milestone for the company, as well as our customers, employees and business partners." Simultaneously with entering into the agreement with Hewlett-Packard on July 16, Comdisco, Inc. and 50 domestic U.S. subsidiaries filed voluntary petitions for relief under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Illinois. The filing will allow the company to provide for an orderly sale of its services business, while resolving short-term liquidity issues and enabling the company to reorganize on a sound financial basis to support its ongoing businesses. The Bankruptcy Court also considered and granted all relief requested by Comdisco at yesterday's omnibus hearing on nineteen other separate matters. Among the matters receiving approval were: -- Comdisco's employee retention, incentive and severance programs for all of its employees (the Company's programs for certain senior management employees and its emergence program will be considered at the August 23, 2001 omnibus hearing previously scheduled by the Bankruptcy Court); -- Continuation of Comdisco's full-scale ordinary course business operations in its Leasing, Services and Ventures business unit including authority to pay certain prepetition claims, sell and lease assets, and manage loan portfolios; -- Continuation of Comdisco's worldwide cash management program and practices including the continuation of intercompany transactions with non-debtor affiliates and waiver of bankruptcy investment and deposit requirements; -- Continuation of interim authority to borrow up to $200 million on the Company's $600 million debtor-in-possession financing facility (with final approval for the entire facility scheduled for the August 23, 2001 omnibus hearing); -- Continuation of the wind-down of the Company's former Prism business unit including the rejection of certain real property leases and authority to divest assets; -- Establishment of adequate assurance arrangements and procedures for utilities providing services to Comdisco; and -- Retention of Comdisco's financial and legal advisors for the Company's chapter 11 reorganization cases. "The combined effect of receiving final approval for continuation of Comdisco's worldwide cash management system and practices together with continuation of our full-scale ordinary course business practices in all of our business units completes a very successful launch of our reorganization cases for our Services, Leasing and Ventures businesses," said Mr. Blake. "We are especially gratified that the extraordinary efforts of our employees has been recognized through the approval of competitive and appropriate retention, incentive and severance programs." Comdisco's operations located outside of the United States were not included in the chapter 11 reorganization cases. All of Comdisco's businesses, including those that filed for chapter 11, are conducting normal operations. Comdisco is continuing to pursue other strategic alternatives to create value for its stakeholders, including evaluating the possible sale of certain of its leasing assets to several interested buyers. The company intends to reorganize its remaining businesses, including Comdisco Ventures, on a "fast-track" basis and has targeted emergence from chapter 11 during early 2002. About Comdisco Comdisco (www.comdisco.com) provides technology services worldwide to help its customers maximize technology functionality, predictability and availability, while freeing them from the complexity of managing their technology. The Rosemont, (IL) company offers a complete suite of information technology services including business continuity, managed web hosting, storage and IT Control and Predictability Solutions(SM). Comdisco offers leasing to key vertical industries, including semiconductor manufacturing and electronic assembly, healthcare, telecommunications, pharmaceutical, biotechnology and manufacturing. Through its Ventures division, Comdisco provides equipment leasing and other financing and services to venture capital backed companies. ### ########## ############## ############### Friday—Odds and Ends Play It Safe in “Text Mode” I appreciate the elevation to computer guru, but I hope everyone understands that my advice was strictly limited to preventing the spread of viruses. Everyone should set their email program so that the default email format is PLAIN TEXT. Plain text messages cannot carry vbscripts or viruses, but they can still transport file attachments that contain viruses! Except for AOL, most email programs default to HTML format. I still see the majority of NAELB listserv postings in HTML. Anyone with default HTML settings is a very high risk for spreading viruses that email themselves to every contact in their address books. One more thing. In the corporate world, it is proper etiquette to send email in plain text format. It takes much less time to download and is much more likely to pass through increasingly strict email filtering programs in use by large companies. Doug Delack Alternative Finance, Inc. DDelack@USA.NET ( I also like your idea about a Frequently Asked Question section: We get calls for telephone numbers, opinions, where is information on Article 9, or you wrote about so and so, where do I go to find this, etc. One of the most frequent recently is lessors paying a referral fee. Several dealers are major publicly traded companies who “force” the lessee to use their “own leasing company.” It is common. Many offer five percent to the vendor company who pay salesmen, if they like, part or all. It is not uncommon for US Bancorp, for one, to offer a vendor a five percent referral fee or commission ( we have copies of the offer ). This is done at Dictaphone, among others. Others will not even deal with a leasing company without copies of the lease contract, like CDW, or money in advance ( which many vendor related lessors have programs for this ). Or the funding source called my lessee without my permission, or the funding source called the applicant to offer a better rate as they turned down what I offered. There are an entire series of FAQ that we should develop for all readers. editor )
~~~ Equipment Leasing Association Sends No Attachments on Their Listserve If anyone posts with an attachment, they get a notice that it did not go through and why. Wayne Hunt whunt@elamail.com ELA Online http://www.elaonline.com/ Equipment Leasing Association 703/527-8655 ( NAELB is working on an anti-virus program for their system, and has warned readers not to send or open attachments, but their software program does not prevent this, as does ELA. Perhaps it is a “text only” system. editor. ) ~~~ Jeff Allard , Monday, says “ Goodbye,” last day at Bay View Commercial Leasing,” “ I will likely continue in the leasing business as a broker/consultant - I have a few offers and prospects. However, my primary focus will be in the movie business. My business partner (a Warner Bros. TV producer) and I have purchased the rights to remake the classic horror film - the Texas Chain Saw Massacre. This project will keep me quite busy” Jeff - Is that to be about the Texas chainsaw massacre of the leasing industry? ************************************************* Paul J. Menzel, CLP Senior Vice President / General Manager Leasing Division SANTA BARBARA BANK & TRUST P.O. Box 1199 Santa Barbara, CA 93102-1199 1 South Los Carneros Road Goleta, CA 93117 (805)560-1650 PaulM@sbbt.com ~~~ Regarding Jeff Allard - great guy and a real loss to the leasing business.,.,.,.but .,.,.,isn't producing "Texas Chain Saw Massacre" really like producing "Equipment Leasing 2000-2001"???? Rick Wilbur ~~~ I think Jeff Allard should combine his leasing industry knowledge with his movie rights and do a documentary about the blood bath/massacre in the leasing industry this year. He could show the CEO's of TYCO, GE, and Citigroup carving up what's left of the leasing industry. They could bury the survivors alive in the desert around Tempe. They could then have the killers chopping up each others market share until the leasing industry is totally fragmented again. Bob Rodi President LeaseNOW, Inc. drlease@leasenow.com www.leasenow.com 1-800-321-LEAS (532 (If you are not driving a BMW car or motorcycle, what do you drive? editor ) Hi Kit: Although I'm sure it's not the most serious question I could answer today, I'm happy to take a break for a moment... I drive two vehicles (not at the same time, though...:-): Weekdays: 1997 Ford Explorer Limited Weekends: 1978 Toyota Landcruiser fj40 You can quote me, although I'm not sure why you'd want to! On a separate note, although I am no longer in the day-to-day leasing world, I scan or read Leasing News each day, depending upon the headlines. I appreciate having the information delivered to me, since I don't often have time to search for it. Thank you! Haley =============================================== Mahala "Haley" Carter Business Process Analyst, Americas GSO Finance Sun Microsystems, Inc. 7777 Gateway Blvd., Bldg. 12, Newark, CA 94560 (510) 574-8681 direct, or Ext. 38681 ( You are the only one to respond, so I can’t complete the survey. I guess the readers did not read the article nor were they taking us serious, as you did. Thank you very much. I drive a 2000 Chevrolet Suburban Model 1500, but also am the original owner of a 1959 Super 90 Porsche. We have other cars at home, but I mostly drive the Suburban. editor ) ~~~~ United Capital Spectrum Leasing is being run out of the same building that United Capital was and all the players appear to be the same.........Has anyone considered or looked into a Class Action Lawsuit against Steve Dallas and company? I would imagine there are more than a few companies that have had the same problem as Phil Duley from Quest Financial. ( Name Withheld, editor’s choice )
( We also received the telephone number for Spectrum and advised Phil Duley to call it. We have reported that Steve Dallas and an investor in United Capital own the property, and reportedly they have had a falling out. We have not heard any news regarding a bankruptcy or anything, and believe the reason is everything regarding United Capital is in the “Twilight Zone.” editor ) ~~~~ --------------------------------------------------------------------------------------------- Kit, I have been receiving your newsletter for several months now, thank you. Earlier this month, FIC began its own leasing newsletter. Twice a month we write and publish an article with our perspective on current events in the leasing industry. I have added you to our list and am enclosing the most recent edition. The newsletter will come from FIC_leasing news. Hope you find it useful/helpful ( We will quote from the newsletter from time to time, but to give our readers the opportunity to receive in entirety, here is a full copy of the newsletter and address at the end to subscribe. editor ) THE FINANCIAL INSTITUTIONS CONSULTING LEASING NEWSLETTER AUGUST 3, 2001 *************************************** Financial Institutions Consulting, a New York-based strategy consulting firm, has a strong focus on the leasing industry. Both our client work and research underscore FIC's commitment to this industry. Perhaps most notably, we wrote the Equipment Leasing Association's State of the Industry Report in 1999-2000 and are currently working on the 2001 Report. This e-mail presents the inaugural edition of the FIC Leasing Newsletter, a bi-weekly publication that will present our perspective on key issues impacting the industry. Each newsletter will be topical and, we hope, provocative. However, if you wish to be dropped from our distribution, please e-mail us at: FIC LeasingNews@ficinc.com. **************************************** This Week's Topic: WHAT DOES HELLER FINANCIAL'S SALE MEAN FOR THE LEASING INDUSTRY? While previously rumored, the Heller transaction is still impressive in its size and potential impact. And, it attests to the quality of Heller's portfolio and the confidence that GE Capital has in being able to exorcise significant cost overlaps as well as leverage Heller's marketing base. But this is just the latest in a series of mergers and consolidations within the leasing industry. Of the four largest independents of a year ago, Finova, CIT, Heller, and Comdisco, none will soon be left (although not all due to mergers). More and more, the industry is evolving into world of very large and very small players: the whales and the minnows.
The Heller acquisition highlights some of the key issues the industry faces: continued consolidation, the fight for growth, and the need for a defined and defensible niche focus. CONTINUED CONSOLIDATION Today's competitive arena features a handful of very large players seemingly holding a dramatic funding advantage versus hundreds of medium and small players. With Heller, GE is now an even more formidable player with increased capabilities in international markets, health care, and real estate, as well as a renewed emphasis on the middle market. GE and Heller together will now represent close to 25% of all leasing volume. Further illustrating industry concentration, Monitor estimates that in 2000, the top 10 companies generated 64% of new lease volume compared with just over 57% in 1998 and 59% in 1999. That percentage appears destined to increase. Funding concerns (as well as bargain hunting) are fueling consolidation. Until recently, asset securitization and commercial paper issuance provided relatively inexpensive funding. However, securitization has all but dried up. Companies attempting to float debt have also found the markets more demanding. The easy liquidity that has existed for the past several years is gone, forcing companies to pursue acquisition to secure funding. FIGHT FOR GROWTH At a recent meeting of leasing execs that FIC attended, several mentioned their surprise at the way in which the economy has "fallen off the table." Similarly, many of our clients both in leasing and in broader financial services are facing below-budget growth resulting from reduced capital investment. To reach targeted growth rates, strong companies, like a GE or Citigroup, turn to acquisitions, but few players have the financial resources or the experience to manage growth through acquisition. Companies that cannot or do not want to grow through acquisitions will focus on organic growth and cost reduction to build their bottom lines. But, organic growth is going to be difficult to achieve in the near term; in this environment, near-term cost reduction has become critically important. (Future newsletters will explore how to increase operational productivity as well as reduce portfolio risk and customer attrition.) NEED FOR FOCUS AND REDEFINITION Faced with consolidation and today's economy, small and medium size lessors must determine, "How do I compete with the big boys?" Our "easier said than done" answer is: Find your niche and serve it well. For example, bank-owned companies must renew their efforts to work with the corporate banking side of the house to leverage existing relationships and generate lease referrals. Alternatively, those focusing on vendors should examine their programs to add additional value, both to build vendor relations and increase throughput from them. For the most part, small and medium size companies cannot compete on price or product breadth and must rely on service, flexibility, and specific knowledge. Large companies are typically less entrepreneurial, and they react to market changes more slowly than small players, meaning that special customer needs can become difficult to accommodate. However, smaller players would be unwise to depend upon big lessors like GE Capital being slow to act in a client showdown. Small-mid sized lessors need the ability to respond quickly to a customer's unique financing needs by offering solutions tailored to specific financing needs. As one lessor said, "They need to have a pitch that can be clearly stated in about 10 seconds." In many cases, companies will pay for that extra care, flexibility and market knowledge. Lessors should also consider expanding outside their traditional product box to exploit opportunities in the broader world of commercial finance. As they are emphasizing strong relationships with customers and a customized approach, add-on sales of related financing products can be a natural growth area. CAN MINNOWS SURVIVE IN A SEA FULL OF WHALES? We think the answer is an unequivocal yes. The competitive situation is not unique to leasing, as evidenced by community banking, specialized retailers, and a host of other industries. But survivors in other industries have had to figure out what they are about and gear their organization to communicate and deliver on a value proposition that resonates clearly with targets and customers. **************************** NOW AVAILABLE: 2001 SMALL BUSINESS STATE OF THE MARKET REPORT - a comprehensive study of the small business market and its use of financial services products and providers. By joining the perspective of over 400 small business owners with FIC's extensive knowledge of the small business market and financial services industry, the report looks at market size, use of products, product providers, credit cards, credit, primary providers, delivery channels, online banking, and segmentation. For more information or to purchase, email: mharvey@ficinc.com. ***************************** ABOUT FINANCIAL INSTITUTIONS CONSULTING FIC is a strategy consulting firm addressing issues related to growth and profitability for financial services clients. We emphasize practical, bottom-line results based on quantitative and qualitative research and an in-depth understanding of industry dynamics. For more information about our consulting services or if you have questions or comments, please email: info@ficinc.com; type "info" in the subject line. ***************************** FINANCIAL INSTITUTIONS CONSULTING, INC. 475 Fifth Avenue Suite 19 New York, NY 10017 212.252.6700 www.ficinc.com Matthew L. Harvey Financial Institutions Consulting, Inc. 475 Fifth Avenue New York, New York 10017 212-252-6725 www.leasingnews.org
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