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Thank
you to all the U.S. Athletics---A very exciting Winter Olympics!! ------------------------------------------------------------------------------- Kit Menkin’s
Leasing News www.leasingnews.org Friday, February 22,2002
Headlines---- CIT Turns Off Brokers/Issue New Funding Press Release 1st International Bank Now UPS Capital Leasing/No Broker Biz Fourth Quarter Equipment Leasing and Financing Up says ELA Classified Ads---Latest Up-date (We find people jobs) Commercial Finance Association Original Members of LeaseTek form IT Group Recession May Be Over---reports Associated Press e-Commerce Hits Best 4th Quarter, 2001 Valley Vacancies---San Francisco Chronicle Enron Accounting vs. Leasing Accounting—ELA on the Ball (We in the leasing business need to do more to support the Equipment Leasing Association) ### Denotes Press Release ---------------------------------------------------------------------------------------------
Special Announcement EXCLUSIVE---Starting
Monday---Three Part Series--- “
Whatever Happened to... Republic Leasing of Anaheim?”
A letter written June,2000 from Mark McQuitty, one of the founders,
tells what happened to his company, to First Sierra, predicting Dot.com
demise, and asks the man who was sent to fire him as branch manager
be named CEO of the company.
Part 1—“Cause for Concern”
Part II--- “E-Commerce Follies”: **Technology vs. the
Salesman”
Part III --- “MR DEPPING”
( headlines from the major parts of McQuitty’s letter )
This extraordinary document, abridged, in three parts, Monday,Tuesday,Wedensday
will be followed on Thursday Noon
in a live session: “Meet the Leasing News Maker---Mark McQuitty
“ Readers
will have the chance to ask question and communicate with the News
Maker *********
************************ **************************** ---------------------------------------------------------------------------------------------------- CIT Turns
Off Brokers While Issuing Increased Funding Capability Press Release This
was Leasing News first tip: “I
was just called and told effective today, CIT no longer doing any
third party deals. Will re-enter this market when their commercial
paper costs are lowered.” No CIT
official would confirm or deny this, but this is what we did find
out: From
an extremely reliable source, “...it
is my understanding that CIT has temporarily restricted its broker
desk activities due to the decision by Tyco to sell or spin us off..” From
an well-informed source:
“Not exactly sure what you are hearing, but here is what I think
our current posture is CIT is focused on protecting and preserving
its various customer, vendor and other relationships
Probably not a time when CIT wants to be juicing volume for volume's
sake
There is no liquidity issue for many months in future, but still don't
want to generate large amounts non-strategic business
Funny, this will be my 7th owner...
AT&T 100% sub
AT&T Capital, public Co
Nomura
Newcourt
CIT
Tyco
Who knows?” ---
A highly reliable source: “The
un-official word is (there will not be anything in writing), they
are only taking "existing vendor/ lessee business" right
now whether it comes from the vendor/ the lessee / or the broker. This
is un-officially a temporary situation until the TYCO/CIT corporate
positioning is settled down.”
A very reliable source, “I
spoke to somebody from CIT at the ELA meeting and they told me it
was coming down the pipe. It is true.” --
An informed source, “
Yes, they are telling brokers that today. We are telling brokers
that today. No, don’t know anything about the efforts to buy
existing lease portfolio’s” Some
“outside” reaction: “Given
the stories about them have to take down lines of credit they are
probably taking steps that would allow them to fund their existing
customers which are undoubtedly the lowest cost customers. I think
they are just trying to hold it together at this point and I think
their troubles are just beginning.” “I
spoke to a CIT credit guy and a salesman this morning and he was
told they are no longer accepting third party applications, but
they said something good was going to happen in 12 days so stay
in touch. CIT can't decide what it wants to be when it grows up.” Do
not know if this applies to cars and trucks that they finance, and
it appears to be more an “understanding” than a direct
order. Perhaps
the person who saw the writing on the wall was CIT Equipment Financing
Group CEO Robert J. Merritt, who retired after 28 years of service last fall. He was Chairman-elect of the Equipment Leasing Association (ELA) and was slated to become Chairman of ELA in October 2001 He
obviously saw something in the wind, as he changed his plans and got
out early; a very smart man indeed.. About
the secrecy with the public, what makes it stranger indeed, perhaps
even more newsworthy, or ironical, is CIT sent out the following
press release to all the media at the same time it was calling brokers
not to send them any more business to fund. ####
############################## ################ CIT
Increases Funding Capability, Accounts Receivable Conduit Facility
Completed
LIVINGSTON,
N.J-- CIT Group Inc.announced today it has completed a liquidity enhancement
initiative, previously communicated by the company, to strengthen
CIT's financial position and diversify its funding sources.
A $1.2 billion conduit financing backed by accounts receivable, arranged
"This funding vehicle further strengthens our financial position
and
About CIT
####
########################### ################## 1st
International Bank Now UPS Capital Leasing/No Broker Biz Kit,
they are now called UPS Capital Leasing. They are now out of the
broker business. The person I spoke with said he was being assigned
a territory, and his mandate is to sell equipment leasing to existing
UPS customers. He said that his boss, Dennis Cesen, is being
given the responsibility of getting other producers at the old First
International Bank, who were previously selling SBA loans, etc., to
start offering leasing as well. It did
not sound as if they were laying anyone off, at the old 1st International
Bank. It is more about reassigning people and making sure that they
are getting out in front of customers. The person I spoke with
said he was expected to be on the road at least 3 days/week. He
said he was very happy with his new assignment. There
was also an article in yesterday's (Wed., Feb. 20th) Wall St. Journal,
in the 2nd Section of the paper, that said essentially the same thing, that
their sales force was going to start doing a lot more cross-selling.
You might want to have a look at that article. It's on the WSJ's
web site - run a search under UPS. ( Name
Withheld ) (Leasing
News has been trying to reach Mr. Cesen at 888-625-8575., but do to
the time difference, the office was closed. editor ______________________________________________________________ Performance
Indicators Report Reveals Fourth Quarter Growth in the Equipment Leasing
and Finance Industry
New
Business Volume Increased 13 Percent from Fourth Quarter 2000 to Fourth
Quarter 2001 ARLINGTON,
Va.– The Equipment Leasing Association’s (ELA) fourth quarter
2001 Performance Indicators Report (PIR) reveals an increase in new
business volume of almost 13 percent since the fourth quarter of 2000,
far greater than the fourth quarter economic growth rate of 0.2 percent
as reported by the Department of Commerce. “The
significant increase in new business volume and total net portfolio
point to the long-term strength of the leasing and finance industry,”
noted Ralph Petta, ELA’s vice president of industry services.
ELA’s
quarterly PIR tracks the performance of prominent leasing organizations
in six key areas: total net portfolio, total new business volume,
average losses, credit approval ratio, total number of employees and
delinquencies. ELA surveys approximately 20 major leasing companies
on a quarterly basis, affording trend analysis across all the performance
areas. Fourth
quarter PIR highlights include: *Total
net portfolio grew strong with a 19 percent increase since fourth
quarter 2000 *Total
number of employees increased less than 1 percent from fourth quarter
2000 *Credit
approval ratios show a slight decrease of 3 percent since fourth quarter
2000 *Average
losses have increased almost 70 percent since fourth quarter 2000
*Delinquencies
show a slight decline in current receivables since fourth quarter
2000 The
PIR study is conducted quarterly by ELA, which provides a variety
of data, including customized market analyses, to ELA members and
organizations. To receive more information on the PIR or a copy of
the associated graphs and charts, please contact Kristina Boehk at
202-944-5181 or kboehk@hillandknowlton.com.
To
access this and other industry information, visit the ELA website
at www.elaonline.com or call ELA at (703) 516-8380. Organized
in 1961, the Equipment Leasing Association (ELA) is a non-profit association
representing companies involved in the dynamic equipment leasing and
finance industry. ELA's mission is to promote the leasing industry
as a major source of funds for capital investment in the United States
and abroad. ELA maintains an informational portal for financial decision-makers
at www.leaseassistant.org. Headquartered in Arlington, Va., ELA
has more than 850 member companies and a staff of 27 professionals.
Equipment leasing is estimated to be a $244 billion industry in 2002.
Visit ELA online at http://www.elaonline.com. ### Fourth
Quarter 2001 Performance Indicator Report Participants ADP
Credit Corporation Caterpillar
Financial Services Corporation Computer
Sales International, Inc. Dana
Credit Corporation De
Lage Landen Financial Services Farm
Credit Leasing Services Corporation Fleet
Capital Leasing GE
Capital – Capital Funding Inc. GreatAmerica
Leasing Corporation John
Deere Credit Corporation Hitachi
Credit America Corporation Key
Equipment Finance LaSalle
National Leasing Corporation Pitney
Bowes Credit Corporation U.S.
Bancorp Leasing & Financial Verizon
Credit, Inc. Wells
Fargo Equipment Finance
####
############################### ################### ----------------------------------------------------------------------------------- 2002
Equipment Leasing Association National Funding Exhibition April
22-24 In the
current economy, you're more cautious, more sensitive to risk. You
double-and triple-check every transaction, factoring the credit and
quality of all parties. You say no a lot more often than you used
to. But you're still in the business of investing, and you must put
out money to make money. You still need new relationships and an effective
way to develop them-to see not only deals, but also the people behind
them. Last
year alone, 700 individuals-more than 500 of them from 250 different
leasing companies attended the exhibition. The ELA National Funding
Exhibition is a unique, efficient opportunity to explore new business
possibilities. Space
is limited, so why wait? Sign up today! http://elaonline.com/events/2002/fundingexhib/exhibitors/ Attendee
registration information coming next week!! 2002
ELA National Funding Exhibition April
22-24 Fairmont
Hotel Chicago,
IL _______________________________________________ Classified
Ad Count 16 Jobs
Wanted
23 ads
Help Wanted http://65.209.205.32/LeasingNews/JobPostingsWanted.htm 9 Outsourcing http://65.209.205.32/LeasingNews/JobPostingsOutsourcing.htm 3 Attorneys http://65.209.205.32/LeasingNews/JobPostingsAttorney.htm 6 recruiters http://65.209.205.32/LeasingNews/Recruiters.htm other
sites to post: http://65.209.205.32/LeasingNews/Classified.htm List
of Leasing Portals http://www.leasingnews.org/associations2.htm Commercial Finance Association Phone:
212-594-3490 Founded
in 1944, the Commercial Finance Association is the trade group of
the asset-based financial services industry, with members throughout
the U.S., Canada and around the world. Members include the asset-
based lending arms of domestic and foreign commercial banks, small
and large independent finance companies, floor plan financing organizations,
factoring organizations and financing subsidiaries of major industrial
corporations. CFA membership is by organization, not by individual.
Many of the organizations are involved in leasing, either directly
to end users, vendors, or providing funds for lessors. Leasing News has reported the troubles with CFS the last two years, and it appears a new group has formed. We have not been able to obtain information from CFS ( see story ). editor ###### ################################ ################# Experienced
Leasing Software /IT Group re-Forms --:LeaseTek
(Irwin,
PA ) Original team members of LeaseTek, a developer
of lease administration and accounting software from 1983 to 1998,
then acquired by CFS Group plc, have re-united to create XeC, an insourcing
/ IT company that places experienced leasing / IT people inside companies
for specific problem-solving tasks "The
15 years of experience of these people in the leasing software industry
was too valuable to waste, " stated Michael Pochan, CEO of XeC
and former CEO of LeaseTek." When you spend 15 years installing
451 systems in 22 countries and 5 languages for vehicles and equipment
leasing, you learn a few things," he said with a smile. The
original members went their separate ways after the acquisition in
1998," but we all stayed in touch and kept thinking about leasing-related
products, " offered John Voytko, president of XeC and former
VP of Sales at LeaseTek. The
company also unveiled its slogan " Experience = Rapid Results".
The
XeC -- CAPABILITIES --
for leasing & finance companies include: Software
and Web Development in C++ and in Java for High-Impact, Short-Cycle
Projects. Latin American Sales Assistance.Rescue of Stalled Projects.New
Market Analysis and Research,Design of eCommerce strategies "It
is amazing what a deeply experienced, successful team can accomplish
in short time frames. It saves the customer significant money versus
struggling to do it alone," added Pochan. Also
joining XeC from the successful LeaseTek team are Mark Wallace - Director,
Jose Quintero - Latin American Sales, Pete Lehotay, - Software Design
and Programming, John D Green - Dealer / Vendor Sales Support, and
Bill Dunn - Customer Support. "No XeC person has less than seven (7) years of experience," said Jose Quintero. "The team average is sixteen (16) years." ###################
###############################
\------------------------------------------------------------------------------
Please
send to a colleague or let them know about next week, as you won’t want
to miss Mark McQuitty in the best “ I told you so” letter
I have ever seen.
Kit Menkin __________________________________________________________
e-Commerce
hits Big 4th Quarter, 2001 by Michael
Pastore, e-Commerce News U.S.
retail e-commerce sales for the fourth quarter of 2001 totaled $10.043
billion according to the Department of
Commerce, up 13.1 percent from the fourth quarter of 2000. Total
retail sales in the fourth quarter were estimated at $860.8 billion,
a 5.3 percent increase from a year earlier. Total
e-commerce sales for 2001 were estimated at $32.6 billion, an increase
of 19.3 percent from 2000. Total retail sales in 2001 increased 3.3
percent from 2000. For the year, e-commerce sales in 2001 accounted
for 1.0 percent of total sales. E-commerce sales in 2000 accounted
for 0.9 percent of total sales. Not surprisingly,
the Department of Commerce estimate for fourth quarter e-commerce
increased 34.4 percent from the third quarter of 2001. Total retail
sales were up 9.5 percent from the third quarter. E-commerce sales
are also slowly increasing their share of the total retailing pie.
In the fourth quarter of 2001, they accounted for 1.2 percent of total
sales, up from 1.0 percent of total sales in the third quarter of
2001 and 1.1 percent in the fourth quarter of 2000. The Department
of Commerce numbers come close to estimates by comScore, which put U.S. e-commerce sales (excluding
travel) at $10.8 billion for the fourth quarter of 2001 and $33.7
billion for the year. E-commerce
should continue to grow, especially during holiday seasons, as it
becomes a viable channel for more consumers. According to the study
"How America Shops 2002, The Overstuffed Consumer," by WSL Strategic Retail, 24 percent
of shoppers surveyed used the Internet for shopping in 2001, up from
10 percent in 2000 and 5 percent in 1998. In fact, the Internet was
the only retail channel in the study to report an increase in its
weekly use, from 1 percent of respondents reporting weekly online
shopping in 2000 to 5 percent in 2002. WSL's
report found that an almost equal percentage of consumers in the 18-to-34
age group (29 percent) shop online as in the 35-to-54 age group (27
percent). Higher-income shoppers are still more likely to use the
Internet as a retail channel (41 percent with incomes over $70,000/year)
than those with lower incomes (26 percent making $70,000 or less).
Not surprisingly, convenience, which has long been cited as the biggest
driver of e-commerce, continues to drive shoppers online. Almost 60
percent of respondents said convenience was why they chose the Internet
as a retail channel. Less than one-quarter (23 percent) cited price.
"The
proliferation of retail outlets over the past decade, the similarity
of merchandise stocked, and the ease of accessing non-retail outlets,
such as the Internet and catalogs, means that convenience is more
top-of-mind for consumers, more essential in their busy lives, than
ever before," said Wendy Liebmann, president of WSL Strategic
Retail. According
to International Data Corp. (IDC),
worldwide e-commerce spending grew 68 percent between 2000 and 2001,
reaching more than $600 billion in 2001. IDC also expects e-commerce
spending to pass the $1 trillion mark in 2002.
-----------------------------------------------------------------------------------------------
Announcement
to its Members, the Equipment Leasing Association states
it is
Monitoring SEC and FASB Actions; Key Messages Forthcoming
ELA
is closely monitoring recent actions and statements by the SEC and
FASB in reference to off-balance sheet accounting and use of SPEs.
We are in the process of putting together talking points and updating
position papers for you, as an ELA member, to use with these groups.
ELA will have talking points for you to use in communicating with
your investors and parent companies by the end of February. ELA is also closely
monitoring Congressional developments, as there are several legislative
proposals that may have consequences for various equipment leasing
and finance products. ELA’s Federal Tax Committee is presently
analyzing these. ELA is scheduled to meet with FASB in early May and
is preparing to address these issues. ------
Enron
Accounting Vs. Lease Accounting: Apples to Oranges--an ELT Special
Enron’s
use of off-balance sheet Special Purpose Entities should not reflect
on lease accounting. As
the ugly story of Enron's bankruptcy unfolds, it is becoming clear
that its implications reach far beyond the affected shareholders and
employees. It is prompting calls for greater transparency in accounting,
and reform of certain rules, and dragging lease accounting into the
docket with it. The
Securities and Exchange Commission (SEC), the Congress, the Financial
Accounting Standards Board, (FASB), The Big 5 public accounting firms
and the International Accounting Standards Board (IASB) have all been
in the news talking about the problems with off-balance sheet accounting,
often mentioning leasing as a culprit. Lease accounting is in danger,
unfairly, of being "reformed" out of existence, because
people don't understand the distinctions between it and the practices
relevant to the Enron case. Even if lease accounting escapes that
fate, the bad press leasing receives in being linked to the Enron
story is certain to harm the industry. Enron's
bankruptcy was caused by some major business deals that suffered large
losses—that in itself is not uncommon. But, because the losses
were hidden from readers of the company's financial statements, many
are calling off-balance sheet accounting rules into question. Therefore,
it is appropriate to go over Enron's off-balance sheet accounting
and explain why lease products cannot be thought of as anywhere near
the same category. We must caveat that the following is based on what
has been reported in newspapers and not based on legally proven facts
or independent research. Enron's
SPEs
These
SPEs raise questions pertinent to many accounting issues, including
consolidation accounting, accounting for sales of assets and disclosure
of off-balance sheet obligations. The problem for the leasing industry
is that operating leases are a major off-balance sheet product, and
large ticket leases are often structured with a SPE as the lessor.
As we'll see, this has little to do with Enron's practices.
--Most
of Enron's problems came from partnerships (SPEs) that were owned
by third parties that combined to invest three percent equity capital
to the SPEs—the minimum threshold to allow an SPE to be considered
a substantive entity under the consolidation accounting rules. In
several cases the investors were employees. In others, the investors
included other SPEs in which Enron had a major ownership interest.
Enron did not disclose existence of the SPEs, nor did it consolidate
them.
To
further accentuate the difference between Enron's SPEs and common
leasing practice, let's put them head to head.
--Enron--should
have reported the amount and terms of the off-balance sheet obligations
--Enron--the
asset sales were not at arm’s length, so no true third party
would have ever entered the transactions
--Enron--there
was no third party equity capital at risk
--Enron--guaranteed
the debt of the SPEs, covered all losses of the SPEs and assumed unlimited
liabilities --Leasing--lessees' liabilities
are limited to the terms of the lease
The
current U.S. lease accounting rule, FSB Statement 13, uses the risks
and rewards approach to determine whether a lease should be capitalized.
It provides four basic criteria for that determination: --The
lease transfers ownership of the property to the lessee by the end
of the lease term.
If
a transaction passes any one of these tests, the lessee is considered
the owner and capitalizes the lease by recording an asset and a liability
equal to the present value of the future minimum lease payments. This
is equivalent to having borrowed money to buy the equipment. If none
of the criteria are met, the lessee is not considered the owner of
the asset and the lease is treated as an operating lease. Thus the
asset and lease obligation are off-balance sheet. That
is not to say that the lease obligation is hidden from the readers
of lessees’ financial statements. Minimum lease payments payable
in the future must be disclosed in a table in the footnotes to the
lessees’ financial statements. In addition, the lessee must disclose
lease terms, including any residual guarantees. The footnotes, an
integral of the financial statements, give readers information as
to the future obligations under any off-balance sheet leases. The
readers can then effectively calculate the capitalization of the lease
obligations in order to assess whether a company is an acceptable
credit or investment opportunity. If
Enron’s use of SPEs were solely to lease assets, and if Enron
followed the disclosure requirements of FAS 13, its lenders and investors
would have received a complete disclosure of all of its future lease
obligations. If Enron followed the existing accounting rules regarding
its non-lease SPEs, its true financial picture would have been obvious
and its sources of capital would quickly have dried up. Off-balance
sheet accounting did not kill Enron—bad business deals did it
in. Valley
Vacancies Built
for the boom, many technology office parks stand empty now that firms
are cutting back---For Rent signs everywhere by
Dan Levy, San Francisco Chronicle The
giant office park rises from the Redwood City salt ponds like a futuristic
pod of glass and steel architecture. But
there is hardly anyone inside the Pacific Shores Center. Six
of the 10 buildings in the 1.6 million-square-foot development are
empty. The sparkling gym in the middle of the complex is empty. The
lawns that were supposed to be filled with frolicking new-economy
workers are empty. Pacific
Shores represents a disturbing reality in Silicon Valley, where a
record 45 million square feet of office and research and development
space sits empty, suppressing rents and pushing the overall vacancy
rate to about 20 percent, according to broker Phil Mahoney of real
estate services firm Cornish & Carey Commercial in Santa Clara.
The
roster of companies that overbuilt or overleased during the boom and
are now are trying to unload space reads like a who's who of tech.
Cisco, 3Com, Nortel
and Sun Microsystems are among those offering between 400,000 and
900, 000 square feet. "It's
like a mortuary," Michael Covarrubias, president of the Martin
Group, a San Francisco developer, said of the lack of demand. There
is no leasing activity and little demand, he said. "Pacific
Shores is the poster child for the tumult of our era," said Mark
Ritchie, president of Ritchie Commercial Real Estate brokerage in
San Jose. "It shows the spectacular effect of the Silicon Valley
boom -- and now, lots of vacancy." As
the Bay Area enters the second year of a historic commercial real
estate slump, many observers are beginning to wonder just how long
Pacific Shores -- and other big office and research and development
projects built to accommodate the tech boom -- can survive a virtually
nonexistent demand for space. Covarrubias
said there are positive signs, such as a slowing rate of negative
absorption, the real estate term for returning unused space to market.
The
rate of negative absorption in the fourth quarter last year was 6.7
million square feet, down from 9 million square feet in the third
quarter. Still,
a record amount of space was returned to market last year. The
Martin Group would know. In September, the developer took back 320,000
square feet in a Santa Clara office park from failed Internet services
company Exodus Communications, which filed for Chapter 11 bankruptcy
protection. The
firm is trying to market the space. Some
of the valley's biggest firms, such as Cisco, Sun and Nortel, are
also looking for sublease tenants. But they are expected to weather
the slump because they have so much cash on hand and actually own
their buildings. A
Cisco spokeswoman, repeating a familiar mantra, said the networking
giant -- having severely curtailed its expansion plans in Coyote Valley
and elsewhere in the South Bay -- is constantly evaluating its real
estate needs. But
developers such as Jay Paul Co., which built Pacific Shores, and the
Sobrato Development Cos., a longtime Cupertino developer that owns
numerous valley properties, are using letters of credit and other
collateral from defunct tenants to cover costs. "People
say it's a disaster, but it's really not," said Matt Latucci,
senior vice president for Jay Paul Co., referring to the vast swaths
of unoccupied space at Pacific Shores. "We can afford to operate
with a low occupancy and still make it profitable." Latucci said security deposits and a $10 mil |
