Leasing News

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Equipment Leasing Association Calls CIT IPO 'A Good Sign'; Successful IPO Confirms Market Confidence in Commercial Finance Industry

ARLINGTON, Va.----In response to the initial public offering of CIT by Goldman Sachs, Equipment Leasing Association (ELA) President Michael Fleming, stated, "The successful CIT IPO confirms the attractiveness of the commercial finance industry and confidence in proven companies like CIT. CIT is among the most respected finance names in America, with a long history of profitability and success in the equipment leasing industry. The success of CIT's IPO shows that the market respects good companies and is willing to invest in an industry that consistently performs well."

In an industry short of good news in recent years - with consolidation, the virtual disappearance of public finance companies, and capital flowing to more "glamorous" industries, Fleming continued, "this is a good sign that CIT and other companies that have grown and perform consistently can raise capital in this market. It is a tribute to the stability and strength of CIT and the leasing industry."

DVI, Inc. (NYSE:DVI) and GATX Corporation (NYSE:GMT) are examples of two other companies that have successfully raised capital in recent months. In March 2002, DVI completed the sale of $25 million of its subordinated convertible notes to a single international investor. In January 2002, GATX completed a private offering of $175 million of senior unsecured convertible notes issued under Rule 144A.

The offering was increased from $150 million to $175 million as a result of the underwriters exercising the over-allotment option due to strong investor demand.

The most recent ELA Annual Survey of Industry Activity reinforces that the performance of the leasing and finance industry is solid and stable. The return on total assets was 1.2 percent and the return on equity was 12.4 percent. Credit quality is strong in the industry, with 96.3 percent of lease receivables being current, and charge-offs of less than 2 percent.

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, including CIT, DVI, and GATX. Equipment leasing is estimated to be a $244 billion industry in 2002.

The CIT Group gained its independence yesterday, but the process was painful due

Shares of CIT were sold at $23 each to the public, but the price fell to $22 in New York Stock Exchange trading. Volume was 72.5 million of the 200 million shares sold.

Tyco International, the troubled conglomerate that bought CIT, a finance company, just a year ago for $9.5 billion in cash and stock, was the seller, and it was in no position to drive a hard bargain. It received just $4.42 billion, with underwriters set to collect the additional $184 million paid by investors as their fees.

however. The closing price of $22 is 8 cents below the price the underwriters, led by Goldman, Sachs and Lehman Brothers, paid for the company. It would surprise no one if the underwriters accumulated some stock during the day to support the price. Nearly every major Wall Street firm was part of the underwriting syndicate for the offering. But Morgan Stanley was the exception, and it dampened spirits with a report by Kenneth A. Posner that raised concerns about CIT's credit quality and gave the stock an "underweight" recommendation.

After the close of trading, Albert R. Gamper Jr., CIT's chief executive, said he was happy. He allowed that the after-market trading had been "a little soft" but added, "It was a lousy market to do an I.P.O. in."

For CIT, getting the price up quickly is more important than it would be for most companies. That is because the underwriters have an option to raise the size of the offering by 20 million shares. If they choose to exercise it, the extra $441.6 million that would bring in would go to CIT, giving it more capital to work with. In all probability, those shares have already been sold, but whether the option is exercised will depend on how many shares the underwriters repurchase and how the stock performs during the next week.

Standard & Poor's and Fitch raised CIT's credit ratings yesterday, back to the levels they held before they were downgraded amid Tyco's problems. Moody's had not downgraded the ratings, and CIT should now be able to return to the commercial paper market.

Shares of Tyco fell $1.10, to $12.65, partly because of disappointment that the offering price was $23, not the $25 to $29 that had been sought. In a conference call, John F. Fort III, Tyco's interim chief executive, sought to reassure worried investors that its accounting is sound. "We don't have any information that would call into question the company's accounting practices," he said, adding, "Something like WorldCom just couldn't happen here."

Financially, buying CIT was not the disaster for Tyco that one might think. That is because it paid most of the purchase price with stock, then valued at $50.70 a share. (The Dai-Ichi Kangyo Bank, a Japanese institution that was CIT's largest owner and is part of Mizuho Holdings, insisted on being paid $2.5 billion in cash for its stake.)

If one values the Tyco stock issued at the current market price, however, the total price Tyco paid for CIT was $4.2 billion, a bit less than it received from selling it.

(And more reason to congratulate Gamper and his staff. They certainly earned their

Are you currently a member of the Association For Governmental Leasing & Finance (AGL&F)?

Are you currently a member of the National Association of Equipment Leasing Brokers (NAELB)?

Are you currently a member of the United Association of Equipment Leasing (UAEL)?

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NEW YORK, -Standard & Poor's said Tuesday that it raised the ratings on CIT Group Inc. and its subsidiaries, including raising CIT's counterparty credit ratings to single-'A'/'A-1' from triple-'B'-plus/'A-2'. The ratings were removed from CreditWatch with developing implications where they were placed on Feb. 4, 2002. The outlook is now stable. Approximately $33 billion of debt is affected.

The upgrade reflects CIT's successful delinkage from Tyco International Ltd. (NYSE:TYC - News) following the pricing of its IPO on July 1, 2002, at $23 per share, yielding proceeds of $4.6 billion. The IPO is expected to settle and close on July 8, 2002. Concerns related to the company's ties to the parent, which resulted in CIT losing access to the CP markets and raising its long-term borrowing costs, have been removed. Nevertheless, the company still will be challenged to regain its momentum, in terms of reactivating its strong franchise value within its markets, rebalancing its liquidity sources, and regaining access to the unsecured long- term debt and CP markets. CIT plans to pay down its bank lines and tap the CP markets, albeit at a much reduced $3 billion-$5 billion program. It is expected that CIT will tap the unsecured debt markets and that securitizations will represent 25% of total funding.

"Standard & Poor's remains concerned about the company's $3.6 billion aircraft portfolio, significant exposure to the retail and telecommunications sectors, and exposure to Argentina," said credit analyst Lisa J. Archinow, CFA. Any material asset quality deterioration could result in ratings pressure.

While capital levels have improved since Tyco acquired CIT, capital and reserve levels remain a concern. Retention of the proceeds from the exercising of a 10% overallottment option by the underwriters (green shoe) within the next 30 days would provide some mitigation of risk, in addition to the company's lower 10% dividend payout rate going forward. Standard & Poor's would view an increase in CIT's capital or reserve levels as a prudent move

NEW YORK-- 2002--Fitch Ratings has raised CIT Group, Inc.'s (CIT) and related entities' senior debt, subordinated debt, preferred stock, and commercial paper ratings to 'A', 'A-', A-', and 'F1' from 'BBB', 'BBB-', BBB-', and 'F2', respectively. These actions from the completion of CIT's initial public equity offering and effective separation from Tyco International Ltd., the company's former parent. All ratings have been removed from Rating Watch Evolving. The Rating Outlook is Stable. Approximately, $26 billion of debt are covered by Fitch's actions.

CIT's ratings reflect Fitch's increased comfort with liquidity management, including the anticipated reduction in the company's commercial paper program to $3-$5 billion from over $8 billion. Comfort with the liquidity plan stems from the contingent sources of liquidity the company accessed during this period - $3 billion in funding through ABS (equipment and home equity) and new programs it executed - $2 billion in new conduit facilities (both of which have been tested and repaid) as well as CIT's ability to re-enter the term unsecured debt market despite looming concerns for the company under the Tyco umbrella.

While CIT has worked diligently to develop contingent sources of liquidity and takes great comfort in surviving the capital markets stress it has been under thus far, Fitch believes that this will be an enduring process for market funded companies which seek to earn and maintain 'F1' ratings. Issuers such as CIT must regularly demonstrate their ability to monetize assets to ensure that in the event they are unable to access unsecured sources of capital, the company would be in a position to unwind the portfolio or execute contingency funding plans that are sufficient to meet all upcoming maturities. Securitization, one means of demonstrating market accessibility, has accounted for at least 20% of funding for CIT and that will continue to be the case at a minimum.

CIT plans to resume a more normal funding strategy which includes accessing the unsecured capital markets in short order, in meaningful amounts, including the repayment of its bank funding by the end of 2002. It is important to note that $3.8 billion of bank borrowings are not actually due until March 2005.

From a capitalization perspective Fitch views CIT as modestly undercapitalized, however, CIT is stronger than is it was pre-Tyco due to some divestitures and improved capital formation, aided by slowed origination activity resulting from market conditions. Based on the offering price of the IPO, CIT will need to take at least a $1 billion non-cash charge to writedown goodwill in accordance with SFAS 142. Since Fitch views CIT's capitalization and leverage on a tangible basis, this action is a non-event. Current asset quality trends and loan loss reserve levels are concerns with net chargeoffs outpacing peak 1991 and 1992 levels. However, CIT's acquisition of Newcourt and consumer expansion make such historical comparisons less useful. While a concern that bears monitoring, portfolio performance remains manageable.

Based in Livingston, NJ, CIT Group, Inc. is one of the largest commercial finance companies in the world with managed finance receivables and operating leases of $48 billion March 31, 2002. The company has leading market positions in a variety of business segments.

Fitch has raised the following ratings, removed them from Rating Watch Evolving, and assigned a Rating Outlook of Stable:

Tyco technology occuppying over a dozen buildings surround ours in the Mineta International Airport Industrial Park will soon be empty, as our neighbors report this division is closing. Around the other parts of the San Francisco Bay Area, other Tyco

Questions surrounding Tyco International's accounting practices and financial stability have derailed a proposed merger with McGrath RentCorp., a Livermore equipment rental firm.

McGrath has exercised its right to terminate the agreement by its June 30 deadline, ending a deal first announced in December. Tyco had agreed to buy McGrath for $482 million in cash and stock.

"Because of Tyco's operating and management issues, we no longer believe an acquisition by Tyco is in the best interest of our shareholders," said Robert McGrath, chief executive officer of McGrath RentCorp., in a statement released Monday. The company, founded in 1979, rents portable classrooms and telecommunications equipment.

The deal with Tyco, a sprawling manufacturing and service conglomerate based in Bermuda, began looking shaky after Tyco's woes mounted.

Tyco's shares have lost about 70 percent of their value since the proposed deal was announced, and the company is $27 billion in debt. Tyco's CEO, Dennis Kozlowski, resigned last month and has been charged with sales tax evasion in connection with high-priced art purchases.

"All those things obviously were part of the decision-making," said McGrath's president, Dennis Kakures.

Scott Keller, an analyst with DealAnalytics.com in New York, was not surprised the merger fell through: "There was not a prayer of this deal being saved."

The agreement with Tyco allowed either company to walk away from the deal after the June 30 deadline without incurring any breakup penalties, he said.

Kakures said he is confident about McGrath's future as an independent company. He said he will entertain future bona fide merger offers, but isn't actively seeking them.

"I'm very excited about the prospect for McGrath continuing to be a very viable and strong organization, and we're going to do everything in our power to make that happen," Kakures said.

But the analyst, Keller, said McGrath faces tough times because of its concentration in the telecommunications and education sectors, and the slow economy. Noting the company would be hard-pressed to find a potential buyer like Tyco, he said, "Tyco presented them with a terrific opportunity, had Tyco not fallen to pieces."

Financial Federal Corporation Announces $200 Million Institutional Unsecured Term Financing

NEW YORK----Financial Federal Corporation ("FIF" - NYSE) announced today that its major operating subsidiary, Financial Federal Credit Inc., closed a $200 million private placement with ten institutional investors.

The Company received proceeds of $100 million today and chose to delay funding on the remaining $100 million until August 30, 2002. The proceeds have been and will be used to repay existing debt and for general corporate purposes.

The placement includes fixed rate and floating rate unsecured senior notes with maturities of three, four and five years. The principal amounts of the notes are due at maturity. The fixed rate notes total $112.5 million with a weighted average interest rate of 6.0% and the floating rate notes total $87.5 million with a weighted average interest rate currently at 3.2%.

Steven F. Groth, Chief Financial Officer, commented: "This is the largest debt placement in the Company's history. We are very pleased with the favorable pricing, strong demand and flexible structure of the transaction. Pricing averaged 1.83% over comparable Treasury notes, demonstrating the credit markets' confidence in the Company. The Company received bids well in excess of the initial offering size. In addition, four new investors joined our credit group. We believe the market has rewarded us for our simple business model and our consistent, strong operating results. This transaction adds flexibility to our capital structure and provides the Company with additional liquidity."

Financial Federal Corporation specializes in financing industrial and commercial equipment through installment sales and leasing programs for manufacturers, dealers and end users nationwide. For additional information, please visit the Company's website at www.financialfederal.com.

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Readers are referred to the most recent reports on Forms 10-K and 10-Q filed by the Company with the Securities and Exchange Commission that identify such risks and uncertainties.

PHOENIX, ARIZONA -- Manufacturers' Leasing Services Corp. ("MLSC") has announced the purchase of substantially all of the equipment lease portfolio of Bancorp Group, Inc., with an original equipment cost of over $20 million. Bancorp Group was a subsidiary of New Century Bank, Shelby Township, Michigan, until the bank was taken over by the FDIC in March 2002. Manufacturers' Leasing Services purchased from the FDIC. Roughly 60% of the accounts in the portfolio are presently on month-to-month renewal status, while the remainder of the portfolio consists of leases with up to 48 months of committed remaining term.

"The purchase was completed under MLSC's "End of Term" program, which provides a substantial premium for leases which have reached month-to-month status, thereby enabling the seller to maximize the return on the short term segment of its portfolio; a segment typically excluded or undervalued by most purchasers," explained MLSC President Roger Marce.

MLSC is a privately held equipment leasing company with offices in Phoenix and Denver, engaged in the acquisition of seasoned equipment lease portfolios. MLSC also provides short-term rental and operating lease vendor programs to a diverse range of equipment manufacturers.

Although we had begun discussions with Bancorp Group before the FDIC stepped in, your coverage of the FDIC takeover of Bancorp Group and New Century Bank helped us keep up with events as we put our bid together. Keep up the good work.

I read with interest Paul Nibarger's comment in the 7/1/02 Leasing News. Certainly while UAEL faces challenges, the same with all professional associations, (as well as our Industry) we are in the midst of a good year for UAEL under Joe Woodley and the 2002 Board of Directors and Officers.

Our Spring Education Conference was a success both financially and from a membership benefit standpoint. Members in attendance indicated that the event was well thought out and the presentations timely and beneficial. Some of the membership had not attended recent events until this SEC and were quite pleased with the conference and focus of UAEL.

Our Regions are active, have put on or in the process of scheduling events for our members.

UAEL's Board of Directors is actively in the process of re-working our plans for the next 3 to 5 years, if that is really possible in the present economy. We are dedicated to our members and dedicated to bring them the education, networking and the success resulting from the same.

Staff is putting the finishing touches, along with John Kruse - Conference Chair and his Committee, on the Annual Exposition and Conference in San Diego. Once again UAEL is presenting the forum for our members to acquire additional skills to improve their personal and company performance.

Membership under Bill Grohe and our Membership Committee chaired by Bob Teichman, CLP and Ginny Young is diligently working toward our goal of 400 ACTIVE members by year-end. Currently our membership is at 341 up from June numbers of 333 and an 11.4%increase over last year at this time!.

Paul suggests we man the lifeboats, I suggest and encourage Paul to come back on board and get active with us! We are only as good as our Membership and their commitment.

What is past is past and UAEL continues to have a bright and strong future. We are looking to that future, trying to determine its long-term focus. I invite Paul to contribute to UAEL's future!

According to Joan Dalton, former executive director, Bill Grohe, membership director,

(Let me also state that there is a conflict of interest on my part as editor, as in my role

is super sharp. The board also has a lot of talented people, including Bob Fisher who I have known since his days at CIT ( or was it Westinghouse?) I personally think the San Diego Conference should be a big success, and allay all fears about the future. )

The National Association of Equipment Leasing Brokers increased their membership

Here is a breakdown of the membership, again showing they are definitely the largest lease broker association, and only second to the Equipment Leasing Association in membership.

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AUSTIN, Texas (AP) Dell Computer Corp., which made a fortune selling its PCs directly to customers, is taking the experience to the nation's malls.

After a successful trial last Christmas, Round Rock, Texas-based Dell opened a kiosk last week in Austin and plans to open 20 around the country in the next two months.

''The reason we're doing this is to give customers a chance to see, touch and feel our products,'' said Chris Bates, senior manager of Dell's Direct Store program.

Mall customers also can speak with sales representatives about computers, digital cameras, sound systems, printers and other equipment at the ''Dell Direct Store.''

Customized orders must be placed online or over the telephone. The order is built at a Dell factory and delivered to the customer's home.

Dell said the concept will help its burgeoning consumer business while staying true to its direct sales model.

With help from a successful television advertising campaign and a partnership with home-shopping channel QVC, revenue from consumer sales at the company best known for selling to businesses, schools and government has grown 26 percent in the past quarter.

Kevin Hunt, a Dell analyst for Thomas Weisel Partners, said the kiosks are a good way for Dell to reach customers without taking the costlier risk of having an inventory of products and selling them at stores.

WorldCom CEO Blames Ex-Execs for Woes

By MARCY GORDON, AP Business Writer

WASHINGTON (AP) - The chief executive officer of beleaguered WorldCom Inc. on Tuesday laid the blame for multibillion dollar accounting irregularities at the feet of the firm's former executives and cast doubt as well on Arthur Andersen's auditors.

John Sidgmore said he did not know whether WorldCom's founder, Bernard J. Ebbers, had any prior knowledge of the $4 billion hole in the company's books.

"We don't know whether he was involved and we don't know whether he wasn't involved, and that's the truth," Sidgmore said at a news conference at the National Press Club where he was peppered with questions about the firm's current woes and future plans.

Sidgmore expressed optimism at every turn, yet also apologized for "past transgressions" at the firm, and pledged cooperation as the government begins to investigate.

"We want the bad guys exposed. We want the bad guys punished. And we want to move on with our lives at WorldCom," he said.

Sidgmore said that despite the huge telecommunications firm's deteriorating situation, he hoped to avoid bankruptcy. He said WorldCom has about $2 billion in available cash.

He also said that despite wide publicity given the company's difficulties, it had not yet suffered the loss of a major customer.

WorldCom disclosed last month it had improperly accounted for nearly $4 billion in expenses, thus inflating its earnings. The disclosure sent the company's stock plummeting, prompted the SEC to file fraud charges and triggered an avalanche of anger from politicians — President Bush ( news - web sites) included.

The company already has laid off 17,000 of its 80,000 workers, and Sidgmore said additional layoffs were possible.

WorldCom, which owns MCI, is second only to AT&T in the long- distance market.

Sidgmore spoke as technology analysts said that despite WorldCom's considerable Internet holdings, the global network should not suffer any catastrophic difficulties if the firm ceases to exist. They said there could be significant slowdowns in Internet traffic, however.

Arthur Andersen was the firm's auditing firm at the time the irregularities occurred, and Sidgmore referred to the company several times.

"They swear up and down that they didn't know anything about this," he said. "We internally are a little bit concerned that they didn't know anything about it, because if it was going to be obvious to anyone it should've been obvious to them.

"It just tells you how difficult it may have been to find these transactions," he said.

Arthur Andersen, once one of the nation's largest accounting firms, has been reduced to a shadow of its former corporate self as the result of its role in last winter's Enron debacle. The firm was recently convicted of one count of obstruction of justice for destroying Enron-related documents.

Sidgmore began his news conference by taking note of an "understandable outpouring of outrage and anger," but he firmly insisted that the management team he heads had worked from the outset to make the facts public.

"It was this company that audited our auditors. It was this company that turned ourselves in. ... It is this management team that will take this company forward and restore public confidence," he said.

That remained to be seen.

The company's stock is to be delisted on NASDAQ on Friday. And Harvey Pitt, the chairman of the Securities and Exchange Commission ( news - web sites), has derided as "wholly inadequate and incomplete" a sworn statement in which the company explained how it had masked the $4 billion.

Whatever the impact on the firm itself, WorldCom's problems have robbed thousands if not millions of investors of retirement funds, and changed the political landscape in Congress.

Bush has repeatedly expressed outrage at the firm's behavior in recent days. And Senate Majority Leader Tom Daschle has announced that legislation to crack down on corporate irresponsibility will be the first order of business when lawmakers return to the Capitol next week.

"We completely agree with the president on this and I am committed to operating WorldCom with the highest possible standards of ethics and integrity," Sidgmore said.

Despite Pitts' criticism, WorldCom defended its report as an accurate accounting of what happened.

"We were very surprised by (Pitt's) comments," company spokesman Brad Burns said Tuesday. "Based on the SEC order and conversations with SEC staff, we believe they were clear on what we would be able to provide at this time. Our response was entirely in line and is in fact a summary of what we know at this point."

Defense Secretary Donald H. Rumsfeld, said he doesn't believe WorldCom's shaky financial situation poses a risk for the Pentagon ( news - web sites), which uses some of the company's communications systems.

The General Services Administration, which oversees federal contracts, said Monday that it was reviewing all of WorldCom's government contracts.

In the latest development as WorldCom's travails grew, the state comptroller in New York asked a federal court Tuesday to allow him to lead a shareholder lawsuit against the company, some of its executives and Arthur Andersen.

The state's pension fund has lost some $300 million on its investment in WorldCom stock.

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On the Net:

SEC: http://www.sec.gov

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Martha Stewart Broker Handled Shares for Her Friends

By CONSTANCE L. HAYS and PATRICK McGEEHAN NY Times

Martha Stewart turned to her stockbroker at Merrill Lynch, Peter E. Bacanovic, to handle more than $10 million worth of shares offered to friends and associates when her company went public in 1999, Wall Street officials said yesterday, highlighting their longstanding close personal and business relationship.

Late yesterday, Ms. Stewart abruptly canceled

her regular appearance for today on the CBS "Early Show" after the network said it would require her to answer more questions on the air about the government investigations into her sale last December of shares of ImClone Systems. Until now she had never missed the show, which started in 1997, for any reason other than illness.

Ms. Stewart's decision to cancel her appearance demonstrated the pressure she faces as three investigations unfold while she continues to deal with the demands of running a $296 million media empire.

Ms. Stewart, the chairman and chief executive of Martha Stewart Living Omnimedia, has said that she and Mr. Bacanovic made an agreement weeks before the sale to sell the shares in Imclone if the price slipped below $60 a share.

Mr. Bacanovic, who joined Merrill in 1993, also handled trading in the shares of Ms. Stewart's company that she made available to her friends at the offering price of $18 a share. That trading would have enabled him to collect commissions both when they were bought and sold. Trading was exceptionally heavy in the early days, with volume reaching 15 million shares when just 8 million had been issued. Mr. Bacanovic was in charge of stock options issued to executives and other employees, too, several former employees said. "He was the point person on the options," one said.

Morgan Stanley, not Merrill Lynch, was the lead underwriter on the Martha Stewart public offering. While the lead underwriter normally is in charge of the so-called friends- and-family shares, one expert in securities law said it was not unusual for a broker to be designated to handle them for employees and other associates at a small company like Ms. Stewart's.

"She