When "finance" means extra effort - 1990 Rail Finance Review and Directory - directory

Railway Age, Dec, 1989

When "finance" means extra effort

Every industry spawns financial transactions that have "special" needs. The rail industry is no exception. These needs might include a quick turn-around, a special knowledge of a certain type of equipment or a special industry focus. Even the size of the transaction might spell "specialist."

Often such special transactions require structuring that may be different from text book bank financing. They may be heavy on asset value, but light on traditional equity. They may include start-up businesses. They might involve credits that are in a "workout" mode.

Fortunately for an industry that is rarely static, railroads are served by a cadre of finance companies that can take on the tough deals and close. Finance companies often step up to transactions that banks are unable or unwilling to handle for many of the reasons outlined above. Not surprisingly - finance companies tend to charge more and often pride themselves on keeping closer track of a credit once a loan is booked. These factors, however, are minor to an entrepreneur who has a start-up business that's asset rich, but doesn't qualify for more traditional bank financing.

Who are the big names in this corner of the finance industry? Two of the biggest are located just outside New York City. GE Credit in Stamford, Connecticut and CitiRail in Rye, New York both field dedicated rail finance specialists. Both have targeted the railroad industry for financial opportunities in 1990.

GE Capital

GE Capital's rail unit is headed by Anders Johnson, Vice President, who tells us that GE Capital is currently targeting transactions with regionals and Class I carriers. They're prepared to do both senior (first lien) and subordinated (second position) lending for both rail equipment and railroad transactions. GE Capital can also provide lease financing for equipment needs and is looking for opportunities to refinance existing debt situations.

CitiRail

Who's the lender of choice for railroaders who want to "succeed not just survive?" CitiRail of course! But what's CitiRail?

CitiRail is a recent business combination of a successful Florida rail equipment leasing business - Railmark - and Citicorp's equipment finance business. Hence - CitiRail. Headed by Jim Archibald and Bob Krause, this finance company specializes in the acquisition, repair and/or rebuilding and leasing of a wide variety of rolling stock and locomotives. Doesn't that make them just a leasing company?

Well - not quite.

You see, because of its Citicorp connections, CitiRail can be almost anything it wants to be. For instance, let's say that you have a railroad that needs 100 of some type of freight car. How can CitiRail help? If they have that car in their fleet, it's possible that they can lease it to you on a long, short or midterm operating lease. If you currently own the equipment but need cash (or can't use the tax benefits of ownership) they can do a sale/lease back under terms and conditions that can be negotiated. If you've located the equipment, but can't afford it, they can buy it and lease it to you, leaving your out of pocket cash position intact.

But what if you want to own the cars? Because of their Citicorp connections, CitiRail can arrange loans for any meritorious railroad project. Terms and conditions will differ with project size and creditworthiness, but it's fair to say that CitiRail wants to hear about your financing needs as long as they exceed at least $3 million.

A potential borrower who decides to fly East to West in search of funding for a project won't get past Pittsburgh and Westinghouse Credit. Westinghouse is currently developing a leadership role in several areas of railroad finance. These include leveraged buy-outs (Westinghouse financed the DM&E), tax leasing and operating leasing. The hiring of rail finance veteran Rob Blankmeyer has been quickly followed by over $100 million in operating leases for new and used equipment. Recent operating leases for new cars for Class I service have made Westinghouse the leader in this field of financing.

Ever wonder who Itel turned to when they had a vision that young, Plate "C" boxcars could be worth more than $6,000 to $8,000 and that poor times for per diem lessors would shortly turn around? Answer: Heller Financial.

During the period of this turnaround, Heller supported Itel's vision. Heller's reward? It was ultimately repaid in full! That's how the finance company lender is supposed to work. come in. Do the tough deals (and get paid for it). And ultimately be refinanced out when the company's credit merits funding in a more traditional lending market.

Who's the new kid on the block in rail finance? Deutsche Credit. Who's that? Well you might ask. We'll tell you. In 1988 Deutsche Credit, a finance company affiliate of Deutsche Bank ($100 billion) turned its attention to the rail lending marketplace. Deutsche Credit already had loans totaling $700 million for various types of industrial and transportation equipment. Why not railroads? Good question. In the months that have followed, they've made loans secured by rail equipment that's been leased to Southern Pacific, CSX and others. What are they looking for in the next year? Well, they expect to continue this emphasis on rail with an intent to double their current $45 million portfolio by booking transactions from $500,000 to $10 million.