Looking for Mr. Good Lease - CIT's Capital Equipment Financing group

Railway Age, June, 1992

Ever wonder how leasing companies themselves develop funding for their activities? If you're General Electric Railcar Services or Union Tank Car you're probably raising money short term in the bond or commercial paper markets or long term through Equipment Trust Certificates or other fixed rate instruments. On the other hand, what if you are a bright-eyed, bushy-tailed drop-out from a large lessor who just happens to be God's gift to lease marketing? How do you get started?

According to Paul Lechner, Vice President of CIT's Capital Equipment Financing group, there's hope on the horizon for start-ups. Now, don't expect that anyone will be willing to hand you a bunch of money on your looks alone. Funders like CIT that can appreciate value in used railcars and locomotives on lease will be willing to work with new entrants into the operating lease marketplace.

What kinds of deals will merit consideration?

Lechner wants to see transactions which involve newer used equipment which is deployed in a strong market role for at least three years to 15 years. Does "role" equate to a full payment lease for those terms? Not necessarily. While a mid term to long term lease deployment won't hurt. CIT will give credit for a deployment that may have a lease of only three years, but which exhibits circumstances indicating that the particular equipment on lease will likely remain in position as a result of renewals or extensions. Isn't financing up to 100% of an operating lease that isn't full-payout risky? Perhaps, but CIT believes that it can evaluate this risk and expects to be paid for it. For instance, in return for funding 100% of equipment cost, CIT would expect to participate as type of "partner" in up-side as the equipment is renewed or ultimately sold. In addition, making equipment investments that take account of the value of the equipment over the purchase price helps mitigate the risks.

Getting Started

First, if our bright-eyed, bushy-tailed lease marketeer sounds like you, keep your eyes open for an end-user that has a need that you can fill. Next, identify equipment that suits the need and provides value for both yourself and your funder. For instance, knowing what to buy when and at what price is a function of expertise. This is the expertise that you'll be selling to your funder. Once you have the potential lessee and equipment identified you're ready to get serious about funding.

What size deal do you need to get started? CIT needs at least $2 million to get involved. On the other hand, if you get really lucky and need $20 million to $30 million you can go the same source.