| Last year marked the fourth straight year of recovery | | | | development may impact lessees, particularly at the |
| for the U.S. equipment leasing industry. A robust U.S. | | | | lower end of the credit scale, as they look for new |
| economy led many manufacturers and service | | | | leases at favorable rates and terms.o The panel noted |
| companies to continue investing in new equipment, | | | | the continued trend away from pure leasing, toward |
| benefiting equipment lease providers. Although | | | | loan-type equipment financing products. The lack of |
| economic activity demonstrated relative strength, the | | | | desire and ability of leasing companies to stomach |
| U.S. economy shows signs of slowing and equipment | | | | residual equipment risk may explain this trend.o Some |
| leasing companies are reacting. What do these | | | | banks and large independent finance companies must |
| developments portend for companies looking for | | | | now face the Basel II capital adequacy requirements |
| equipment leases? | | | | mandated by federal regulators. These stricter capital |
| A survey conducted by the Independent Equipment | | | | requirements may cause certain of these companies |
| Company and the Equipment Leasing and Finance | | | | to exit the equipment financing market and create new |
| Association (ELFA) revealed that leasing companies | | | | opportunities for smaller unregulated competitors. |
| are becoming more selective and cautious in making | | | | Most industry leaders remain optimistic regarding |
| their equipment leasing investments. These companies | | | | long-term prospects for equipment financing. The |
| are pursuing certain types of equipment and industries | | | | industry remains sound, leasing portfolios continue to |
| and shying away from others. Driving these | | | | perform well, and the demand for equipment financing |
| preferences are some of the following concerns: 1) the | | | | remains strong even in the face of a slowing |
| prospect that our economy is drifting into recession; 2) | | | | economy. Yet, like other industries that rely on robust |
| if the economy slows significantly, residual values for | | | | economic activity to thrive, the outlook for equipment |
| certain types of equipment will erode; 3) continued | | | | leasing depends on U.S. economic performance --- |
| malaise in the credit markets caused by the sub-prime | | | | which seems to be sagging. |
| mortgage meltdown; 4) stagflation; 5) high energy | | | | What impact will the slowing economy, the credit |
| prices; and 6) pressure on certain equipment values | | | | crunch, and the flight of leasing providers away from |
| caused by a declining dollar and foreign competition. | | | | certain equipment types have on companies shopping |
| The survey also revealed the leasing industry's strong | | | | for new leases? So far, system liquidity appears |
| preference for seven equipment types:o Oil/gas | | | | sufficient to satisfy the overall demand for equipment |
| energyo Aircrafto Marine/intercoastal equipmento | | | | leases. Tighter credit and equipment preferences might |
| Medicalo Computers/high-techo Railo Machine tools | | | | lead some leasing providers to raise their credit |
| However, the industry seems to be shying away from | | | | standards and/or rates for certain lease transactions |
| these equipment types:o Plastics manufacturingo | | | | --- particularly those involving trucks, trailers, |
| Truck/trailero Printingo Automobiles | | | | automobiles, plastic manufacturing and printing. |
| Shedding even more light on industry leaders' views | | | | However, lining up new leases in certain segments, like |
| about future market prospects, ELFA revealed the | | | | home construction, could prove more difficult. |
| prognosis of its annual Industry Future Council (IFC) | | | | In other parts of the market, the flight away from |
| meeting. The IFC is a panel of two-dozen senior | | | | certain equipment types presents an opportunity for |
| executives representing a cross section of the | | | | smaller leasing competitors. While it is possible that less |
| equipment leasing and finance industry. Here are some | | | | credit-worthy companies may get closed out of some |
| of their conclusions:o The industry is in the midst of a | | | | transactions, it is more likely that these firms will still be |
| correction that began last year. A liquidity crunch set | | | | able to secure leases, but be subject to higher rates |
| off by the sub-prime mortgage debacle and fears | | | | and tighter terms. In this regard, like other segments of |
| about the state of the economy triggered the | | | | the commercial finance market, equipment leasing will |
| correction.o Going forward, the ability to access | | | | probably pull back from the frenzy of recent years to |
| funding will critically differentiate lease providers. This | | | | a more measured, sustainable pace. |