Lease Syndication and Securitization

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					Lease Syndication and Securitization
Paul Bent
Principal

The Alta Group, LLC

Latin American Leasing Leadership Summit
May 2, 2007
Rio de Janeiro

Meaning of “Syndication”
• • •

Commonly used term But not always clearly defined Multiple definitions reflect specific usage

 

Generic term Specific transaction structure Particular professional discipline or department

•

Actual meaning dictated by context

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

2

Definitions of “Syndication”
•

By market segment


Large ticket leasing
 

Sharing equity participation among investors Selling off portions of equity to additional investors Assigning lessor’s interest to a third party Selling payment stream to a third party



Middle market or vendor leasing
 



Lease portfolios

 

Sharing lessor’s participation in multiple leases Selling or assigning lessor’s interest in multiple leases Securitizing streams of rental payments or receivables

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Definitions of “Syndication”
•

By transaction type


Leveraged leases
 

Sharing equity or debt among multiple participants Selling off debt participations to additional lenders Selling or assigning lessor’s interest in leases Selling participations in lessor’s interest



Operating or true leases
 



Asset based lending



Selling lease receivables Recourse, non-recourse, or partial recourse
Selling lease rental streams Utilizing non-recourse funding Raising equity through public markets



Securitization
  

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

4

Definitions of “Syndication”
•

By professional discipline


Funding and credit




Underwriting or providing credit support for equity or debt participations Selling participations in equity or debt interests Marketing or offering equity or debt participations in leases Offering equity or debt participations in securitizations Arranging a syndicate of equtiy or debt participants for a specific transaction



Legal
  

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Common Properties in Syndication
•

•

•

Involving parties other than the original lessor and lessee Sharing interests among multiple participants Coordinating and balancing the interests of multiple parties
 

In a single transaction In a series of transactions

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Benefits of Syndication
•

Distribute risk
 

Among multiple parties Over the term of a lease Equity vs. assets Exposure vs. potential upside Rate of return Distribute transaction costs Increase leverage

•

Optimize ratios
  

•

Reduce overall cost
 

•

Generate revenue
 

Fee income Spread margins
Latin American Leasing Leadership Summit 7

Paul Bent - May 2, 2007

Drawbacks of Syndication
•

Time and expense
 

Legal review Documentation Differences in investment objectives Differences in risk tolerance Differences in timing and income tax treatment

•

Normalization of Risk/Exposure
  

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Syndication Structures
•

Simple transaction brokering (assignment)

Funding

Lessee

Rentals

Lessor / Broker

Assigned Rentals Rentals

Funding (discounted)

Funding Source

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Syndication Structures
•

Leveraged lease equity syndication
70% Funding

Debt Participant

Assigned Debt Service

Lessee

30% Funding

Debt Service (Non-Recourse)

Lease Rentals

Owner Trust (Lessor)
10% Funding Equity Repayment 10% Funding Equity Repayment

10% Funding Equity Repayment

Equity Participant (Beneficiary)

Equity Participant (Beneficiary)

Equity Participant (Beneficiary)

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Syndication Structures
•

Leveraged lease equity and debt syndication
70% Funding

Lessee

Assigned Debt Service

Indenture Trust (Lender)

Debt Service

Debt Participant (Beneficiary)

30% Funding` Lease Rentals

Debt Service (NonRecourse)

Debt Service

Equity Trust (Lessor)
10% Funding 10% Funding 10% Funding Equity Repayment Equity Repayment

Debt Participant (Beneficiary)

Equity Repayment

Equity Participant (Beneficiary)

Equity Participant (Beneficiary)

Equity Participant (Beneficiary)

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Syndication Structures
•

Portfolio syndication (assignment)

Lessees Lessees Lessees

Original Rentals Leases

Original Lessor

Full or Partial Recourse Assigned Rentals

Assignment of Leases

Discounted NPV of Rentals

New Lessor

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

12

Syndication Structures
•

Portfolio syndication (sale)

Lessees Lessees Lessees

Original Rentals Original Leases

Original Lessor

Assigned Leases Assigned Rentals

No Recourse Sale of Leases

Discounted NPV of Rentals

New New Lessor New Lessors Lessors

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

13

Syndication Structures
•

Securitization of rental streams
Lessees Lessees Lessees
Leases

Original Lease Rentals

Original Lessor

Assigned Lease Rentals

Discounted Purchase Price (less Holdbacks)

Full or Partial Recourse

Special Purpose Company

Rated securities Funding

Funding Source Funding Source Syndicated or Public Funding Sources

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Case Studies / Examples
•

Leveraged lease syndication
 

Big ticket assets (US$200 million) Owner trust as Lessor
  

Two beneficiaries (equity participants) Different income tax treatment Different pricing and yield requirements
Seven beneficiaries (debt participants) Different payment requirements Different credit requirements Single interest rate, loan documentation, legal counsel



Indenture trust as Lender



 

 

Multiple lease schedules (equipment types) Multiple closings (timing)

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

15

Case Studies / Examples
•

Portfolio syndication (sale with partial recourse)
 

Middle to large ticket assets (US$150 million aggregate) Various asset types
  

Telecommunications Commercial aircraft Transportation equipment
Rated Non-rated Near expiration Long term



Various credits






Various lease terms
 

 

Multiple purchasers Various residual values
Latin American Leasing Leadership Summit 16

Paul Bent - May 2, 2007

Case Studies / Examples
•

Lease securitization
 

Small to middle ticket assets ($120 million aggregate) Reasonably uniform credits
 

Scored and structured under similar criteria Well documented

 

Good geographical and equipment diversity Limited residual obligations
 

Primarily capitalized leases Primarily “$1 outs” Rated by national rating agency Supported by partial recourse to seller



Uniform rating of SPC securities
 

Paul Bent - May 2, 2007

Latin American Leasing Leadership Summit

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Questions & Discussion
Thank you.

Paul Bent
The Alta Group pbent@thealtagroup.com