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Funding. What our industry needs for a sustainable recovery…. Optimism and Liquidity are not the same thing!. CIBC World Markets Royal Bank of Canada GE Capital CIT MCAP National Leasing Group Foss National Leasing Leasemaster (JPLM) ADD Capital Blue Chip Leasing TAO.

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funding

Funding

What our industry needs for a sustainable recovery…

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

optimism and liquidity are not the same thing

Optimism and Liquidity are not the same thing!

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

cfla thanks the following
CIBC World Markets

Royal Bank of Canada

GE Capital

CIT

MCAP

National Leasing Group

Foss National Leasing

Leasemaster (JPLM)

ADD Capital

Blue Chip Leasing

TAO

Honda Finance Canada

GMACFS

Ford Credit

Somerville National

Centre For Spatial Economics

DBRS

S&P

Clubb Finance

PayNet

CFLA Thanks the Following:

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

today s agenda
Today's Agenda
  • Consequences of a weakened Commercial Finance Industry for Canadian Business and for the Canadian Economy
  • The Canadian Credit Crisis and the impact on the Vehicle and Equipment Finance Industry
  • What is needed to maintain the health of the industry
    • Status of Available Sources of Funding
    • Long Term Supply Stability – Market Must Stabilize

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

canadian business credit source 2008 federal budget minister of finance
Canadian Business CreditSource: 2008 Federal Budget- Minister of Finance
  • Business Credit Outstandingin 2007
  • Cumulative Change in Business Credit Since August 2008

Billions of dollars

Billions of dollars

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

effective flow of capital to canadian business is critical to the economic recovery
Effective Flow of Capital to Canadian Business is critical to the economic recovery
  • Independent and Captive Finance Companies are effective at “push” strategies for deploying capital to SME’s
  • Bank Lessors traditionally use a “Pull” strategy
  • The combination of both strategies optimizes the amount of funding provided to main street Canada
  • Without all channels the economic recovery will likely stall

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

industry canada small business quarterly august 2009
Industry Canada Small Business Quarterly, August 2009
  • Small businesses accounted for 97.8 percent of employer establishments (in Canada)
  • Small businesses are defined as having fewer than 100 employees, medium-sized businesses having 100 to 499 employees and large businesses having 500 or more employees
  • There are 2,314,563 businesses that fit this category

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

multiple distribution channels critical to optimizing amount of available capital
Domestic Bank Lessors

Foreign Bank Lessor

Wells Fargo, B of A

Key

International Lease and Finance Co.’s

GE Capital, DLL, CIT

CSI, ARI, PHH

Domestic Independents

NLG, MCAP, Equirex

Foss, JPLM, Jim Pattison, TransportAction

Captive Vehicle Finance

Ford, GMACFS

Honda, Toyota, Nissan, VW, Mercedes, BMW

Captive Equipment

Dell, Cisco, Pitney Bowes, IBM

CAT, John Deere, CNH

Floor Planning

Clubb Finance

Multiple Distribution ChannelsCritical to optimizing amount of available capital

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide9
Canadian Bankers AssociationAugust 2009, Pre Budget Consultations – Submission to the House of Commons Standing Committee on Finance
  • “In the fall of 2008, just as the global financing market were at their most fragile, Canadian bank lending to businesses accelerated as other sources of financing contracted. Despite the fact that banks were increasing their share of the business financing market, they were not able to fill the credit gap completely.”

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

interviews
Finance Companies

Small/Medium Independent Equipment

Small/Medium Independent Vehicle

Large Non Bank

Consumer Vehicle Retail

Fleet Vehicles

Funding Sources

Bank Sponsored Conduits

Life Insurance Companies

Non-Bank Conduits

Export Development Canada (EDC)

Interviews

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

why funding is still constrained

Why funding is still constrained!

The Paradigm Shift is still in process

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide12

The return of the “Dinosaurs”

Banks

Depositors

Direct originators with placement capabilities

Institutional Investors

Commercial Finance Borrowers

Pension funds

Sovereign wealth funds

Foreign pension funds

The “Shadow Banking” Era

SIVs

Depositors

Commercial Finance Borrowers

Asset backed securities

Institutional Investors

Conduits

Pension funds

Warehouse Lines

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

current opinion tec canadian ceo organization anderson economic report august 2009
Current OpinionTEC (Canadian CEO Organization) Anderson Economic Report August 2009.
  • A major concern with sustained recovery forecasts is whether they adequately incorporate the collapse in securitized credit flows and the longer-term implications of a U.S. balance sheet recession. Econometric forecasting models using time series data over the last 60 years do not know how to deal with these issues. In these models, if you keep interest rates low enough for long enough, you will get a “V-shaped” economic recovery.
  • It (the Bank of Canada) finds that the level of its FCI is now above its 10-year average, implying that credit conditions have returned to normal. We find this hard to believe and are worried that the Bank of Canada is underestimating the problems in financial markets.

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

current sentiment
Current Sentiment
  • Wholesale funding and debt securitization is still basically shut-down on both sides of the border. Toxic collateralized debt obligations (CDO’s) are still toxic. The financial system still has serious design flaws left over from creative financing. The shadow banking system is not working and it supplied over half of the credit growth in the U.S. (and a large part in Canada) over the past decade. Large corporations can access the debt markets but small and medium-sized businesses are finding their access to credit reduced. Commercial real estate borrowers facing debt repayments are unable to roll-over debt. Households and firms will continue to emphasize debt minimization. The next decade will not see a return of leveraged growth. It will take years for credit flows to return to normal.
    • TEC (Canadian CEO Organization) Anderson Economic Report August 2009.

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide15

~ C$32 Bil

Defaulted

Nonbank

ABCP

Subject to

Montreal

Restructuring

Process

Outstanding Commercial Paper – CanadaPermission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.

Prior to Dec. 2007, Canadian ABCP not rated by Standard & Poor’s

ABCP

Bil. C$

Non-ABCP

Note: Data for 2009 as of June 30th.

Source: Bank of Canada

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

general status of funding
General Status of Funding

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

lost funding capacity
Lost Funding Capacity

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

general status of funding1
General Status of Funding
  • Portfolio Sales: Buyers are looking for deep discounts. Sellers are those in need of cash
  • Warehouse Lines: Independent Commercial Finance is still nervous about bank commitment to maintaining or increasing warehouse facilities without a demonstrated growth in take out capacity (ABCP/ABS)
  • Bank Term Debt: Available to existing clients often with strong pricing but restrictive terms

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

private securitization
Private Securitization
  • Small and Medium sized vehicle and equipment lessors have utilized the leverage and pricing of this product to build significant market share.
  • The insurance companies funding this program have continued to support existing clients but the insurance industry is under significant strain and it has impacted terms and supply.

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide20
Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

spread changes
Spread Changes

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

private securitization1
Private Securitization
  • Fewer Players Expecting Greater Performance
  • Credit Box has Tightened
  • Greater monitoring
  • Pricing beginning to Stabilize
  • Support for Existing Clients

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

abcp and abs market
ABCP and ABS Market
  • New Realities
    • Global Liquidity Standard-A Limited Resource
    • More Bond Ratings
    • Greater Transparency
    • Much Greater Fees and Administration Expense
    • Higher Pricing
    • Term more Popular than CP

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

2007 abcp market
2007 ABCP Market
  • Largest Funding Component of the Canadian Commercial Paper Market
  • 50% of the non-government short-term debt market
  • 21 Conduit Sponsors – 65 multi-seller ABCP Programs
  • No Rating Downgrades

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide25
Current OpinionStandard and Poor’s Ratings Digest August 17, 2009“Canadian Finance Companies are Tapping Foreign ABCP Conduits”
  • “Domestic funding for Canadian ABCP has become more difficult to obtain. The decline which began in Mid 2007, is evident in the Bank of Canada’s monthly data. The decline continued even after the completion of the nonbank ABCP restructuring in January 2009.”

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide26
Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

slide27
Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

current supply vs future demand
Current Supply vs. Future Demand
  • Access to supply now favors banks as a result of government support
  • ABCP and ABS markets remain inadequate
  • Loss of Non Bank Sponsored ABCP and ABS appears permanent.
  • Diversity of Distribution is “at risk”

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

secured credit facility
Secured Credit Facility
  • Intention and Commitment Strong
  • September 17th Revisions Show Potential
  • Success Needs to Be Measured by Flow of Funds
  • Most Domestic Commercial Finance Companies are still ineligible and are now at a greater disadvantage.
  • Curious Hidden Message …
revisions to secured credit facility program
Revisions to Secured Credit Facility Program
  • Risk of Refinancing at Bullet Eliminated (True Match Financing of Cash Flows).
  • Ability to customize documentation.
  • Eligible Assets Expanded
  • Standby Servicer
  • Pricing and Allocation Process Amended.
multiple distribution channels critical to optimizing amount of available capital1
Multiple Distribution ChannelsCritical to optimizing amount of available capital

Domestic Bank Lessors

Foreign Bank Lessor

Wells Fargo, B of A

Key

International Lease and Finance Co.’s

GE Capital, DLL, CIT

CSI, ARI, PHH

Domestic Independents

NLG, MCAP, Equirex

Foss, JPLM, Jim Pattison, TransportAction

Captive Vehicle Finance

Ford, GMACFS

Honda, Toyota, Nissan, VW, Mercedes, BMW

Captive Equipment

Dell, Cisco, Pitney Bowes, IBM

CAT, John Deere, CNH

Floor Planning

Clubb Finance

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

domestic finance companies insulate from risk of global exits
ABN AMRO

IRWIN Commercial Finance

KEY Equipment Finance

GE Capital

National City Capital

CITI Leasing Canada

CIT

GMAC

Chrysler

CoActiv

Domestic Finance Companies Insulate From Risk of Global Exits
issues remain
Issues Remain
  • Domestic Canadian Finance Companies are now at a major disadvantage.
  • Available business credit and the disparity of terms need to be closely monitored.
  • No clear replacement for non-bank sponsored ABS and ABCP sales exists.
export development canada
Export Development Canada
  • Mandate has been expanded to flow to greater number of companies
  • Finance Companies need to justify an “Export” related Financing Need
  • Existing Relationship with Chartered Banks has enabled flow of funds
  • No Structure to flow funding to Non-Banks

Capacity for Economic Recovery

CFLA 2009 Annual Conference - Ottawa

the bottom line
The Bottom Line
  • Domestic Independent Finance Companies Are At an Artificially Steep Disadvantage
  • Diverse Distribution Channels are critical to getting funding to Main Street
  • Vehicle and Equipment ABS and ABCP are fundamentally sound but buyers remain scarce.
  • Fear is still driving the market. Secured Credit Facility will help restore ABCP and ABS supply and terms.