Upload
joseph-dickerson
View
217
Download
0
Embed Size (px)
Citation preview
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Kiev, February 21, 2006
Presented by: Richard Caproni Sponsored by USAID
Access to Credit Initiative
Financing Sources for Lessors International vs. Ukrainian Practice
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Agenda:
Ukrainian Banking Sector Need for Capital Market Development The Tide Is Coming Preparing Ukraine’s Infrastructure and
Institutions (ATCI) What this Means for Leasing in Ukraine Typical Funding Sources for Lessors
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Today, Ukraine’s Banking Sector Cannot Meet the Capital Finance Needs of Ukraine’s Enterprises
There Are Approximately 163 Banks Operating in Ukraine with Total Assets of about 223 Billion UAH
Cumulative Capital of Ukrainian Banks is over 26 Billion UAH
Banks represent over 90% of Overall Financial Market (2005)
Lack of long-term capital is available to commercial banks and non-bank financial institutions
Ukraine needs USD tens of billion in investment just to renew existing depleted fixed assets
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Capital Markets Direct a Country’s Resources to the Most Productive Areas of the Economy by:
Providing a reliable place for individuals and institutions to invest their money based on term and risk appetite
Personal Savings Corporate Funds
Creating appropriate financial products that match the needs of savers and borrowers
Pension Savings Investment Capital
Creating a liquid market for securities to provide financial institutions & enterprises access to the capital they need
Stocks Bonds Mutual Funds
Asset-backed securities Derivatives
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Important Investment Institutions Are Developing and Will Bring Billions of Dollars into Ukraine’s Financial Markets
Pension Funds
Insurance Companies
Institutional Investors / Mutual Funds
Investment Banks
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
To Keep Institutional Capital in Ukraine, the Financial Market Infrastructure Needs to Be Strengthened
Securities Markets Infrastructure Legislation and Regulation Supporting Services Judicial System
Capacity of Financial Institutions Commercial Banks Leasing Companies Credit Companies Asset Management Firms
Investment Banks Insurance Companies Pension Fund Managers
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
ATCI Works with Lessors to Access Capital from Different Types of Funding Mechanisms such as:
Internal Equity Subordinated Debt
(from parent company)
ExternalRecourse Term Debt Wholesale Lines of Credit (LOC) Warehouse LOC
Non-Recourse LOC / Term Debt Portfolio Sales Brokering / Discounting Lease-backed Securities
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
There Are Very Different Funding Strategies for Different Types of Lessors
Type of Owner Independent Lessors
Small vs. Large
Bank-owned Lessors Captive Lessors
Business Strategy Universal Lessors Specialized Vendor-Based Small-, Medium-,
Large-Ticket
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Sources From Owners From Outside Investors
Pools Single transaction Limited investment Limited liability
Advantages Control of capital Make own decisions Flexible structuring / pricing
Disadvantages Limited Growth Lower ROE
Internal Sources Provide More Flexibility but Limit Growth Potential
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Small Owner / Manager
contributes equity Typically a small group
of outside investors Maximizes leverage
with external debt Typically broker
transactions to funders
Large Multiple stockholders providing
a high level of investment Higher level of management
and staffing Receive better pricing from
recourse lenders Qualify for recourse lines of
credit
In Determining which Funding Sources Are to Independent Lessors, “SIZE MATTERS”
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
The Nature of Recourse Debt Is Different in Ukraine than in the US
Types of Recourse Debt Warehouse Lines of Credit
Short-term Provides instant funding
Term Debt Long-term / permanent
funding Matches term of lease
Advantages for Lessor Largely available and
immediate funds (for strong lessors)
Partial/full control over credit decisions
Lessor uses own documents and remains owner of asset
Lessor maintain image and relationship with client Bills, collects, monitors
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Main Qualifications for Recourse Debt
Adequate Capital Experienced management and operational
capabilities Strong operating and credit history Portfolio performance and credit quality
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Non-Recourse Debt Is Very Different in Ukraine than in the US
Non-recourse debt focuses on the transaction or pool of transactions being funded and takes assignment of lease payments and leased asset(s) as collateral.
Advantages No liability, does not restrict
additional borrowing Available for all lessors
Disadvantages No control over credit decision Higher cost than recourse debt Funds not immediately available Loss of image due to bank
taking control of relationship Use lender documents Lender bills and collects
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Large Independent Lessors Have Additional Options for Funding
External Commercial Paper Public Debt
(Commercial Bonds)
Syndication (includes discounting)
Securitization
Internal Equity
From Existing Owners Stock Issuance
(Public Company)
Retained Earnings
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Banks that Establish Their Own Leasing Company Adopt Different Business Strategies
Division Usually exclusively
internal funded Funding provided at
bank’s cost of funds (pooled rate )
Subsidiary Some internal funds External funds
Debt and equity Recourse and non-recourse
Brokering and Discounting
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Brokering is the preferred method of small lessors with weak balance sheets
Advantages Lowers Liability
Off balance sheet
Lowers cost of funds Provides Access to
more capital and greater transaction volume
Receive PV of profits right away.
Disadvantages “One-off” funding No control over credit
decision or documentation Funder bills, collects, uses
own documents, and owns asset
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Advantages Raises cash and frees
availability for ‘better’ customers
Method to reduce debt and lower cost of funds for new deals
Disadvantages Negotiated discount rate may
reduce portfolio profits Limited availability or number
of buyers Often includes some level of
recourse
Portfolio Sales May Serve as a Source of Funding as Well as an Instrument for Portfolio Management
FINANCING SOURCES FOR LESSORS
Access To Credit Initiative
Advantages Provides cash and
availability for new deals (off balance sheet)
Method to reduce debt and lower cost of funds for new deals
Disadvantages High transaction costs Need for standardization of
transactions and strong credit quality (LTV)
Limited number of buyers Some level of recourse Only accessible to large
lessors
Securitization of a Lease Portfolio is Only Beneficial or Accessible for Large Lessors
Access To Credit Initiative
FINANCING SOURCES FOR LESSORS
THANK YOUAccess to Credit Initiative
72 V. Vasylkivska, 5th floor
03150, Kyiv, Ukraine
Tel: (044) 537-0966
Fax: (044)537-0967
David Lucterhand, Chief of Party
Richard Caproni, Senior Advisor