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Is Equipment LeaseSecuritization Right

for You?

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Your Eye On The FutureOUNDATION

EQUIPMENT LEASING & FINANCE



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Prepared for the Equipment Leasing & Finance Foundation by:

John D. Martin

Professor and Holder of the Carr P. Collins Chair in Finance

One Bear Place 98004

Baylor University

Waco, TX 76798

2008 Copyright, Equipment Leasing & Finance Foundation

Executive Summary ....................................................................................................................................1

Introduction and Market Overview ............................................................................................................3

How Does Lease Backed Securitization Work? ..........................................................................................4

Who Securitizes Equipment Leases? ..........................................................................................................7

What Leases are Candidates for Securitization? ........................................................................................9

Summary ....................................................................................................................................................9

About the Researcher ................................................................................................................................11

Appendix—Leading Equipment Lease Securitizers..................................................................................12

I S E Q U I P M E N T L E A S E S E C U R I T I Z A T I O N R I G H T F O R Y O U ?

EQUIPMENT LEASING & FINANCE FOUNDATION

Table of Contents


EQUIPMENT LEASING & FINANCE FOUNDATION 1

Is Equipment Lease Securitization Right for You?

EXECUTIVE SUMMARYWhat is lease securitization, how can a lessor get in-volved in securitizing its equipment leases, and howcan it decide whether to do so? These are fundamen-tal issues faced by every lease originator that has notyet engaged in lease securitizations. To add perspec-tive on these issues and to help those who are consid-ering the use of lease securitization we address thefollowing basic questions in this paper:

1. What is equipment lease securitization and howdoes it work?

2. What types of companies are the most active in se-curitizing their equipment leases and what can welearn from current industry practice?

3. What types of firms securitize their equipmentleases and what types of lease contracts do theyuse?

Among the more important findings of the study arethe following:

1. Equipment lease securitization is one of the oldestnon-mortgage forms of asset backed securitizationdating back to 1985. The equipment lease (like amortgage) serves as the basis for the issuance of se-curities that are then purchased by investors eitherin the public financial markets or in a privateplacement.

2. The securitization of equipment leases sold into thepublic markets is limited to a small list of equip-ment manufacturers and large finance companies.Private placements provide an opportunity forsmaller firms to utilize lease securitizations.

3. Over the last decade the equipment lease securiti-zation industry has suffered some rather difficultgrowing pains related to general economic condi-tions and fraudulent actions by some lease securi-tizers. More recently, the problems in thesub-prime real estate finance market has dealt yetanother blow to the continued growth of this mar-ket. Even so, the industry appears to be poised toexperience growth commensurate with the growthin equipment sales as the major securitizers arenow comprised of larger, more established firms.

4. Not all equipment leases are right for securitiza-tion. In general, operating leases (with the excep-tion of aircraft, shipping containers, and railroadcars) are not used in securitizations. Moreover, thetypes of finance leases that are generally securitizedincorporate rather severe restrictions designed toassure the continuity of lease payments, (e.g., triplenet, hell or high water, and non-cancellable financeleases)



The issuance of securities backed by equipmentlease receivables is but one of a growing list of securi-tizations otherwise known as structured financingmethods in use today. The securitization industrybegan in the early seventies and now represents ap-proximately seven trillion dollars in securitized assets.Mortgage loans and credit card receivables make uptwo of the more popular types of assets that are regu-larly used in securitizations. An equipment lease se-curitization involves the creation and issuance of debtsecurities, or bonds, whose payments of principal andinterest are derived from cash flows generated by apool of equipment lease contracts.

The market for securitized equipment leases has ex-perienced slow and erratic growth since its inceptionalthough equipment leases were among the first non-mortgage assets to be securitized. The 1985 securiti-zation of Sperry’s computer equipment leases markedthe beginnings of this market. However, the marketdid not take off until 1993 and it peaked in 1999 with35 transactions totaling $13.6 billion before droppingoff precipitously in 2002. By 2006 the market had re-covered somewhat with twelve public and private is-sues representing $8.4 billion, but this was stillconsiderably below the 1999 peak.1

The market for equipment lease securitizations wasadversely affected by investor concerns about com-plex off-balance sheet financing following the rash ofcorporate failures in 2001-2002 in which some verylarge and high profile firms attempted to disguisetheir true financial condition through the use of off-balance sheet structured financing arrangements.Most notably this included the off balance sheet fi-

nancing schemes used by Enron who declared bank-ruptcy on December 4, 2001.

However, the equipment leasing industry has had itsown share of problems with the bankruptcies involv-ing fraud at National Century Financial Enterprises2,DVI, Inc.3, and NorVergence4. Although fraud is not arisk of securitization per se, these failures have had asobering effect on the market for securitized equip-ment leases and reminded investors of the risks atten-dant to the securitization of assets.

The period 1998-2006 saw a shake-out in the set offirms that engaged in securitizations of equipmentleases. Of the 59 issuers engaged in equipment fi-nancing securitization during this period 11 were ac-quired by firms that are not engaged in securitization,7 filed bankruptcy, 5 ceased operations and left the in-dustry, and 16 no longer use securitization as a fund-ing source. The firms that continue to utilizesecuritization tend to be larger and better capitalizedfirms with lengthy and successful track records.

Finally, in 2007 the collapse of the subprime lend-ing market which was securitized heavily has had aspillover effect on equipment lease securitizations.The loss of investor confidence in subprime ABS, al-though not directly linked to equipment lease securi-tizations has, nevertheless, had a chilling effect on themarket for all securitizations.

In summary, growth in the securitization of equip-ment leases has been hampered by (i) opportunisticbehavior by some early adopters, (ii) the stigma at-tached to special purpose entities following the col-lapse of Enron and the impending SEC disclosurerequirements through Regulation AB, (iii) the fallout

Introduction and Market Overview

1Data for 2006 are from John H. Bella, Jr.; Ravi R. Gupta; and Du Trieu, Rating U.S. Equipment Lease and Loan Securitizations, FitchRatings, May 31, 2007. In addition, the Appendix containsa listing of the issuers of equipment lease securitizations for the period 1985 through October 18, 2007.

2A number of health-care providers relied on National Century to provide working capital by selling future receivables for cash. NCFE, in turn, relied heavily on securitization markets for theirown funding. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

3DVI, Inc. leased medical equipment to health-care providers and securitized the leases. The issuer regularly repurchased delinquent leases from its securitization pools and also routinely sub-stituted leases to allow lessees to upgrade their equipment. When DVI failed, the performance of the securitized pools deteriorated because it no longer repurchased delinquent leases and be-cause customers could no longer upgrade their equipment. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

4NorVergence compounded the idiosyncratic risks seen at other failed firms by having a fraudulent business model. The firm created some $230 million in equipment leases for its Matrix de-vice which was sold as a means of reducing the cost of telecommunications services to small to medium size businesses. The device, however, turned out to be little more than a firewall andmodem that routed long-distance calls through Qwest and Sprint. Although 7,200 Norvergence customers were locked into leases, Norvergence already got its money through the sale of theleases to leasing and banking companies. (Federal Reserve Bank of Philadelphia, Update, Winter 2004).

from the economic downturn following 9/11, and (iv)the more recent subprime debt market problems of2007. The future of securitization in the equipmentleasing industry depends largely on the awareness ofpotential adopters of the benefits of the financing tooland whether those benefits prove to be of real eco-nomic significance.

The remainder of this paper is organized as follows:In Section 2 we provide a brief overview of how leasebacked securitization works. The objective here is toidentify the key players and the issues that arise incarrying out a successful securitization program. InSection 3 we discuss the participants in the equip-ment securitization market. As we noted above, thefirms that now engage in this form of securitizationhas decreased dramatically over the last decade. Sec-tion 4 describes the types of lease contracts that aretypically involved in securitizations, and Section 5contains summary comments.

How Does Lease BackedSecuritization Work?

The general category into which lease backed secu-ritizations fall is called asset backed securities (ABS).Specifically, asset backed securities are securities cre-ated by pooling loans or leases other than first-lienmortgage loans.5 The three largest sectors of assetbacked securities in the US are securities backed bycredit card receivables, auto loans, and home equityloans. To illustrate the process by which lease backedsecurities are created, consider the hypothetical caseof Niece Equipment Leasing Company.

LEASE SECURITIZATION EXAMPLETo keep our example as simple as possible we will

assume that the Niece Equipment Leasing Companywas formed to enter into a single equipment lease,which it then sold into a pool of other equipmentleases against which equipment lease backed securi-ties were issued. We describe the whole process in

three steps and illustrate its effects on the balancesheets for the parties involved: Niece, the special pur-pose vehicle used to securitize the lease receivables(AAA-SPE), and the investor (AAA-Investor) whopurchases the lease backed securities.

Step 1: Niece purchases equipment for $15 millionthat is to be leased to a local manufacturingclient. The balance sheet for Niece appearsas follows after the acquisition of the equip-ment and it’s financing:

Step 2: Niece enters into long-term lease contractfor the equipment with present value leasepayments of $20 million. Following thecompletion of the lease agreement Niece’sbalance sheet appears as follows:

Step 3: Niece sells the present value of the leasepayment stream from the lease contractfor $18 million to a special purpose entity(AAA-SPE). The SPE then issues securities


4 EQUIPMENT LEASING & FINANCE FOUNDATION

5The securitization of first-lien mortgage loans gives rise to a special class of ABS known as mortgage backed securities.

6For simplicity we have not specified the relationship between Niece and AAA-SPE. If Niece were one of the larger leasing companies it would both originate and securitize its own leases.Alternatively, Niece might act as a conduit for smaller, regional leasing companies by acquiring their equipment leases and loans and including these assets in its securitized pool.

5The securitization of first-lien mortgage loans gives rise to a special class of ABS known as mortgage backed securities.

6For simplicity we have not specified the relationship between Niece and AAA-SPE. If Niece were one of the larger leasing companies it would both originate and securitize its own leases.Alternatively, Niece might act as a conduit for smaller, regional leasing companies by acquiring their equipment leases and loans and including these assets in its securitized pool.

Niece Equipment Leasing Company

Equipment $ 15m

Total $ 15m

Debt $ 5mEquity 10m

Total $ 15m


Lease Kx $ 20m

Total $ 20m

Debt $ 5mEquity 15m

Total $ 20m

backed by the lease contract (in practice thiswould be a pool of lease contracts).5 AAA-SPE’s balance sheet appears as follows:

Niece’s post-sale, balance sheet now appears as fol-lows (before retiring any debt):

Note that Niece still has $2 million in assets related tothe lease contract. This represents the value of theservice contract plus any residual interest that Niecemight retain in the lease. A key observation at thispoint is that Niece has converted the series of leasepayments into cash. Assuming that Niece’s debt wassecured by the lease contract then the debt must berepaid when the lease is sold such that Niece’s balancesheet will appear as follows:

Let’s now look at the balance sheet of the investorwho buys the equipment lease backed securities.We will assume, for simplicity, that a single investorpurchases all of the equipment lease backed securities(ELBS) and that they finance the acquisition by bor-rowing $5 million and investing an added $13 millionin equity funds, i.e.,

Note that we assume that the investor now has $5million in debt (just as Niece once did). If the securi-tization process worked as planned, however, the in-vestor’s debt has lower default risk than Niece’s debt.This is because the investor’s debt is based on an assetwith lower default risk than if Niece owed the debt.Since the same collateral is involved in both in-stances, how can this be? The answer lies in the factthat the credit risk of the lease itself may not be ashigh as Niece’s credit risk. Consequently, separatingthe lease from Niece and its higher risk of defaultallows the market to price the lease as a stand-alonesecurity. To explore this question further and manyothers that can arise in the use of the securitizationprocess for equipment leases we now discuss “whatcan go wrong?”



AAA-SPE, Inc.

Lease Kx $ 18m

Total $ 18m

Lease Backedsecurities 18m

Total $ 18m


Cash $ 18mLease Kx $ 2m

Total $ 20m

Debt $ 5mEquity 15m

Total $ 20m


Cash $ 13mLease Kx $ 2m

Total $ 15m

Debt $ 0mEquity 15m

Total $ 15m

AAA Investor

ELBS $ 18m

Total $ 18m

Debt $ 5mEquity 13m

Total $ 15m

The Potential Advantages Of ABS UsingEquipment Leases7

Four advantages are often cited for the securitiza-tion of equipment leases: The first is that securitizingcan provide an inexpensive source of financing for thelease originator8 since it allows them to tap the capitalmarkets which otherwise would not be possible be-cause of the size or credit standing of the firm. Thiscan work where securitizing separates the leases fromthe firm that originated them. Thus, the risk to theinvestors who purchase the lease backed securities de-pends only on the quality of the leases and not on theoriginator of the lease contracts who typically contin-ues to service them. Second, securitization may pro-vide a source of liquidity that may not otherwise beavailable to the small to medium sized firm as it al-lows them to tap the public capital markets. Third, ifthe lease securitization is structured as a sale it mayenable the originator to remove the asset and the se-curities evidencing interests in the asset pool from itsbalance sheet. Finally, where a group of leases arepooled into a single securitization the risks of thepool can be less than the individual leases due to di-versification in the pool. The extent of the benefits ofdiversification depends, of course, on the diversity ofthe leased assets that are combined in the pool.

Potential Problems With EquipmentLease Securitization

Securitization leads to a reduced cost of financingwhere it separates low default risk lease assets fromtheir originators (lessors) who might face a muchhigher risk of default. This allows the leases to be re-financed at the low rates of interest they would com-mand as an independent asset. Very simply, Niecemay have a low credit rating, but this does not meanthat it cannot originate assets (leases) that can com-mand high credit ratings and consequently lowercosts of financing. One way for Niece to get the bene-fit of the low risk leases it originates, is to sell thelease contracts to another entity that packages themwith other lease contracts and issues equipment lease

backed securities against them. For this to workthere are a number of potential obstacles that must beovercome.

Problem #1: Isolating Equipment Leases FromOriginator’s Creditors

The essence of lease securitization is that it isolatesthe cash flows from the leases that underlie the secu-ritization from the bankruptcy risk of the originator(lessor). If the lessor were to declare bankruptcy, itwould be disastrous to the holders of the equipmentlease backed securities should the assets of the issuerof the equipment lease securities be consolidated inthe lessor’s reorganization proceedings. If the lessor’screditors are able to lay claim to the leases in theevent of default by the lessor, the riskiness of the leasecontract will reflect both the risk of the underlyingasset as well as that of the lease originator. Shouldthis occur, the potential cost savings from financingbased on the lease contract would be lost.

To mitigate concerns about isolating the leases fromthe originator, two legal opinions are typically ob-tained. The first is the “true sale opinion”. Thisopinion states that in the event of the bankruptcy ofthe originator, the lease will not be re-characterized asa financing by the originator and was, in effect, a truesale of the leases to the special purpose vehicle (issuerof the lease backed securities). Among other require-ments this opinion requires that the lease backed se-curity holders cannot have recourse to the lessor orany affiliate (except the issuer itself) for any creditlosses beyond a nominal amount that is generally 10%of the fair market value of the assets transferred to theissuer.

The second legal opinion also relates to the risk ofbankruptcy of the originator. The opinion is knownas the “non-consolidation opinion” which states thatin the event of the bankruptcy of the originator, thespecial purpose vehicle that issued the lease backedsecurities and the originator will not be treated as thesame entity or pooled into its bankruptcy.



7The discussion in this section is based on Peter Humphreys and Howard Mulligan, Lease Securitization: New Challenges for Issuers, Mcdermott Will & Emery,http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/6edcc18b-81bb-4675-aad6-9c15e60ac8dd.cfm (April 8, 2005).

8Lease originators include independent leasing and finance companies, banks, and subsidiaries of equipment manufacturers.

Problem #2: Assuring The Credit Quality OfThe Lease Portfolio

Some measure of credit enhancement is generallyrequired if the ABS securities are to receive a high rat-ing from the rating agencies. The amount of the over-all credit enhancement is generally equal to a multipleof the historical loss experience on the lessor’s entireportfolio.

Credit enhancements come in many forms and maybe used in various combinations in any given securiti-zation. The alternative forms of credit enhancementinclude a reserve account, partial guaranty by the les-sor if it is highly rated, pledge of equipment residualvalues by the lessor, or some type of third-party insur-ance or letter of credit. As we noted above, however,the amount of the losses that can be born by the les-sor are generally limited to 10% or less of the fairmarket value of the leased assets. More than 10%runs the risk that the true sale opinion (noted above)may not be available.

Problem #3: Continued Reliance On The LeaseOriginator For Servicing The Leases

It is not sufficient that the lease originator identifyand enter into good quality lease agreements. Even inthe case of long-term financial lease contracts there isalways the risk that the lease will be terminated early,in which case the lessor (who typically services thelease contract) must re-lease or sell the asset. Short-term operating leases magnify the issues arising withregard to servicing the lease assets. Consequently, theability of the originator to service the lease receivablesin a timely manner can be critical to the overall suc-cess of the securitization. In a securitized transactionservicing the leases includes tracking billings,collections, repossessions, and non-payments, aswell as remarketing assets that come out of leaseseither through re-leasing them or selling theunderlying asset.

Consequently, the quality of the lease securityportfolio depends importantly upon the capabilitiesof the equipment lease originator. For this reason

the rating agencies will evaluate a servicer’s collectionprocedures and effectiveness as part of its rating duediligence. The importance of providing uninter-rupted service for the securitized leases has led to therating of the servicers by credit rating agencies andalso the practice of requiring back-up service agree-ments with an unaffiliated company if the rating isbelow the required threshold. The latter adds costto the transaction.

Who Securitizes EquipmentLeases?

There are two avenues that can be taken in the secu-ritization of equipment leases and it turns out that thefirms that use each are quite different. The first av-enue is comprised of securitizations in which thelease backed securities are sold into the public capitalmarkets. To date the public ABS market for equip-ment leases remains relatively small when comparedwith more popular forms of asset securitizations in-volving mortgages or credit card receivables.9 The is-suers in this market come from one of three groups:(i) subsidiaries of agricultural and constructionequipment manufacturing companies including JohnDeere, Caterpillar, and CNH (previously Case andNew Holland); (ii) large finance companies includingcommercial and consumer finance giant CIT10 and GECapital; and (iii) small independent leasing compa-nies including Marlin, Frontier Leasing, and US Ex-press Leasing. Issuers in the latter group are foundalmost exclusively in the private securitization market(i.e., private conduits) since the costs of a public se-curity issue are prohibitive.

Table 1 summarizes the volume of total equipmentasset backed securitization deals done over the period1998 thru 2006.11 Over this nine year period a total of$88.1 billion in equipment financing securitizationswere issued. This total consisted of $52.825 billion inlease backed transactions and $35.275 billion in



9This is based on private correspondence between the author and Edward Reardon of JP Morgan.

10For example, CIT raised over $800 million in a public offering of lease backed securities in March 2005, and another $741 million in November 2006.

11The summary data for asset backed securitizations of equipment financing come from John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Securitizations,FitchRatings (May 31, 2007).

equipment loan backed securitizations. Table 2 detailsthe lease backed securitizations by year. Althoughthere is significant variation in the composition ofloan versus lease securitizations, leases tend to domi-nate. It is important to point out that the data con-

tained in Tables 1 and 2 understate the total amountof lease backed securitizations since they do not in-clude aircraft ($46 billion), shipping container $3.7billion), and rail car ($1.5 billion) operating lease se-curitizations completed over the 1998-2006 period.



TABLE 1. ASSET BACKED SECURITIZATION (ABS) ISSUES CLASSIFIED BY TYPE OF EQUIP1998-2006

A total of $88.134 billion of equipment lease and loan backed securitizations were done over the period 1998-2006. Thetransportation industry (Trans) comprised 12% of the total, construction and agricultural equipment (Const & Ag.Eq)made up 39% and the remaining 49% were comprised of small ticket items and medical equipment (Small and Med).

Source: John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Securitizations, FitchRatings (May 31, 2007).

TABLE 2. EQUIPMENT BACKED SECURITIZATIONS—LOANS VS. LEASES:1998-2006

Equipment securitizations reported in Table 1 consist of both loans and leases. This tablebreaks these two categories out.

Source: John H. Bella, Jr., Ravi R. Gupta, and Du Trieu, Rating U.S. Equipment Lease and Loan Secu-ritizations, FitchRatings (May 31, 2007).

What Leases Are CandidatesFor Securitization?

Not all leases are equal when it comes to securitiza-tion. Specifically, there are two dimensions of leasesthat are important. The first relates to whether thelease is an operating or financial lease with the latterbeing preferred except for some specific types of as-sets. The second revolves around the specific termsof the lease contract itself that specify the responsibil-ities of the lessee under the lease. The latter are di-rected toward standardizing the terms of the leasesincluded in the securitization.

Leases can be structured as operating or financeleases where finance leases are full payout leases suchthat the present value of the lease payments covers atleast 90 percent of the original cost of the equipment.Operating leases, in contrast, have payments whosepresent value constitutes less than 90 percent. Bothtypes of lease contracts provide cash flows in the formof periodic rental payments and the residual value.However, the amount that is securitized is typicallyonly the present value of the periodic lease or rentalpayments which restricts the usefulness of operatingleases for securitization.12 Consequently, only limitedtypes of assets are securitized under operating leases.These include aircraft, railroad cars and shipping con-tainers.13

The second factor that determines the type of leaseused in securitizations relates to the specific termsof the lease. Specifically, to assure the continuity oflease payments the following four provisions are typi-cally included in the lease agreement:14

1 At least one month of seasoning—the greaterthe seasoning the greater is the likelihood thatthe leases will perform.

2 No receivable more than 30-60 days past due atclosing. Lease contracts are current.

3 No lessee can be bankrupt. Lessees must beoperating out of bankruptcy.

4 Hell or high water—this provision obligates thelessee for all periodic payments regardless ofloss, theft, destruction of the equipment, lessordefault, or bankruptcy.

5 Triple net—obligates the lessee to pay all insur-ance, taxes, and charges associated with theequipment. Moreover, lessees are often requiredto obtain insurance for a minimum of the unpaidbalance and, in some cases, the fair market valueof the equipment.

6 Noncancelable—the leases cannot be canceledby the lessee.

7 Reletting provision—requires the lessee to in-form the lessor near the end of the lease term ifthe lessee is planning to return or purchase theequipment. If the lessee fails to notify the lessor,the lease is automatically renewed for somepredetermined period of time.

Clearly, not all leases are good candidates for securi-tization.

Summary

We began this research project with three basicquestions in mind and will summarize in terms of ouranswers to each:

1. What is equipment lease securitization and how doesit work?

Securitization is a structured finance process inwhich assets, receivables or financial instruments areacquired, classified into pools, and offered as collat-eral for third-party investment. It involves the sellingof financial instruments (that often are equipmentleases), which are backed by the cash flow or valueof the underlying assets. The objective in engagingin securitization is to open an alternative source offinancing to lease originators. Traditionally, lessors



12The The residual value of the asset is typically either used as a form of credit enhancement or not included in the securitization at all.

13Over the period 1998-2006 equipment lease securitizations using operating leases included $46 billion for aircraft, $3.7 billion for shipping containers and $1.5 billion for rail cars.

14Carrie Heilweil, Equipment Lease ABS, MBS an ABS Research, Lehman Brothers, August 26, 1999; and Wendy Cohn and Drew Nugent, Rating Equipment Lease Securitizations,www.fitchibca.com, September 10, 1998.

have used banks, finance companies, and other tradi-tional financial intermediaries as their primary sourceof credit to support their operations. With lease secu-ritization the public capital markets are tappedthereby offering the lessor access to a more diverseand larger source of capital.

2. What types of companies are the most active in securitiz-ing their equipment leases and what can we learn from theirexperiences?

Equipment lease securitization has a very long his-tory. In fact, Sperry’s securitization of computer leaserental contracts represented one of the earliest in-stances of non-mortgage backed securitizations.Moreover, equipment securitizations vary directlywith the demand for equipment leases which largelyfollow the state of the general economy. For example,the economic slow-down following the dot.com crashof 2000 resulted in a dramatic drop-off in leasebacked securitizations as the volume of new equip-ment leases itself shrunk. During this period thenumber of firms engaging in lease backed securitiza-tions dropped by two-thirds from a high of 35 in 1999to 11 in 2006. Moreover, the type of company thatparticipates in the lease securitization has changedrather dramatically in recent years as the weaker andsmaller firms have exited leaving larger and more sta-ble firms.

The contraction in the number of firms engaged inequipment lease securitization has meant that the pri-mary lessors who use securitization have contracted.

Since the volume of lease securitization in 2006 hadonly recovered to 62 percent of the 1999 volume itappears that the market has itself shrunk.

3. What types of firms securitize their equipment leases andwhat types of lease contracts do they use?

The third question relates to the types of firms thatfind securitization most attractive and types of leasesthat are securitized. In the post-2006 world it wouldappear that only the very largest and most financiallystable finance companies and the large agriculturaland construction equipment manufacturers are ableto securitize financial leases. In addition, financialleases provide the primary type of lease used in secu-ritizations. Only operating leases originated in aircraftleasing, railroad car leasing, and the leasing of ship-ping containers find their way into securitization.



About the Researcher

John D. Martin, PhD is professor of finance and holder of the Carr P. Collins Chair in Finance in theHankamer School of Business at Baylor University. He is a prolific writer and researcher ranking 47thamong 17,573 finance scholars spanning the period 1953-2002. His academic publications includepapers published in the Journal of Financial Economics, Journal of Finance, Journal of Monetary Economics,Journal of Financial and Quantitative Analysis, Financial Management, and Management Science. His profes-sional publications include papers in Directors and Boards, Financial Analysts’ Journal, Journal of PortfolioManagement, and Journal of Applied Corporate Finance.

In addition, Professor Martin has co-authored several books, including Value Based Management(Harvard Business School Press), Financial Management, 10th edition (Prentice Hall PublishingCompany), Foundations of Finance, 5th Edition (Prentice Hall Publishing Company), FinancialAnalysis (McGraw Hill Publishing Company), The Theory of Finance (Dryden Press), and mostrecently, Valuation: The Art and Science of Making Strategic Investments (Addison Wesley).



* This study was funded by the Equipment Leasing & Finance Foundation (Washington, DC). In preparing this paper the authorhad conversations with a wide variety of individuals engaged in the lease securitization industry. Some of these are mentionedspecifically in footnote references, however some are not. Specifically, the author was the beneficiary of conversations with KentBecker (Moodys); John Detweiler (Standard and Poor’s); Mike Jewesson (Andrews Kurth LLP); David Martin (Highland Capital);Theresa O’Neill (Merrill Lynch); Al Niece (Niece Equipment Company); Christopher Flanagan and Edward Reardon (JP Morgan);Robert Rinek (Piper Jaffray); and Brad Voss (Highland Capital). Author contact information: John D. Martin, Baylor University,One Bear Place P.O. Box 98004, Waco, TX 76798. Office: 254-710-4473. Fax: 254-710-1092. [email protected]

Appendix—LeadingEquipmentLeaseSecuritizers





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The Equipment Leasing & Finance FoundationThe Equipment Leasing & Finance Foundation, establishedin 1989 by the Equipment Leasing Association, is dedicatedto providing future-oriented, in-depth, independent re-search about and for the equipment finance industry. Infor-mation involving the markets, the future of the industryand the methods of successful organizations are researchedto provide studies that include invaluable information fordeveloping strategic direction within your organization.

Your Eye on the FutureThe Foundation partners with corporate and individualsponsors, academic institutions and industry experts todevelop comprehensive empirical research that brings thefuture into focus for industry members. The Foundationprovides academic research, case studies and analyses forindustry leaders, analysts and others interested in theequipment finance industry.

The Foundation’s resources are available electronically orin hard copy, at no cost to Foundation donors and for a feeto non-donors. The Foundation website is updated weekly.For more information, please visit www.leasefoundation.org

Resources available from the Foundation include the fol-lowing research and emerging issues (check the websitefor a complete listing):

Resources: Research Studies and White Papers• US Equipment Finance Market Study• Propensity to Finance Equipment – Characteristics ofthe Finance Decision

• Business Differentiation: What makes Select LeasingCompanies Outperform Their Peers?

• Annual State of the Industry Report• Evolution of the Paperless Transaction and its Impacton the Equipment Finance Industry

• Indicators for Success Study• Credit Risk: Contract Characteristics for Success Study• Study on Leasing Decisions of Small Firms

Resources: Identification of Emerging Issues• Annual Industry Future Council Report

• Identifying Factors For Success In the China• Renewable Energy Trends and the Impact on theEquipment Finance Market

• Long-Term Trends in Health Care and Implications forthe Leasing Industry

• Why Diversity Ensures Success• Forecasting Quality: An Executive Guide to CompanyEvaluation...and so much more!

Journal of Equipment Lease FinancingPublished three times per year and distributed electroni-cally, the Journal of Equipment Lease Financing is the onlypeer-reviewed publication in the equipment finance indus-try. Since its debut in 1980, the Journal features detailedtechnical articles authored by academics and industry ex-perts and includes Foundation-commissioned research andarticles. Journal articles are available for download throughthe Foundation website. Subscriptions are available atwww.leasefoundation.org

Web Based SeminarsMany of the Foundation studies are also presented as webseminars to allow for direct interaction, in-depth conversa-tion and question and answer sessions with the researchersand industry experts involved in the studies. Please visit theFoundation website for details on upcoming webinars atwww.leasefoundation.org

Donor Support and Awards ProgramThe Foundation is funded entirely through corporate andindividual donations. Corporate and individual donationsprovide the funds necessary to develop key resources andtrend analyses necessary to meet daily business challenges.Corporate and individual donors are acknowledged pub-licly and in print. Major giving levels participate in a distin-guished awards presentation. Giving levels range from $100to $50,000+ per year. For information on becominga donor and to see a list of current donors, please visit,www.leasefoundation.org/donors



Future Focused Research for theEquipment Finance Industry

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is equipment lease securitization right for you? equipment lease securitization right for you?...

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