Lease Syndication and Securitization Paul Bent Principal The Alta Group, LLC Latin American Leasing...

Lease Syndicationand Securitization

Paul BentPrincipal

The Alta Group, LLC

Latin American Leasing Leadership SummitMay 2, 2007

Rio de Janeiro

Paul Bent - May 2, 2007 Latin American Leasing Leadership Summit 2

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


Definitions of “Syndication”• By market segment

Large ticket leasing Sharing equity participation among investors Selling off portions of equity to additional investors

Middle market or vendor leasing Assigning lessor’s interest to a third party Selling payment stream to a third party

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


Definitions of “Syndication”• By transaction type

Leveraged leases Sharing equity or debt among multiple participants Selling off debt participations to additional lenders

Operating or true leases Selling or assigning lessor’s interest in leases Selling participations in lessor’s interest

Asset based lending Selling lease receivables Recourse, non-recourse, or partial recourse

Securitization Selling lease rental streams Utilizing non-recourse funding Raising equity through public markets


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

Legal 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


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


Benefits of Syndication• Distribute risk

Among multiple parties Over the term of a lease

• Optimize ratios Equity vs. assets Exposure vs. potential upside Rate of return

• Reduce overall cost Distribute transaction costs Increase leverage

• Generate revenue Fee income Spread margins


Drawbacks of Syndication• Time and expense

Legal review Documentation

• Normalization of Risk/Exposure Differences in investment objectives Differences in risk tolerance Differences in timing and income tax treatment


Syndication Structures• Simple transaction brokering (assignment)

Lessee Lessor / Broker

Funding Source

Funding

Rentals

Rentals

Assigned Rentals

Funding (discounted)


Syndication Structures• Leveraged lease equity syndication

Lessee

Owner Trust(Lessor)

Equity Participant(Beneficiary)



Debt Participant70% Funding

30% Funding

10% Funding

10% Funding

10% Funding

Lease Rentals

Debt Service (Non-Recourse)

Equity Repayment

Equity Repayment

Equity Repayment

Assigned Debt Service


Syndication Structures• Leveraged lease equity and debt syndication

Lessee

Equity Trust(Lessor)

Indenture Trust(Lender)

70% Funding

30% Funding`

10% Funding

10% Funding

10% Funding

LeaseRentals

Debt Service(Non-

Recourse)

Equity Repayment

Equity Repayment

Equity Repayment

Debt Participant(Beneficiary)

Debt Participant(Beneficiary)

DebtService

DebtService




Assigned Debt Service


Syndication Structures• Portfolio syndication (assignment)

LesseesLessees

Lessees

Original Lessor

New Lessor

Original Rentals

Assigned Rentals

Discounted NPV of Rentals

Assignment of Leases

Leases

Full or Partial

Recourse


Syndication Structures• Portfolio syndication (sale)

LesseesLessees

Lessees

Original Lessor

Original Rentals

Assigned Rentals

Discounted NPV of RentalsSale of

Leases

Original Leases

Assigned Leases

No Recourse

New LessorNew LessorsNew

Lessors


Syndication Structures• Securitization of rental streams

LesseesLessees

LesseesOriginal Lessor

Leases

Original Lease Rentals

Funding SourceFunding SourceSyndicated or

Public Funding Sources

Special Purpose Company

Assigned Lease Rentals

Discounted Purchase Price

(less Holdbacks)

Funding

Ratedsecurities

Full or Partial

Recourse


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

Indenture trust as Lender Seven beneficiaries (debt participants) Different payment requirements Different credit requirements Single interest rate, loan documentation, legal counsel

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


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

Various credits Rated Non-rated

Various lease terms Near expiration Long term

Multiple purchasers Various residual values


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”

Uniform rating of SPC securities Rated by national rating agency Supported by partial recourse to seller

Questions & Discussion

Thank you.

Paul BentThe Alta Group

[email protected]

Lease Syndication and Securitization Paul Bent Principal The Alta Group, LLC Latin American Leasing...

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