specific, and structure our loans and leases to cover specific collateral, rather than based upon a lien covering all the assets. This gives
us the opportunity to interface and co-exist with different tranches of
debt in the capital structure.
HBB: What it’s like to ramp up a lending business under current market
conditions? Are there any particular factors or challenges that you and
your team face?
VB: I think times are pretty exciting in the equipment space looking
out over the next few years. During the downturn, as I managed
through challenging turnarounds, one of the easier things to do was
for companies to reduce their capital projects and spending. Rather
than re-invest in new equipment due to the economic uncertainty,
company managers put band-aid fixes on manufacturing equipment.
However, as companies continue to come through the economic
recovery, they are once again focusing on capital projects and
replacing aged equipment and transportation fleets. As an example,
large trucking companies are currently operating longer-aged fleets
than normal and it has begun not to make economic sense to leave
these older assets on the road.
HBB: How does CIT differentiate itself from its competition in equipment
lending? What’s the “value proposition” for the borrower in selecting CIT
as its equipment lender?
VB: The difference is that we can provide pretty flexible financing
solutions and alternatives. We have a strong credit process and team
that understands middle-market credit risk. Our model is to provide
customized solutions and approaches to mission-critical equipment
financing alternatives for our middle-market clients. We have the
added benefit of operating through CIT Bank and obtaining a reasonable cost of capital. This will make us more competitive than some of
the other players in our core market space.
HBB: How has CIT changed since its reorganization and recovery, and
how does this affect equipment lending?
VB: I think that we have done a great job optimizing our credit portfolio in all our corporate finance-related businesses. We have a
strong balance sheet — capital and liquidity. Non-performing assets
are at their lowest level in years. In addition, we have significantly
de-levered the company and have greatly reduced more expensive
debt. This bodes well for all our businesses, and in particular it allows
the equipment finance team to reasonably participate in credits that
have a stronger credit profile and demand better pricing.
HBB: What market segment approach is CIT taking in equipment finance?
For example, what types of equipment does it seek to finance, what size
deals are in its wheelhouse, and what types of borrowers are a good
match for CIT?
VB: We expect to be a full-service equipment lender and lessor. I
expect that we will have a direct-to-market strategy calling on the
corporate middle-market clients directly through our sales force. This
approach will also lead to great cross-selling opportunities for other
parts of the CIT business. In addition we also expect to be an active
capital markets player and participate in both sell side and buy side
syndications. We will look at all types of equipment and specifically
focus on general manufacturing equipment in industries such as food
services, industrial manufacturing, mining and logistics, just to name
a few. The mandate here is to facilitate middle-market, term heavy
financing from $2 million and above. I would expect our core markets
to be loan values above $10 million. We have the ability and appetite
to initiate and syndicate larger capital markets transactions and this
will be a core goal for the team. As far as the credit classification, I
would expect our group to mostly focus on credits in the B+ space
and above. The key is mission-critical equipment for businesses with
good predictable cash flows.
HBB: How important are referral sources to CIT’s achieving its goals in
equipment finance? What is CIT doing to get the word out to turnaround
professionals, accountants, attorneys, intermediaries, etc.?
VB: Our referral sources are extremely important to our success;
as you know this has been deeply rooted in our history. Since
we formally re-launched this group in October, we attended the
Equipment Lessors & Finance Association (ELFA) convention, as well
as the Commercial Finance Association (CFA) convention. In addition, we have called on many of our referral bases directly, as well
as our syndication partners. I am surprised at the amount of positive
feedback and excitement we have received from our partners. We
have thus far closed on three different transactions and have several
others waiting to close.
“We have strong growth planned for 2012, which we will pursue in a reasonable and judicious manner. In addition, we have launched
CIT Bank online and our capital base is strong… In Equipment
Finance, we are in full execution mode, and expect to return CIT to
the market force it traditionally has enjoyed.”
HBB: You’re an experienced senior credit officer. For a long time, it felt
like equipment asset valuations were in free-fall. What’s been happening
with residual values for equipment, and how will that affect lending struc-
tures and pricing?
VB: I think it is safe to say that we are in that part of the cycle
where asset valuations have stabilized. Residual values continue
to remain more conservative than before the meltdown but show
signs of improving over the next few years. I think lenders in the
equipment space have shown conservatism and poise in not pushing
the envelope on residual values or advance rates. Certainly this has
compressed pricing as most of the general lending industries have
experienced.
HBB: Do you foresee growth in the equipment financing industry? Where
will it come from? What sectors will be among the most attractive?
VB: I think that if you were to survey equipment managers you would
hear the mantra of stable and measurable growth over the next few
years. We are seeing a lot of activity in the energy sector, transportation and logistics as well as industrial manufacturing. I also believe
alternative energy and new technology will be the next sectors from
which we will see increased loan and leasing demand.
HBB: How important will the private equity and sponsor community be to
CIT’s growth strategy?
VB: As always, our sponsor partners are extremely important to our
corporate finance-driven business in all industry sectors, including
equipment finance. We have enjoyed great success with a broad
sponsor base that we deem our strategic partners. They are critical
to our growth.
