GreatAmerica Leasing Corp., an Iowa-based equipment lender and periodic ABS issuer, is debating the launch of industrial loan company (ILC) subsidiary or a special bank, either of which could allow GreatAmerica a new avenue of funds, via cash deposits (CDs) insured by the Federal Deposit Insurance Corp.

The move is reminiscent of other finance companies that have opted for banking subsidiaries over the last couple of years to diversify funding. Several of these subsidiaries have been formed in Utah, which is one of several states that offer the ILC charter. For example, Volkswagen has an ILC set up in Utah, which the company announced in January, and will offer auto loans, as well as mortgage loans, to its customers. The bank will eventually offer Volkswagen and Audi credit cards, according to published reports.

On the ABS side, GreatAmerica is weeks away from pricing its second public term deal, a $260 million small-ticket equipment securitization managed by Wachovia Securities.

At a conference last week sponsored by the Equipment Leasing Association and Information Management Network, Executive Vice President Douglas Olson said the company might shy away from the public term market in the future because of the extra costs associated with a Securities & Exchange Commission-registered deal, such as Edgar filings and legal fees. If the wide levels seen in the equipment secondary are indicative of where new issues will price, a public deal might not be as cost-effective as it has been in the past.

In fact, professionals in the equipment ABS sector consider GreatAmerica's pending deal a benchmark, as it could be the first small-ticket equipment deal of the year, and the first to price since the secondary blowout at the end of 2001.

"I'm going to look very closely at GreatAmerica's triple-Bs," said panelist Joseph Dyer, a director at Marlin Leasing, which has brought three term deals to market since 1999.

"I think [General Motors] is going to look very closely at GreatAmerica's triple-Bs," John Everets, chairman and chief executive officer at medical equipment lessor HSPC, jokingly added.

"This is the last place I thought I'd be referred to as the benchmark issuer," GreatAmerica's Olson replied. "We're going to go out and test the waters."

All the same, bank researchers at Salomon Smith Barney are suggesting investors take advantage of the historically wide levels at which equipment paper is trading. Salomon sees the current spread pick-up from two-year autos to two-year equipment at 39 basis points, when, in the primary market, equipment generally prices 10 to 15 basis points behind autos. Deutsche Bank and Credit Suisse First Boston, however, see the secondary pick-up as being more in the 15 to 25 basis points, though they also believe these levels could contract to historical levels.

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