While The CIT Group, a New Jersey-based commercial finance company, has no plans to drastically alter its asset-backed program for 2001, the company hopes to be the number one issuer in equipment-based ABS, while expanding into the Canadian public market.
With about $4 billion in ABS issuance last year, including its first-ever equipment transaction under the CIT name, the company plans to concentrate on its equipment portfolio in 2001, and intends to match last year's issuance levels, said Frank Garcia, senior vice president, securitization, at CIT.
The company is a regular issuer in the ABS market, managing $54 billion in assets. With its acquisition of Newcourt Capital in 1999, CIT inherited an equipment finance portfolio, and this sector has become a top priority for the company, Garcia noted.
"When you look at our balance sheet, our equipment financing and vendor technology groups make up, on a managed basis, roughly 50% of our balance sheet, so that's why that's the focus of our funding program on the ABS side," Garcia said.
Garcia believes that the equipment sector is an up-and-coming market in the asset-backed arena, and while he's predicting growth in the sector to be flat this year (about 10% to 15% of the overall market), he wants CIT to become a dominant player in the field.
"I'd certainly like to be considered one of the premier issuers on the equipment side of the marketplace," Garcia said. "And I hope we'd become a benchmark and as such would be able to put the volume out there that you need to in our confines." The company plans to issue under the CIT Equipment Collateral Trust series, the trust it set up for it's first equipment deal last year.
"CIT's strategy is to try to be one of the top lenders in that industry [in any industry it participates in]," Garcia said. "So that broadens our approach and our strength."
CIT has been issuing ABS since 1992, and focused on the consumer side of its business. The first public deal for the company was a manufactured housing transaction in 1993. In 1994, CIT issued a recreational vehicle deal, and has done so at least once a year through 1999. The company even came to market with two home-equity transactions in 1997 and 1998, but has been out of that market because of the uncertainty in that sector.
"Clearly the home-equity marketplace was one of those that suffered through some tough years," Garcia said. "We've chosen not to issue because the turmoil in that marketplace made it unattractive for us."
Garcia said that while ABS is an important part of CIT's financing, it only makes up a small portion of the business, about 20% to 25% of total funding. Because of the company's single-A rating on its unsecured debt, the company can receive cheaper funding in the unsecured market.
"It's a piece of our business; it's important because as an independent finance company, clearly having access to all of the capital markets, being unsecured or secured, is critical in this environment," Garcia said.
CIT also has a "reasonably sized" presence in the Canadian ABS market, but most of those deals are structured into conduits because until last year, there was no public asset-backed market in the country. However, the emergence of a public market is very attractive to CIT.
"Now that it's [a public market] being established, we would certainly be looking to shifting some of our Canadian ABS into the public Canadian market," Garcia said.
As asset-backed spreads have held in over the past 12 months, the market has seen record issuance. But with a predicted slowing economy, levels could return to normal.
"It's clearly become an attractive funding source and being a diversified borrower, we certainly need to be exploring opportunities on the ABS side," Garcia said. "So I think, not that we're going to do anything different, but the environment today is clearly favoring ABS issuance as opposed to your typical unsecured issuance and I think there's been some evidence through Ford and some other issuers of some increased ABS early on in the year."
Once Federal Reserve rate easings begin to be felt in the market, Garcia said asset-backed issuance might return to more normal levels.
"Overall, the market this year is going to be roughly the same size to slightly bigger than last year, and on the equipment side, that would probably be appropriate to the extent that the economy doesn't soften so much that the volume is not there," Garcia said. "We securitize as a funding source. So to the extent that I don't have volume to fund, we wouldn't need it."