In a move seen as an important step toward expanding its equipment lease business, Equilease Financial Services Inc., said it has completed arrangements for its first asset-backed commercial-paper conduit facility.
The facility is comprised of two-parts, a $50 million facility being provided by BancBoston Robertson, and a companion $15 million asset-based loan is provided by BankBoston Business Credit.
Alan S. Phillips, Equilease's president, said the asset-based loan will function as a bridge line through which the company will initially fund its lease transactions, which last three years to five years. When it has accumulated around $10 million of new business, the leases will be rolled into the revolving commercial-paper facility.
As the commercial-paper facility reaches its $50 million limit, the contracts will be packaged into a private placement and sold to investors, thereby reopening the facility, Phillips said.
The CP line will enable Equilease, a wholly owned subsidiary of EQ Corp., to react more quickly to lease opportunities since it already has its financing in place and will enable it to expand its services to smaller and middle market companies, Phillips said.
The two-part facility will also provide greater efficiency in funding transactions, he added. Equilease will pay a floating-rate of interest, pegged to LIBOR, for the CP facility, but this will be hedged in the interest-rate swaps market, Phillips said.
While the facility is now limited to $50 million, Phillips said that with this financing in place he now sees the company in position to expand its customer base and to provide more competitive rates.
At present, the company has an annual "run-rate" of about $100 million of lease transactions, according to Phillips. He expects this amount to increase to about $250 million annually over the next couple of years. This will probably call for the company to increase the size of the facility to the $100 million level, which he sees having additional cost benefits.
"A larger facility will enable the company to create larger securitization pools which are more attractive investment vehicles and can be sold at better interest rates," Phillips said. "It could probably shave a few basis points off the rates we would have to pay."