Reflecting substantial growth in asset-backed commercial paper financing, Lord SPV, a provider of special purpose entity-related services for both conduits and public term transactions, has more than doubled in size since 1996, currently managing in excess of $100 billion in program assets associated with approximately 400 legal entities.
"The company has grown significantly in the last few years," said Dwight Jenkins, a vice president at Lord Securities Corp. "But in that growth, it's grown with specially skilled professionals, attorneys, MBAs, and CPAs. So we're offering clients a whole lot of intellectual horsepower, if you will."
A special purpose entity or vehicle, as it's often called, can be more than a tool for cheaper funding and bankruptcy remoteness, but an actual platform, with true independent governance, for the management and administration of a CP conduit and other debt instruments.
For example, Lord provides ownership and full service management for several Aesop entities, including Aesop Funding Corp., out of which Avis Rent-A-Car issues asset-backed commercial paper.
"So we'll get a call from Avis saying, we're going to buy so many million dollars worth of cars from General Motors this month'," said Jenkins. "So that's when our CP desk will call the program's commercial paper dealers and say we need to order that amount of paper."
Lord then spreads the order among the program dealers and on the following morning records the details of the sales from each dealer, which includes volume, rate, maturity and other relevant data.
In the case with Aesop, when the investors purchase the commercial paper, the funds flow into the SPE, and then either to Avis, or sometimes directly to the asset seller - GM in the above example.
Though Lord doesn't actually own Aesop Funding II, the entity through which Avis accesses the public term market, Lord still provides the full-service management.
As Real as It Gets
Of the 450 some-odd transactions Lord is involved with, roughly half are programs where the company provides not only independent directors, but full-blown management and/or administrative services.
When a sponsor desires a complete off-balance sheet transaction, Lord actually owns the special purpose entity, where Lord's holding company, Broad Street Contract Services, owns 100% of the common stock.
"Since Broad Street is the owner, as shareholder it actually elects the board of directors," Jenkins said. "So we make that a reality, where we actually have an election followed by a board meeting. It's often on paper, but it has the exact same effect as shareholders sitting around a table, and we then elect a slate of directors, and these directors in term elect a slate of officers."
The events are documented and placed in the corporate minute book, where they become part of the corporate record for that particular entity.
From that point forward, Lord provides all the administration services for the company, with tasks ranging from general ledger accounting and cash management to surveillance reporting and tax filing.
"We've created all the substance of a company, besides the brick and mortar of a building," Jenkins said.
A Solid Backbone
The history of the special purpose entity is intertwined with that of Lord Securities, said Rick Taiano, another vice president at Lord.
Partners of Goldman, Sachs & Co. formed Broad Street as the holding company for the first SPE, which provided off-balance-sheet financing for a Goldman utility client in 1971.
The transaction was a benchmark for many deals that followed. Lord considers these deals the forerunners of current securitization.
In 1984 the Goldman partners decided to sell the Broad Street Services book of business, Jenkins explained. The timing could not have been better, since Lord was perfectly positioned to service the rapidly emerging asset securitization market.
Since 1996, when Lord was working as a five-man shop, the company has added two attorneys, three CPAs, and two MBAs. Lord's staff consists of either long-time company veterans, some going back more than 25 years, as well as recent hires with extensive industry experience, Jenkins added.
To complement its growth, Lord has also invested heavily in systems and information technology. For more than three years, the company has been managing its accounts on a triple redundant Local Area Network, utilizing two internal servers and one off-site system equipped with an independent power supply. Also in 1996, Lord moved from Goldman's Unix system, and built its own proprietary database that's "really a lot more robust in terms of reporting and the ability to handle a huge data pool."
"We do a lot of things to keep our capacity high with a limited headcount, personnel-wise," Billota said.
"Longevity, expertise, and systems give us the ability to handle a phenomenal amount of transactions very effectively without dramatically increasing our headcount," Jenkins added. "We're more effective and efficient than many large organizations that perform some of the same services we do."
Lord's administrative involvement in the SPEs can exist on many different levels, Taiano explained. Regardless of whether or not Lord owns the entity, the service they offer includes around-the-clock availability of full administration and management duties. Subsequently, each member of Lord's team is available 24 hours a day with a full system in their homes, cable-wired via Digital Subscriber Line (DSL) to the company's information system.
One member of the team actually left his wife during labor to phone in for a conference-call board meeting.
"There's other people out there who do some of the things we do," Bilotta said. "But there's no one who directly competes on par with us."