1. 32 • monitor • MAY/JUN 2016
A
cloud of anxiety hovered over the world
the morning of the 15th Annual Equipment
Leasing and Finance Association/Information
Management Network (ELFA/IMN) Investors
Conference. Hours before the opening session, three
coordinated bombings exploded in Brussels, demon-
strating what DLL International CEO and Chairman
William Stephenson called the “wild cards” that “can
have a massive impact, not just in this industry but the
overall global economy.”
“We constantly have to be prepared to manage the
uncertainty,” said Andrea Petro, executive vice president
of Wells Fargo, in her opening remarks. “This is prob-
ably a more uncertain year than we had last year and
probably the most uncertain year we’ve had since 2009.”
Geopolitical unpredictability — terrorism, the
influx of refugees into Europe, the U.S. presidential
election and China’s transition from an industrial to a
consumer economy — was only one aspect of Petro’s
concern for the year ahead. Other anxieties, including
new leveraged lending and regulatory guidelines and
the financial market turmoil sparked by the Fed’s
December interest rate increase, left Petro wondering
what will happen next.
“Regulation has an impact on cost of funds. What
we’re seeing this year for the first time in 10 years is that
cost of funds is increasing and all of us have to deter-
mine how we’re going to develop strategies around that,”
Petro said. “Every one of us is charged with a responsi-
bility of developing strategies to neutralize uncertainty.”
Resiliency to Rise Above
ELFA President and CEO Ralph Petta shared a ray
of hope from an Equipment Leasing and Finance
Foundation study, which indicated that both the lender
finance market and banks’ appetite to lend to the equip-
ELFA/IMN Investor Conference:
DevelopingStrategiesinanUncertainEnvironment
BY RITA E. GARWOOD
A theme of uncertainty dominated the 15th Annual Investor Conference as panelists discussed the
increasing cost of funds and the sluggish equipment-backed ABS market. Despite geopolitical anxieties,
prolonged stress in the energy sector and negative interest rates, many expressed a confidence in the
industry’s resilience, expecting it to grow at a slow but steady pace in 2016.
“Regulation has an impact on cost of funds. What we’re seeing this
year for the first time in 10 years is that cost of funds is increasing
and all of us have to determine how we’re going to develop strategies
around that. Every one of us is charged with a responsibility of
developing strategies to neutralize uncertainty.”
— Andrea Petro, Executive Vice President, Wells Fargo
Photos by Phil Neuffer

2. MAY/JUN 2016 • monitor • 33
ment finance industry continue to thrive despite the
uncertainty posed by regulation.
“The strong performance of equipment leasing
portfolios and the relatively higher yields they offer are
beginning to garner the attention of non-traditional
lenders to the space,” Petta said. “This dynamic, on
top of regulatory constraints faced by some lenders and
increasing desire for funding of nonstandard contracts,
as well as continued technology innovation, has created
the perfect environment for new entrants.”
Stephenson echoed Petta’s optimism, calling equip-
ment finance “the most robust and resilient industry in
the U.S.” during an overview of the top 10 acquisition
trends for 2016 (see related sidebar).
The most noteworthy trend Stephenson discussed
was the rise of managed equipment services. “Customers
are demanding far more flexibility,” he said, noting
the prevalence of services attached to assets and the
increasing number of solutions providers entering the
industry. “This is probably one of the most transforma-
tive changes that we’ve seen in decades.”
Overall, Stephenson was bullish about the indus-
try’s prospects in 2016. “We see tremendous opportu-
nity in all the segments that we represent…the industry
is going to continue to grow at a pretty steady pace.”
Du Trieu, senior director of Fitch Ratings, agreed
that the industry is resilient. “Fitch’s outlook for the
sector is stable from an asset performance and posi-
tive from a ratings perspective,” he said. Despite this,
Trieu indicated that there are several areas of concern,
including the global economic outlook — particularly
within China’s emerging markets — and prolonged
stress in the oil, gas and energy sectors.
Current and forecasted declines in sales related to
agriculture, transportation and trucking were also a
concern. “Low commodity prices over the last year and
a half have resulted in negative impacts on foreign > >
“The strong performance of equipment-leasing portfolios
and the relatively higher yields they offer are beginning to
garner the attention of non-traditional lenders to the space.
This dynamic, on top of regulatory constraints faced by some
lenders and increasing desire for funding of nonstandard
contracts, as well as continued technology innovation, has
created the perfect environment for new entrants.”
— Ralph Petta, President & CEO, ELFA
William Stephenson discusses the rise of managed equipment services, a trend he belives is one of the most transformative changes the industry has seen in decades.
TOP 10 EQUIPMENT ACQUISITION
TRENDS FOR 2016
1. U.S. investment in equipment and software will hit a new high, but
growth will be moderate as businesses hold back on spending.
2. End of zero interest rate policy will spur other businesses, particularly
small businesses, to invest before rates go higher.
3. The growth of equipment acquired through financing will increase
solidly, but more slowly.
4. Businesses will begin preparing for new lease accounting rules.
5. China’s economic woes will be a global concern.
6. Equipment investment will vary widely by industry vertical.
7. Customer demand for greater flexibility and convenience will increase
the use of non-standard financing agreements.
8. Low oil prices will continue to impede energy investment.
9. Eyes will be on the 2016 presidential election for potential policy shifts.
10. Looming “wild cards” could influence business investment decisions.

3. 34 • monitor • MAY/JUN 2016
A final area of concern for Fitch was competition
within the small-ticket equipment sector. Trieu indi-
cated that a significant increase in competition could
result in a loosening of standards similar to what took
place in the 2000 and 2001 recession.
BMO Capital Markets Director Jeff Merchant said
the ABS market is off to a slow start this year, with
approximately $38 billion of issuance volume priced
year to date, compared with $54 billion during the
same period in 2015. Consistent with the overall market,
equipment-backed ABS has also been sluggish, with
only five transactions to date representing $2.9 billion
of issuance volume.
Merchant expects 2016 equipment ABS issuance to
be around $10 billion, a drop from the $11.5 billion of
issuance volume in 2015. One of the major drivers for
this expected decrease was the exit of GE as a sponsor
in the asset class. Although larger players such as the
captives and GE traditionally dominated the equipment
ABS market, Merchant said the notable absence of GE
and CIT has allowed the smaller independents to gain
greater market share.
Funding Source Update
The annual funding roundtable moderated by Petro
focused on issues facing independent lessors in 2016,
including how to fund growth, strategies to lower the
cost of capital and comparing funding sources.
The roundtable featured three interactive polls,
enabling conference attendees to vote during the
session. The first poll asked if recent financial market
balance sheets, and the replacement demand that took
place for construction and trucking sectors has run
its course,” he said. “Any significant weakness within
any of these sectors could result in increasing defaults,
which would increase inventory levels and dealer loss
and ultimately impact recovery rates, similar to what we
saw during the Great Recession.”
The annual funding roundtable moderated by Andrea Petro featured three interactive polls, enabling conference attendees to vote during the session.
BMO Capital Markets Director Jeff Merchant said the ABS market is off to a slow start this year,
with approximately $38 billion of issuance volume priced year to date, compared with $54 billion
during the same period in 2015.

4. MAY/JUN 2016 • monitor • 35
Marketplace Lending
The “Marketplace Lending 101” session was so popular
that stragglers had difficulty finding a seat. Albert Periu,
global co-head of Capital Markets with Funding Circle
USA, provided an overview of the marketplace lending
space, where players are operating from different models
involving various levels of balance sheet risk. Periu said
that transparency is essential to investors. Many market-
place lenders update loan data on a daily basis, enabling
investors to see signs of deterioration immediately.
Periu said marketplace lending is still evolving.
While established leasing companies and banks initially
saw these online lenders as competition, many are now
forming partnerships with them, including lead-based
partnerships, white label deals and co-branded portals.
Alexander Ploch, vice president of DZ Bank AG, said
it is important to evaluate the financing chain, including
the originator, the aggregator and the ABS investor.
When looking to invest, Ploch said the business
“needs to pass the sniff test,” which includes evaluating
whether or not the loan product makes sense for the
borrower, the ownership and equity of the marketplace
lender itself, performance of the asset and the credit
underwriting process.
Ploch said asset performance is one of the biggest
risks in marketplace lending. Since the bigger players
in the space were established after the Great Recession,
there is no way of telling where asset performance will
go in another downturn. A marketplace lender’s under-
writing process often relies on the borrower’s cash flow
and can be risky for longer-term loans. Another red flag
includes the potential for regulatory scrutiny. > >
turmoil has affected equipment finance companies’
ability to raise debt and/or equity — 55.6% of respon-
dents said yes, 33.3% said no and 11.1% were uncertain.
Miles Herman, president of LEAF Commercial
Capital, said that the most noticeable change has been
the “volatile and choppy” nature of the securitization
market, which has ultimately affected cost, but not
availability, of funds.
The panel agreed that having multiple funding
sources was one way to mitigate funding risk. “In these
turbulent economic times, you’re never sure how your
counterparty is going to react, or what type of exposure
they have to oil and gas,” said Josh Rothman, EVP and
CIO of North Mill Equipment Finance. “Having multiple
funding sources is never a bad thing. More liquidity is
always positive.”
Barry Shafran, CEO of Chesswood Group, agreed.
“The recession showed many of us that you could never
be certain where the weakness was coming in terms of
your lenders,” he said. “Sometimes it’s not about your
relationship with your funder but other stresses they feel
in their business that have a direct impact on you.”
The second poll asked how the Federal Reserve’s
December interest rate increase — and two anticipated
rate increases in 2016 — would affect the cost of funds
for equipment finance companies. A large majority
(87.5%) believed the cost of funds would increase.
Railcar, Fleet and Container
Chapman and Cutler’s Todd Plotner moderated a panel
dedicated to new developments in railcar, fleet and
container and the role of securitization in the sector.
Issuance was down slightly last year, a trend projected
to continue in 2016. The softness, which began in the
summer of 2015, was correlated to the oil, gas, and
high yield sectors, which caused spread volatility that
continued into early 2016. However, in the weeks prior
to the conference, the ABS market regained some firm-
ness as investors started reentering the market.
The panel discussed the correction taking place
in the container market due to a slowdown in global
trade, which has resulted in less CAPEX and less need
for ABS capital. The macro GDP environment has been
affecting the railcar segment, contributing to lower
rates and utilization of the assets. Tank cars, already
affected by mandatory modifications required by regu-
lators, have seen a decrease in demand due to oil and
gas market volatility.
“I think the asset-backed market, as a whole, is
on solid footing,” said Pete Rodgers, securities banker
with Wells Fargo. “We are going to experience periods
of volatility, but I think the overriding good news is that
transactions are getting done. The subscription levels
aren’t always through the roof, but recently we’ve seen
greater participation.” Rodgers noted the importance
of riding through the cycle while keeping a close eye
on diversification.
Conference attendees listen to the Rail, Fleet and Container panel at the 15th Annual Investor Conference.

5. 36 • monitor • MAY/JUN 2016
noted that there has recently been increased focus on
business lending, particularly to small businesses, due
to the prevalence of marketplace lending and merchant
cash advances, which many consider the commercial
equivalent of a payday loan.
While individual state laws govern commer-
cial lending, there has been a recent movement to
require more federal oversight. In July 2015, the U.S.
Department of the Treasury requested public input
on the marketplace lending industry. After receiving
roughly 100 comments, the Treasury indicated a
renewed interest in business lending. Franson said that
additional federal regulation, primarily in the area of
disclosure, is a possibility. Due to the Treasury’s desire
for a level playing field, Franson anticipates that the
regulation will not be limited to marketplace lenders,
but will apply across the board in business lending.
Another critical area of concern this year is the
collection and storage of data. Dodd Frank 1071, which
amended the equal credit opportunity law to require
data collection for commercial loans, requires the collec-
tion of data on borrowers. Once collected, the data will
become publicly available. This issue is not only critical
to equipment finance lessors, but to their sources, such
as dealers, which collect data and submit credit applica-
tions. The panel indicated that implementing this data
collection will not only have legal implications, but will
also be costly.
The panel also addressed state regulations, primarily
those relating to usury and licensing. The usury issue
has been central in Madden v. Midland Funding, in which
the 2nd Circuit ruled that when a bank transfers a bank-
originated loan to a non-bank, the non-bank is unable
to charge the same interest rate as the bank. Although
Madden is a debt collection case, it could affect commer-
cial loans. The case, which now stands in limbo before
the Supreme Court, is affecting the size and structure of
securitization deals. Licensing regulations are a big issue
in California (for a detailed analysis, see Attorney
Andrew Alper’s article on page 46).
New Age of Lending
A panel on the new age of lending provided an over-
view of alternative financing sources and current trends.
Addressing the need for long-term, flexible capital in
the post-financial crisis environment, Alex Saporito,
managing director of Flexpoint Ford, discussed the
growing role of private equity while MidCap Financial’s
Michael Levin and Biz2Credit CEO Rohit Arora
discussed how their companies are serving needs that
banks cannot meet.
Chuck Weillaman, senior vice president of DBRS
examined the changing nature of the equipment finance
industry. Since 2010, 35 new marketplace lenders have
entered the space, and these companies are developing
niches. Weillaman attributed the rise of these compa-
nies to the fact that banks left small businesses under-
Aircraft Finance
Blank Rome Partner Stephen Whelan moderated a panel on aircraft
finance, which included overviews of aircraft ABS, lessor business strate-
gies, helicopter finance and legal steps in aircraft finance. Whelan described
aircraft ABS as “rosy,” and DBRS projected good, if not robust, growth in
the sector this year.
Mark Hirshorn of DBRS said aircraft lease ABS has experienced signifi-
cant growth on the power of aviation industry demand. According to data
from Boeing, deliveries scheduled over the next 20 years will double the
existing fleet in use today. Several factors have contributed to this growth,
including global GDP, a focus on building infrastructure in emerging
markets and more low-cost carriers that are attracting first-time flyers.
With more than $25 billion in deliveries scheduled for 2016, there are
three primary options to finance this growth: cash, bank debt and capital
markets. While ABS is more expensive than traditional bank debt, Whelan
discussed the advantages of ABS, including the inflexibility of banks
regarding amortization schedules, unanimous lender consent and banks’
legal lending limits. Aircraft ABS issuance has grown since 2013 (see chart),
and more issuance is expected in years to come.
Realities of Regulation
In a panel on regulation, Chapman and Cutler Partner Marc Franson
cautioned any financial product or service is subject to regulatory scrutiny
in today’s environment, and equipment finance is no exception. Franson
“I think the asset-backed market, as a whole, is on solid
footing. We are going to experience periods of volatility, but I
think the overriding good news is that transactions are getting
done. The subscription levels aren’t always through the roof,
but recently we’ve seen greater participation.”
— Pete Rodgers, Securities Banker, Wells Fargo
Includes Aircra
Lease ABS and
unsecured notes
Funding for Boeing Deliveries

6. MAY/JUN 2016 • monitor • 37
served after the Great Recession. Weillaman also noted that
these new entrants initially offered a limited number of short-
term products, but have now expanded to offer a more diverse
array of products and longer terms.
Ascentium Capital’s Evan Wilkoff led a chief credit officer’s
panel. When asked what kept him up at night, First American
Equipment Finance’s Michael Ziegelmann likened his concerns
to a game of Whack a Mole because the issues are always
changing. Ziegelmann said the biggest problem areas for his
company are healthcare and education. For EverBank’s Eric
McGriff, learning to adapt to bank regulatory requirements
while looking out for hidden oil and gas exposure were his
biggest concerns. Representing independents, Wilkoff said the
state of the capital markets have left him tossing and turning.
Monroe Capital’s Ted Koenig presented a “Spotlight on
Middle Market Lending,” which included an overview of the
current state of the middle market and predicted trends for 2016
(see related sidebar).
The final panel of the day focused on investors’ strategy
and pockets of opportunity. The panel noted that commer-
cial finance has been historically attractive thanks to its high
yields, but the last three months have seen some pull back.
There is some pivoting going on as investors are no longer
having zero losses.
The panel also discussed the outlook for private equity in
equipment finance. The last few years have been difficult for
private equity investors, but John Fruehwirth of Rotunda Capital
said it will be very interesting to see how things play out over the
next 12 to 24 months.
Looking Ahead
Despite a general theme of uncertainty, there was a consensus at
the conference that opportunity still exists in equipment finance.
Stephenson summed up the overarching sentiment when he
said, “Regardless of what I view as external factors that come
in, our industry — year-over-year, decade-over-decade — has
continually proven to be resilient, flexible and adaptable regard-
less of regulation and political situations that occur. That’s what
makes us very unique.” m
RITA E. GARWOOD is managing editor of Monitor.
“Regardless of what I view as external factors that come in, our
industry — year-over-year, decade-over-decade — has continually
proven to be resilient, flexible and adaptable regardless of regulation
and political situations that occur. That’s what makes us very unique.”
—William Stephenson, CEO/Chairman, DLL International
SPOTLIGHT ON MIDDLE MARKET LENDING
Monroe Capital’s Ted Koenig discussed middle market lending. His observations and
predictions for 2016 follow:
Observations
• Volatility in the syndicated loan market, including a widening of spreads and declining
bids in the secondary market. Volumes have been down across the board.
• Increased pricing on primary issuance and general disconnect
between the broadly syndicated and middle markets.
• More caution in underwriting and documentation of second
lien deals. Investor pushback is evident.
• Lower flow in general market Q4/15 and early 2016 led to
tougher deal quality and more downgrades.
• BDCs are less aggressive today than a year ago because most are capital constrained.
• Large sponsors are reaching down into the market traditionally
dominated by middle market private equity sponsors.
• Regional banks are dropping out of club syndications due to lower returns
and lack of cross sell revenue available, which makes it hard to syndicate
large size mid-market deals. Most banks have internal hold limits.
• Banks are exiting certain industries, like energy, all together due to general industry concerns.
• New focus on liquidity coverage: debt service coverage is much more
important for regulated banks both in ABL and leverage lending.
• Year of the regulator: Regulatory pressures far exceeded expectations in 2015.
Predictions for 2016
• Much like 2015: Plenty of money to go around and many deals.
Investment banks will play a greater role in the sale process of companies.
Many companies will try to achieve growth via acquisitions.
• Private equity (PE) will continue to be difficult. There is currently more than
$500 billion in PE dry powder in the U.S. alone. Purchase multiples will
continue to be high. PE firms will need to add real and ongoing value.
• Banks will continue to be less relevant in the buyout financing market,
particularly in the middle market. In the larger market, banks will dominate
issuance of high-yield debt and other investment grade products.
• The search for yield will continue. First, it was insurance companies, then pension
funds and universities. Now, individual investors have joined the search. Negative
interest rates, designed to encourage lending, are exacerbating the problem
and borrowing across Europe has tumbled, raising deflation concerns.
• Bad news for golf: Young people don’t have time for golf or other activities
that take three to five hours. Golf courses can expect trouble ahead.
• An unsafe world: Although it’s hard to plan for risks that are not quantifiable, such as
terrorism and geopolitical uncertainty, these events will affect the middle market.
Monroe Capital’s Ted Koenig presented an overview of the Middle Market.