Holding period: 18 months

1. 1
ECN Capital Corp.
(TSX: ECN) – June 2018.
Misunderstood special situation offers the opportunity to buy rapid growing and
high-return businesses with a break-up value of over twice the current share price
and downside protection of >85% with tangible non-core equity.
Investment thesis
▪ ECN Capital was spun-off from Element Financial in October of 2016 and since then passed
through a complicated strategic transition, disposing ~$6B in financial assets and deploying
equity into three high-growth and high-return asset-light business services providers in the
specialty finance space.
▪ Current share price is $3.501
while the company still has $3.26 in legacy business book
value per share (rail and aviation leasing portfolios) which the company plans to divest in the
next 12 months. This protects >90% of our investment from permanent impairment.
▪ Even with a conservative asset valuation, assuming the company sells the assets at a
discount to book, our capital is ~85% backed by tangible equity.
▪ Excess capital from dispositions is expected to be distributed to shareholders mainly through
share repurchases, “if the stock remains offered at a discount to intrinsic value”.
▪ The implied EV of the rest of the business is $2.04, and comparing it with a conservatively
calculated 2018E EBITDA of $0.44 per share and a 2019E EBITDA of $0.64 per share, this
results in a EV/EBITDA multiple of ~4.7x and 3.2x, respectively.
▪ Break-up value, accounting for both the legacy book value remaining, plus the asset-light
businesses at a conservative 2019E earnings multiple relative to peers, results in a ~140%
return over current share price with minimal risk of permanent loss.
▪ The three high-quality acquired businesses hold leading competitive positions in their
respective niche markets, have stable and strong margins, generate >15% after-tax ROE,
and double-digit revenue growth with several synergies and add-on opportunities yet to be
executed.
▪ We expect that freeing up the balance sheet later in the next months will reduce complexity
and improve visibility of the new businesses’ value that should make mispricing evident.
▪ After the portfolio divestments, ECN should be re-rated to an earnings-based valuation
rather than current balance sheet valuation, incorporating the strong prospects from the new
businesses.
1
All numbers in CAD unless stated otherwise. Price as of June 26, 2018. C$1.15B in Market Cap.

2. 2
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3. 3
Company overview
ECN Capital is a business service provider, originator, asset manager, and advisor focused
in prime credit assets for US-based FDIC institutions, credit unions, credit card issuers,
payment networks and processors. Through its three core businesses, Service Finance,
Triad, and Kessler Group, the company is the leading manager, advisor and structuring
partner to 90+ U.S. financial institutions in the home improvement, manufactured housing
and credit card and consumer loans business verticals. Moreover, the company has two
legacy business segments: Rail Finance and Aviation Finance.
ECN resulted from the split of Element Financial, the company separated into two stand-
alone businesses; fleet management (now Element Fleet Management), and commercial
finance (ECN Capital). Steve Hudson, founder and CEO of Element Financial at that time,
transitioned to the newly created ECN to continue executing its strategic transformation
from a commercial finance balance-sheet lender to an asset-light business services
provider.
When ECN became public in October of 2016, it was a leading North American equipment
finance company with $7 billion in total owned and managed assets. However, as U.S. and
Canadian banks returned to the commercial finance space in better shape, with more
favorable regulation and greater scale, asset yields begun to weaken due to the aggressive
competition. Furthermore, banks became increasingly active in the transportation sector
which ended impacting yields for the rail and aviation business as well.
The management team decided that the best option for the company was to exit these
verticals and deploy the resulting equity in new businesses with a better growth profile and
higher returns. Consequently, they opportunistically took advantage of the strong
institutional investors’ interest in their legacy asset categories to divest a great part of their
balance sheet and re-allocate it.
Presently, ECN still retains ~$1.6B in legacy assets, consisting in a portfolio of ~$1B of rail
assets and a ~$0.6B portfolio of aviation assets (mainly corporate jets and helicopters). The
company is now focused in concluding harvesting the capital from this legacy business, as
well as some other non-core assets, and distribute them between their new businesses or to
the owners through share repurchases or dividends.

4. 4
Opportunity overview
Rail Finance
While most of the value and the future prospects of the company lies in their new asset-light
businesses, the legacy value is a key part of our thesis because this limits substantially our
downside potential.
The legacy railcar business consists primarily in providing leases and other secured
financing for railcars to the North American railcar industry. Since 2014, the rail market has
experienced headwinds that has generated short-term pressure in utilization and lease
rates, including, manufacturing oversupply, weak commodity markets, a strong U.S. dollar,
slower than expected domestic growth, declining railcar loadings (primarily coal and
petroleum), and increased railcar velocity.
These challenging conditions persist today, although long-term fundamentals have begun to
show signs of improvement, evidenced by stabilized car loadings and idle equipment, and
reduction in railcar orders and deliveries. As a consequence, ECN has taken a conservative
and opportunistic approach to new originations in this vertical, limiting them to key
relationships and secondary market transactions.
The key point here is our interest in assessing the market value of the remaining portfolio
and inquire into the reasons of why a meaningful discount could or not be justified.
Considering the characteristics of the ECN portfolio, it should be noted many aspects of its
quality and attractiveness:
▪ The portfolio was built to perform for the long term, and structured to be resilient to short-
term pressures with superior characteristics relative to competitors
o Its large fleet is healthy diversified by car types, commodities carried, industries, lessees,
and lease terms. Very limited coal exposure, of <2%.
o Long remaining lease terms with limited near-term repricing risk (~11% in 2018)
o High credit quality of obligors (high investment-grade lessee percentage)
o One of the youngest fleets with average age of 4-6 years compared with industry
average of ~19 years
o Negligible credit losses (no credit allowance provisions).
▪ Robust asset class characteristics
o High utilization and renewal rate through cycles (~96% even during stressed conditions)
o Low technological obsolescence risk and long-life assets (40-50 years of useful life)
o Asset of essential-use for lessees
o Low residual value risk
o Strong replacement demand is expected as industry’s railcar age.
Recent company transactions help us in our assessment of the value of the portfolio. In
2016, the company managed to sell $50m worth of rail cars at a premium in excess of 15%
over asset book value. Then, in Q2 2017, ECN sold 65% of their portfolio at 98% of book,
which the company said allowed to right size its portfolio, reduced petroleum exposure and
increased the mix exposure of lower yield and lower-risk freight type cars. The company
pointed that key portfolio metrics were substantially unchanged, and that this sale

5. 5
positioned the freight-weighted portfolio for an earlier recovery in the industry. Finally, in Q4
2017, the company reported that opportunistically sold 300 railcars which produced an 8%
gain to net book value. Moreover, SMBC’s acquisition of Icahn’s American Rail and Wells
Fargo’s of GE Rail assets provide independent validation of the value of this asset class.
We have to note that these transactions were done under a downside cycle in the industry
and a solid secondary market. Currently, with industry fundamentals continuing to show
resilience; institutional investors’ interest in asset class persisting; and with remaining rail
assets de-risked substantially from tank-type cars, this should provide support to the
valuation of the portfolio. Given these robust portfolio characteristics and the resilience that
valuation has shown in recent transactions, we believe is sensible to expect a recovery not
materially different from book.
Aviation Finance
Element decided to discontinue the on-balance sheet aviation business, due to the low ROE
these assets were generating, following the strategic review that ultimately led to the ECN
spin-off. Since then, the company has been focused in winding down the portfolio through
asset sales, syndications, transfers to managed funds, or management to maturity.
This portfolio is the source of the highest asset-risk, bearing in mind that aviation equipment
values tends to be more volatile despite having some shared characteristics with rail (long-
life assets, low technological obsolescence risk, very low credit losses normally around
~0.45%). Over the life of the portfolio within ECN, the aviation assets have suffered the
bankruptcy of two customers (CHC and Zetta) and a product liability issue related to some
Airbus helicopters.
Despite these issues, the assets have shown very good resilience. The normal run-off has
been in line with expectations in a predictable manner, going from ~$1.1B in assets in 2016
to the current ~$0.6B. On the other side, the management team has been able to quickly
repossess helicopters from the insolvent clients, successfully re-leasing or selling them. And
regarding the Airbus issue, the company is pursuing insurance claims and litigation against
the company. At this point, however, they have already written down virtually the entire
asset, meaning that any positive outcome from these initiatives will provide upside to the
valuation.
Besides the issues mentioned above, we believe there is not concrete evidence that there is
anything material that could affect book value (as probably the current share price may
suggest). Run-off to date has progressed slowly but steadily and marketability of aircraft
seems to be solid. Hence, we do not think expecting a recovery around book value is
unreasonable.

6. 6
Legacy book value valuation
Figure 1. Legacy book value.
As we have just observed, our analysis can conclude that expecting something near book
value is a likely outcome. Our calculation2 results in a legacy book value per share $3.26,
indicating a protection of >90% of our investment. In the case that ECN exits its portfolios at
a loss (maybe because management’s urgency to clear the balance sheet or a material
alteration in market conditions) we believe a reasonable pessimist-conservative scenario
would be a 6.5% discount on book, which still implies a well-backed investment.
Adding to our confidence level of our analysis, the management team has repeatedly
publicly stated that these assets are worth at least book value or even slightly more than
book, and that they are “not aware of anything meaningful that could hit the book value”.
Asset-light business
After valuing ECN’s non-core legacy assets, now we move to the asset-light business of the
company. This was built through recent acquisitions guided by the strategy of the company
of redeploying their capital into higher quality earnings-driven and capital-light businesses,
with consistent and strong margins, leading competitive positions, and a strong growth
profile at attractive prices.
Service Finance
The first acquired business is Service Finance (SFC), a leading technology-driven originator
and manager of prime and super-prime loans to finance home improvement projects.
Originations are sourced through exclusive national vendor programs with manufacturers
and dealers (i.e. Lennox, Owens Corning, Rinnai).
This company does not fund originations, but instead originates financings at a discount and
immediately sells loans for a gain to FDIC-insured institutions without recourse. Additionally,
the company receives ongoing fees for servicing the loans and for portfolio management
with no material credit risk.
Service Finance operates in the $350B home improvement market, which half of that are
financed arrangements. Installment-based credit is the fastest growing paying vehicle, with
2 Our calculation is based in the segment balance sheet (see Appendix).

7. 7
a share of 12%-14% and anticipated to be 20% in the next five years; credit purchases are
growing ~7% per annum while cash has been declining 5% in the 2012 to 2015 period.3
SFC holds a small ~1% market share of the dealers/contractors available, which has been
growing rapidly through taking share mainly from credit-cards and cash and adding dealers
(~150 per month) to their +7,000 network.
It’s worth noting some outstanding aspects of SFC. The business enjoys two important
competitive advantages: first, high switching costs. It is very difficult to be displaced by a
manufacturer, either by competition or an internal financing arm. This is probably due to two
reasons: first, SFC’s products deliver great benefits for consumers (easiest financing option
for large-ticket purchases) and their adoption track-record demonstrates that manufacturers
are attracted to working with SFC because their platform has proved being a valuable sales
tool for their approved dealers4. Thinking in switching would put in risk the strong results the
program has achieved. Secondly, switching involves a great amount of operational risk,
manufacturers and dealers would be forced to re-train their national network of thousands of
sales representatives and roll-out a new IT system which will not guarantee results.
Changing an exclusive relationship supplier as SFC, which is currently limited to one
competitor, would be highly disruptive for the manufacturers.
This is also valid with banking partners, although relationships there aren’t exclusive, the
company originates and manages a great amount of attractive assets on their behalf. Any
funding partner would require significant time and investment to build the technology
solution and the dealer network themselves, as well as requiring marketing, development
and infrastructure costs to originate loans in a nationally-diversified way.
In the second place, network effects. The company leverage their top-tier national
manufacturing relationships to access a large network of home improvement dealers and
contractors at a minimal cost. As dealers and manufacturers observe the advantages of
SFC’s programs for their business, they experience word-of-mouth marketing as
manufacturers’ sales associates advocate joining the program. Once dealers are acquired,
this allows them to reach an even larger universe of consumers and facilitate repeat
transactions at very low-cost relative to the fees they receive. This powerful ecosystem is
continually strengthened as SFC continues to attract dealers (growing its base between
25%-30% annually).
All this is translated into strong financial results. The business is growing very rapidly; today
it manages around $1.6B in assets and are expected to grow to $2.4B by 2019, while in
2015 they were only $0.6B. Originations in 2017 totaled $1.05B and are expected to be
$1.9B by the same year. Moreover, the company expects to substantially expand EBITDA
margins, from ~60% to ~71%, and double earnings by 2019. As virtually a technology
company, substantial operating leverage is created with their minimal incremental fixed
costs base of infrastructure and marketing in relation to the volume they can handle through
their dealer network.
3 Source: Joint Center for Housing Studies at Harvard University
4 Adoption has evidenced the strong benefits of financing, driving increased sales volumes, improved conversion rates and increased
average ticket size.

8. 8
Something worth highlighting here is that these are just base case projections, where 90%
of the forecasts are based in expected growth generated by existing vendor/dealer
relationships. In other words, forecasts incorporate just minimal growth driven from new and
recently-added relationships with vendors or funding partners, adding significant upside
potential.
Figure 2. SFC Base case projections. Note: C$ in billions and 1.35 USD/CAD
Figure 3. EBITDA projections. Note: C$ in millions and 1.35 USD/CAD
Figure 4. SFC historical origination growth. Note: US$ millions
These projections, indeed, look conservative if we consider further growth opportunities and
many new client wins. For instance, the company today is aggressively rolling out retail
programs, a channel they were not exploiting until earlier this year. They announced an
important partnership with Abbey Carpets and its product is being rolled-out in their 800+

9. 9
store network in the U.S and Sam’s Club stores have recently begun pilot testing SFC’s
product. Additionally, a banking partner offered SFC the opportunity to launch a $0.5B solar
fund that the company is going to manage. Both initiatives have already started to gain
interesting traction, which will probably impact significantly previous forecasts.
Although we could discuss a lot more of Service Finance and its business prospects and
drivers, the bottom line here is that there is little space to doubt where the company is
directionally going. Its only direct competitor, GreenSky, just completed their IPO and is
legitimately very similar (although SFC is smaller) and share virtually all the same growth
and risks prospects. GreenSky is being valued at a ~26x 2018E EBITDA5 and with the
market offering SFC at 3.2x 19E EBITDA is simply unjustifiably cheap. This is even more
absurd considering SFC’s higher margins and their better non-recourse economic model.
We believe assigning this business a 12x multiple on EBITDA is extremely conservative,
which is the median of all comps6 and just under half GreenSky’s multiple.
Triad
Triad was stablished in 1959, making it the oldest manufacturing housing finance company.
The company is the market leader focused in originating and servicing prime and super-
prime loans to consumers for manufactured homes, sourced through its long established
national network of dealers and manufacturers. The company sells the loans to their
network of 40 banks and credit unions, receiving a gain on sale and ongoing management
fees with no recourse beyond initially established reserve account.
Manufactured homes are prefabricated houses that are constructed in a factory and then
assembled at the building site. Currently they represent ~10% of the total housing stock in
the U.S. The key benefits from alternatives (rental or site-built housing) is that they are
considerably cheaper, time to construct is much less, and they come with same features of
design, safety, durability, floor plans, amenities, etcetera.
The MH industry boomed during the 90s when huge oversupply of credit eventually led to a
major inventory seizure and a collapse of the MH structured finance. Moreover, the housing
boom reduced demand for MH as affordability products increased traditional homes
demand. The industry went from a peak of 375,000 shipments in 1998, to a bottom of
~50,000 in 2009. Since then, shipments volume has been steadily recovering growing 15%
for the last two years.7
As housing affordability in the U.S. declines, and interest rates are near lows (and unlikely
to go much lower in the medium term), the value proposition of manufactured homes is
expected to become even more compelling where Triad is well positioned for this recovery.
Triad today manages around $2.6B, which is expected to grow to $3.4B by 2019.
Originations have grown strongly since 2015, with US $323m and US $466m in the 2017
year. The company expects US $520m in originations for the 2019 year, and similarly to
5 As of June 26, 2018.
6 See Figure 11 in Appendix section.
7 Source: US Census Bureau & HUD

10. 10
SFC, there are strong expectations of margin expansion and doubling earnings by the same
year and add-on growth opportunities aren’t included.
Figure 5. Triad base case growth projections.
Figure 6. Triad EBITDA projections. EBITDA excludes incentive compensation and amortization from acquisitions.
ECN has begun to add growth opportunities within Triad. The first, is floorplan financing for
dealers. As the market experienced a structural downturn, the industry was left with only a
handful of players, comprising of Berkshire Hathaway’s MH financing subsidiaries (~50% of
market share) and Triad (15-20% of market share8) as the only leading finance companies,
the rest being fragmented between many thousand participants such as community banks.
Today Berkshire is doing most of the floorplan financing for manufacturers, which basically
means a competitor (BRK also owns Clayton Homes), is financing them because they have
no alternative option, something that most of them do not like. Thus, Triad commenced pilot
testing in December of 2017 their on-balance sheet floorplan program and as of Q1 2018,
they have already signed 77 dealers. The company expects to start with US ~$65m for the
current financial year, which will bring benefits such as strengthening relationships of
manufacturer and dealers, drive additional core loan growth, and provide a nice yield in a
relatively short-duration and low risk loan.
Secondly, the company is underpenetrated in loans servicing. In December 2017, the
company only managed 20% of their portfolio, while in Q1 2018 has managed to increase
that penetration to over 27%. With these initiatives, adjusted growth9 has reaccelerated and
the management has pointed that pre-tax operating income is trending ~50% higher in April.
We could talk, as well, of how well Triad is competitively positioned, their decade-long
resilient business model, their solid profitability and robust credit quality of the originations,
but as evidenced by information, the key observation here is that Triad, maybe not as
8 According to management estimates.
9
Adjusted for impact by FEMA to assist with Hurricanes Harvey and Irma

11. 11
outstanding as SFC, still has very strong organic and add-on growth prospects and an
EV/18E EBITDA of ~4.7x and ~3.2x for 19E is likely to be an underestimation.
Kessler Group
Finally, Kessler is the most recent acquisition (announced in Q1 2018) and marked the end
of the ECN’s two-year strategic transformation. With US$25B in managed assets, Kessler is
the leading manager, advisor and structuring partner to credit card issuers, banks, credit
unions and payment networks. Its business services platform is based on deep relationships
with partners that driver long-term annuity contracts based upon value-added servicing
consumer credit card portfolios.
Kessler works with half of the top 12 banks by assets in the U.S. with very strong credit
ratings and around 67% of the top 15 U.S. credit card issuers by balances. There is not a
direct competitor doing the same Kessler does, with substitutes being local banks,
consulting firms or investment banks.
The company develops solutions related with; strategic advice, where they are paid to
manage, advise and structure partner portfolios; portfolio advisory, paid for transactional
advisory services, partner selection, due diligence, valuation, negotiation, etcetera; risk-
based marketing, where Kessler provides financing to fund marketing initiatives to their
banking partners; and multi-channel marketing, where they help with the development and
execution of marketing campaigns, leveraging their three-decade deep marketing expertise.
Figure 7. Kessler base case projections. EBITDA reflects 100% Kessler Group, not ECN 70% share of it. Excludes
incentive compensation and amortization from acquisitions.
Kessler complies just fine with the niche high-margin, high-return, and significant growth
profile that ECN looks for. While all areas are seen as sources of growth, the marketing side
of Kessler is expected to be a substantial source of growth going forward. Structurally, the
industry’s marketing spend is expected to grow for the next five years as banks are
becoming more focused in their brand and branded products. With client’s limited budgets,
Kessler offers marketing funding solutions for a range of products, primarily unsecured
consumer and credit cards, leveraging their unique expertise in forecasting and marketing
which tends to produce superior program outcomes.
Again, forecasts for the just-acquired Kessler are being impacted by conservatism of the
management team. Projections include just a small impact from this latter initiative and from
new awarded relationships (despite they just added a new long-term contract for 2019). In
other words, their model assumes no renewal of programs and zero upside from growth
initiatives, despite having deep relationships and even some thirty-year old.

12. 12
Earnings business valuation
As we can observe, the three business have compelling quality characteristics and exciting
growth prospects. All of them share stable revenue flows and expanding margins, hold
strong competitive positions in their respective markets, and are capital-light models with
credit risk limited to their exposure to their primarily investment-grade financial partners.
Figure 8. Strategic fit between ECN's businesses.
We are very comfortable paying a 4.7x multiple on these estimates of 2018 EBITDA, as
they may show to be conservatively modeled. Similarly, we find it sensible to apply them a
simple average multiple of 10.7x to consolidated earnings, which means a 12x multiple for
SFC and 10x for the other two businesses. Any re-rating to a higher or more aggressive
multiple (such as GreenSky’s) will provide extra upside to our investment.
Figure 9. Earnings business valuation with 2018 estimates.
Even using these multiples, when applied to the 19E EBITDA the resulting share price
guides to a potential 146% return on our investment. Most important, this return is highly
protected to losses with the legacy book value support. Furthermore, none of the earnings’
forecasts include any growth and cost synergies anticipated from the strategic holding of
ECN. They are beginning to convert bank relationships into SFC, Triad and Kessler

13. 13
customers, cross-selling bank relationships between platforms, and back-offices have
commenced to be consolidated. Traction as of Q1 2018 has yielded good value creation by
the strategic holding of ECN, with some relationships already signed and many others
performing due diligence and expressing interest in joining.
Figure 10. Earnings business valuation with 2019 estimates.
Conclusion
During the last 18 months, the company has passed through an incredible executed
transformation. After reviewing dozens of billions in potential acquisitions, they did three
deals in less than a year, and divested $6B of its legacy assets. We believe this situation
has added huge complexity for the analysis of ECN, which probably results in less investors
taking the correct perspective to evaluate the company’s fundamentals.
Current share price simply stands beyond any reasonable deduction; we are buying ECN at
virtually the value of its legacy portfolios, while paying an absurdly cheap multiple for three
high-quality businesses (absolutely and relatively speaking).
We are convinced that in the next months the company will continue to free-up their balance
sheet and get rid of any remaining part of the non-core assets and legacy portfolios, which
will allow the company to right-size its capital structure and should improve the visibility
about the attractiveness of ECN’s businesses. Also, we are comfortable with the company’s
track record of capital allocation, and the 11% of the company’s equity that management
owns increases our confidence about their alignment of interests with us, as investors.
Finally, as Service Finance, Triad, and Kessler continue to demonstrate their strong results
and potential, the market should incorporate those prospects into the market price.

14. 14
Appendix
Figure 11. ECN DES

15. 15
Figure 12. ECN segment balance sheet
Figure 13. Competitor landscape

16. 16
Contact
Rogelio Rea
LinkedIn
rogeliorea@evidika.com
www.evidika.com
Evidika is an alternative asset manager focused equity strategies. Its flagship Evidika All Value fund
employs a long-only global equity strategy and has outperformed its benchmarks with a 30.5%
annualized return since inception in 2013.