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May 1, 2008updated 12 Apr 2017 4:43pm

New start in life

New start in life CSA Financial (UK) is today and not for the first time in its history weathering the storm caused by turbulence in the local authority leasing market

By Brian Rogerson

CSA Financial (UK) is today – and not for the first time in its history – weathering the storm caused by turbulence in the local authority leasing market. Brian Rogerson reports.

Leasing to the local authority market has never been a particularly stable one. The frequency at which lessors move in and out of this is testimony of this harsh reality, and CSA Financial (UK), which started trading in the UK in the early 1990s, is no stranger to this fact.

Its move to the UK was then spurred by the fact that local authority leasing was expanding, and because attitudes to leasing IT equipment – the core area of its US parent, CSA Financial Corporation – were shifting in favour of the leasing option.

Opting for the acquisition route, rather than direct sales, to enter the market, CSA initially purchased a local authority portfolio from Humberclyde Financial Services (now part of BNP Paribas Lease Group) comprising around £80m equipment size.

CSA’s partner, John Keohane, explained: “The Humberclyde Leasing portfolio included an ongoing stream of lease agreements that were scheduled to expire. As a consequence, from the beginning we were able to establish how our residual calculations would fare and were able to gauge the potential and the pitfalls in terms of renewals, returns and suchlike. This proved to be invaluable in developing our pricing strategy.”

However, as in any profitable sector, CSA saw the local authority market invaded with competitors – many of which were prepared to buy their way in. With the competition came changes to the level of residual risk the company was prepared to take.

“We always tried to base our residuals on reality,” Keohane said, “and were never prepared to take a gamble.” After several years of writing around £50m of local authority business a year, the decision was made to withdraw from the market.

It was, however, a change of direction rather than a full withdrawal. CSA began to target a number of UK banks as the equity investor or residual value player in bank-originated transactions.

“We provide up-front cash equity for residual values relating to operating leases,” he explained. “These include vendor programmes as well as traditional bank customers seeking an alternative method of financing. It is a win-win situation for both CSA and its bank partners. We are able to provide asset risk management expertise, which is something that the banks are wary of, notwithstanding the fact that many banks do now employ in-house residual specialists.”

In the early 2000s CSA re-entered the local authority market, since many of those competitors that had dipped their toe in the sector previously had pulled out. It sought to fund the less usual assets that most competitors shied away from.

However, although it is still active in that market, Keohane observed that the sector is once again softening. As a result local authority business comprises only around 50 per cent of current new business written.

Its preferred markets now are materials handling equipment and aircraft-related equipment such as re-fuelling tankers, tugs and simulators. Assets where risk can be commoditised – such as commercial vehicles – are avoided, as are those with long-term risk such as residuals on rail or marine assets. There is no strict limit to the size of the portfolios sought and acquisitions could be on a sole basis or together with a bank seeking to offload a proportion of its portfolio.

The company is also now going for growth, including into continental Europe. It is seeking to buy portfolios and, to cope with booming business, wants to increase its field staff.

However, one thing the company has learnt is that markets change, and that one day it might intensively re-invest once again in local authority leasing.

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