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.
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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.
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By GlobalData“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.
