Following recent lease buyouts,
it appears the low end of the middle market is most in demand as
finds that portfolios of less than £50
million are up for grabs


Close Leasing’s purchase of
the British portfolio of Tokyo Leasing last month provoked a
certain amount of envy among UK lessors – a spread of hard assets
with a net value of around £14 million (€15.6 million), sold for an
undisclosed sum believed to be less than 75 percent of that

With this being the first major buy
on the market since the management buyout of Universal Leasing in
January at an unknown discount, could the M&A market be about
to burst into a conflagration of fire sales?

According to John Lutterloch, MD of
Merchant House Finance, there has never been a better spread of
bargains on offer in the portfolio market.

“With lessors raising pricing to
the point where a 5 to 6 percent yield can be expected at minimum,
and 15 to 25 percent isn’t unheard of, the profits to be made on a
good portfolio bought on discount – even after factoring in bad
debts – are substantial,” he explained.

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Tokyo’s book had originally been
offered for sale at near-net value, back when the sinking economic
climate was still being affably referred to as a Credit Crunch.

According to Close director Paul
Bartley, although Tokyo was keen to withdraw from the market, it
still felt that a gradual winding down would be less expensive than
a quick and discounted sale, and so held off on offers.

But then came 2009, and the
realisation that the UK recession was there to stay. Tokyo changed
its tack, and got back in touch with Close and other previous
bidders to negotiate a sale.

For Tokyo’s parent, a break-even
point had been reached: the prospect of losses incurred through bad
debts and overheads while running off the portfolio now seemed more
onerous than that of a fire sale, and so a deal was done that left
Tokyo with one less business to worry about, and some much-needed

Other opportunities

There are other portfolios out
there, however, that are yet to reach that point in their owners’
considerations. These remain staffed and relatively active, but are
dead to new business and unwilling to sell off until someone can
pay near enough to full price for them.

Components of Bank of Scotland
Equipment Finance, Fortis Lease, and Icelandic-owned Kaupthing
Singer & Friedlander fall into this category – chained to
stricken banks that desperately need liquidity elsewhere, and of
sufficient scale to generate much smaller proportional overheads
than a small lessor running idle.

In any case, even at discounted
prices, the chances of any investor coming up with the liquidity to
buy these rusting hulks of debt seem slim.

In the case of HBOS at least, there
are still elements of the Lloyds Banking Group to which HBOS
portfolio elements could be transferred at greater advantage to the
group than an external sale.

While acquisitions of books worth
more than £100 million are feasible this year, they will most
likely be executed by those that have already showed their
liquidity in action, such as aggressive South African company
Investec, or Anacap, which recently proved its muscle by feasting
on fairground financier Ruffler Bank.

The ones to watch

The portfolios to watch,
however, are those under £50 million in value, comprised largely of
“hard” assets such as vehicles, plant and machinery, and owned by
an organisation with pressing liquidity needs elsewhere.

According to Bartley, Close is
still very much on the hunt in this market, and he is confident
that an offer on similar terms to the Tokyo proposition will be met
with success.

With 20 percent-plus discounts set
to become the norm as the prospects of running-off an unwanted
portfolio get less attractive, it seems that any independent lessor
with a few million pounds to work with stands to walk away from
2009 with some excellent bargains in tow.