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Securitization produces vast sums of capital that helps small ticket lessors grow their company.
Pass through the lush green carpet that is Kansas farm country, and you'll see them dotting the landscape: Rising tall from fields that yield wheat and corn and oats are the grain elevators, proud sentinels guarding the wealth of farmers who use the buildings to store their crops. Increasingly, the small-ticket leasing market resembles the Kansas landscape. But in this industry, office machine leases are the main crop, and lessors store them in a "warehouse," a financial facility that banks create for this purpose. When the warehouses fill with the required volume of leases, the contents are removed and sold in bulk to one or more investors. The sale produces vast sums of capital that the lessor can access and use to grow its company. And, as the leasing company grows, the securities increase in value. In finance, this exercise is called securitization. And it is arguably the most exciting trend to emerge in the small-ticket market in the last decade. Listen to Doug Olson, whose company, GreatAmerica Leasing Corp., Cedar Rapids, Iowa, has completed two securitizations:
"Securitization has leveled the playing field for smaller [small-ticket] lessors. Not only does it allow lessors to remove debt from their balance sheets because the leases are sold; it also lets them access vast amounts of capital at low rates that are competitive with those of the largest companies out there."
To date, GreatAmerica has securitized a total of $90 million in office equipment leases in two transactions over a period of less than four years. Considering that the average size of a GreatAmerica deal is just $8,500, the total volume of these securitizations is all the more impressive. Says Olson, "You have to be extremely efficient in small-ticket, and securitization has allowed us to decrease our cost of funds significantly." Apparently so: GreatAmerica's most recent transaction was a private deal involving four buyers that closed at a fixed rate that was within five basis points of a mega-deal going through the public market at the same time.
Once the domain of only the largest small-ticket lessors due to the lease volumes required (usually a minimum of $25 million), securitization is fast...