Q Equipment Financing Trends David Magier

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1 Q Equipment Financing Trends David Magier

2 CICA/RBC Q Business Monitor Economic Results Overview

3 Economic Optimism Drops, Business Optimism Relatively Stable 100% 80% Canadian Optimism Company Optimism 60% 40% 20% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 2010

4 Key Metric Projections Continue To Be Positive 8% 6% 4% 2% 0% -2% -4% -6% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Revenue Profits Employees

5 CICA/RBC Q Business Monitor Equipment Financing Trends

6 Agenda Delivering Value-Add Changes in the Industry Landscape Equipment Finance Structures Questions

7 Providing Value-Add Advice: recommendation regarding a decision or course of conduct* Options & Flexibility: Educating our mutual clients around how they can reach a specific goal, and the varying paths to that goal that may offer different risks/benefits to match their needs Engagement: Active involvement in your client s advice circle * Source: Merriam-Webster Dictionary

8 Equipment Financing in Today s Market Place Banks Captive Finance Divisions of Original Equipment Manufacturers (OEMs) Non-Traditional Financial Services/Independents

9 Pre and Post Recession Pre-Recession Lenders would offer up to 100% + financing via traditional term loans A variety of funding sources were available with many types of lenders/lessors chasing a limited number of deals Many nontraditional/independents Post-Recession Lenders have returned to more traditional policies around loan to value levels A re-sizing has occurred in the equipment financing industry with some lessors exiting the market and some consolidation Fewer nontraditional/independents

10 Equipment Financing in Today s Market Place Clients are seeking reasonably priced source of financing in order to preserve cash Bank of Canada overnight rate % 7 Forecast Source: Bank of Canada, RBC Economics Research Investing in productivity is required in order to maintain competitiveness Canadian dollar forecast U.S dollar per Canadian dollar Forecast Source: Bank of Canada, RBC Economics Research

11 Equipment Financing in Today s Market Place Equipment Term Loans Equipment Leases Conditional Sales Contracts Short Term Rental Contracts Cash

12 Common Asset Categories Transportation Highway tractors and trailers School Buses Road maintenance equipment Aircraft, Locomotives, Water Vessels Manufacturing Printing equipment Production equipment, Presses, CNC, Injection Moulding Healthcare, Hospitals and Professionals Diagnostic equipment MRI, X-Ray, CAT scan etc. Laboratory equipment spectrometers, centrifuge, etc. Dentists, Doctor offices Construction Industry Excavators, Backhoes, bulldozers Dump Trucks, Cranes, Service Vehicles Agriculture Combines, Tractors Tillers, Irrigation Systems Pole Sheds Moveable Storage Structures General Office & Leaseholds Computer equipment (hardware and software) Telephone systems, Copiers, Furniture, Infrastructure Solar / Renewable Energy Solar Panels, Energy Retrofits

13 Structuring Equipment finance terms are often based on the required cash flow needs of the entity with the actual useful life of the asset being a consideration for longer term requests Terms will normally range 1 7 years with the average equipment financing term being in the 3 5 year range. Longer terms may be made available depending on the entity risk profile (example: public sector)

14 Common Terms Fixed rate and floating rate transactions are available in the market US$ transactions are also available to support client needs

15 The Equipment Term Loan Ownership remains with client and lender has a security interest/collateral charge Lenders will often require the client to have some form of down payment

16 The Equipment Lease Up to 100% financing available Capital lease (finance lease) versus operating lease (true lease) Lessor has title to the asset, Lessee has control (or quiet possession) and use of the asset Easy and Flexible

17 Equipment Financing in Today s Market Place #1 reason for business to use equipment lease financing today. Management of working capital and cash flow (versus an asset return option) The continuing uncertainty in global economies has clients maintaining a comfortable cash cushion

18 Sale & Leaseback A company sells equipment that they have previously purchased to a Leasing company, who in turn leases the same equipment back to the company.

19 Interim Financing and Progress Draws Interim Financing multiple suppliers, multiple delivery dates Progress Draws normally a single asset that has benchmark required funding periods

20 The Conditional Sales Contract Tri-party point of sale purchase agreement between a client, a bona fide equipment supplier/dealer, a lender Vendor assigns the payment stream to the lender Client is deemed to obtain title to the asset on the basis that they will make a required number of payments

21 Short Term Rental Contracts between clients and equipment vendors for normally under 12 months Vendors may reduce purchase price of equipment by the amount of rent client has paid

22 Final Thoughts Equipment financing solutions offer an attractive source of funding to support working capital and cash flow strategies Irregular payments to match flows Up to 100% financing Asset ownership versus asset control Engagement with clients and their lenders

23 Questions?