More on the Prolonged Downturn

By: Barry Marks and Ellen Dover

• Recognize that more and more funders are looking for financial covenants (ratios, minimum net worth, etc.). It is time to learn or refresh our memories on these nasty examples of what happens when lawyers and accountants are allowed in the same room.

• Look at your portfolio in a new light. Whatever you thought you were doing before the crash, you are in the next bracket DOWN: Most A-credit lessees are now B’s; B lessees are now considered B- or C, lessees you thought were strong must now be considered high risk. Most of us are in or near high risk leasing.

• High risk leasing means higher yields (hopefully) but more defaults. Are you equipped for higher yields (don’t laugh: what are the usury limits in your state)? Do you collect security deposits (and what are THOSE laws)? Are you a credit or collateral lender (another loaded question)?

• Are you prepared for more competition, not from more competitors (many are gone) but due to fewer deals? How creative are you? Can you do a true lease? A first amendment that will stand up? Now may be the time to invest in lease education and that CLP you’ve been putting off may be an income-generator!

• How about your lease? Don’t skip over this because it is a lawyer talking at you! Many lease documents do not lend themselves to different equipment types, structures or risk profiles.

We recommend everyone learn whatever you can and remember that in every brave new world there are Calibans and Arials, lions and tigers and bears…and opportunities.

(A version of this article first appeared in a recent edition of Leasing News (www.leasingnews.org) and is reprinted here with the permission of the authors.)

Barry Marks is a partner and Ellen Dover is of counsel with Marks & Weinberg, PC located in Birmingham, Alabama. The firm is recognized in the industry for its experience handling all aspects of virtually every type of equipment financing, from structuring and documentation to enforcement and bankruptcy.

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