Shoringup The Credits

In the high-powered world of equipment finance, one small company has found a different way to play the leasing game.

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In the multibillion-dollar equipment-finance industry, giants with names like Citicorp and General Electric Credit Corp. compete head-to-head to write leases on jumbo jets and mainframe computers. The winners of these megadeals are often selected on nothing more complex than fractions of percentage points on the interest rates they quote. But even as the battles among the heavyweights continue, Uniwest Financial Corp. of Denver is finding that there are plenty of other ways to play the leasing game.

Over the past two and a half years, Uniwest Financial has built a portfolio of $12 million in equipment leases by promoting its leasing services to smaIl and medium-size businesses -- a market the heavyweights have tended to neglect. According to chairman Mark Perlmutter, many of Uniwest's customers have sales of $10 million or less, and some, he concedes, might be viewed as risky start-ups by a lot of financial professionals. "But if the numbers show us that a conventional deal shouldn't be done, we don't like to stop there," explains Perlmutter, a former commercial and residential real estate developer. "If there's another mechanism we can identify for shoring up the credit, we'll take a good hard look at it."

Assembling a lease portfolio composed of everything from machine tools to computerized video equipment isn't exactly what Perlmutter and his partner, Gary McGill, had in mind when they founded their leasing business as a public company in early 1981. At the time, it was known as Resources Equipment Capital Corp., or RECAP, and the founders, both now age 40, intended to specialize in oil field equipment deals throughout the West. But the sudden softening in the energy market that year forced them to rethink their plans even before any major oil deals were completed.

What they came up with was a clever approach to oil well equipment financing, which they applied to a handful of deals in 1982. Over and above five years of lease payments at a fixed interest rate of about 20% (three to five percentage points above the prime rate of the time), Uniwest took a share of production from the oil wells. This kind of "sweetener" is seldom seen outside of commercial property leases, where landlords often receive a percentage of tenant revenues, and it is certainly uncharacteristic for a secured lender. "Instead of betting solely on the strength of the drilling operator's ability o pay, we were betting on the well," notes McGill, who once owned a string of Burger King franchises that operated under such "percentage leases." "If the operator defaulted, reserve reports indicated we could recover our investment, plus interest." On a more mundane level, the company retained the investment tax credits and depreciation benefits from the equipment it purchased for its deals.

This willingness to hunt down support mechanisms to make deals work has eriabled Uniwest to pursue financings for other sorts of shaky credits. Last November, for example, an Oklahoma City manufacturer and distributor of oil field service equipment approached the company in hopes of arranging a vendor leasing program to help its customers acquire its $20,000 to $150,000 products. "Our analysis of the situation revealed that the manufacturer needed financing at least as badly as its customers," says Perlmutter.

Normally, a vendor program would have been out of the question, given the manufacturer's soaring debts and excessive inventory, but Uniwest proposed -- and helped implement -- a plan that made it possible. As a way of generating working capital for the equipment maker, Uniwest arranged a sale-leaseback deal that allowed the Oklahoma company to refinance $1.1 million of its real estate and manufacturing equipment. Although Uniwest wasn't able to finance a commercial mortgage itself, it found a Denver savings and loan association that would. "This restructuring made it a much sounder credit," says Perlmutter. The new vendor program, he says, will add upwards of $1 million a year to Uniwest's portfolio of equipment leases.

Such efforts have paid off in other situations as well. Last spring, for example, a Houston contractor came to Uniwest with a proposal for a five-year lease on a $250,000 concrete pump. The deal looked promising. According to McGill, the eight-year-old private construction company, which had revenues of $7 million in 1982, had plenty of future projects scheduled. But the lease was still too risky to approve, even-with the owner's personal guarantee. "We had some real doubts about whether the construction industry could remain healthy enough for the next five years to enable them to meet their payments," McGill explains.

That wasn't the end of it, however. In an effort to make the deal fly, Uniwest introduced the contractor to a Houston-based casualty insurance company. Following an appraisal of the business assets, including its upcoming jobs, the insurer agreed to write a surety bond covering the equipment payments for about two percentage points above the 17% lease rate. "With this guarantee," McGill explains, "the company gets its concrete pump, and we don't have to worry about the orderbook."

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