Capital Markets

Leasing Stronger This Year

Even though credit quality is weakening, the Equipment Leasing and Finance Association predicts capital-goods expenditure for 2007 will be better t...
Sarah JohnsonMay 25, 2007

Leasing-industry experts expect a strong year for capital-expenditure investments despite one slow month so far. Their positive outlook has a potential dark side, however, as they have noted a decline in their customers’ credit quality.

According to Ed Dahlka, president of LaSalle National Leasing Corp., spending in 2007 should exceed that in 2006, which was considered a good year. “The equipment-finance business builds each quarter similar to the growth we see over the calendar year,” he says. Dahlka participates in a monthly leasing and finance index published by the Equipment Leasing and Finance Association (ELFA).

The industry has seen declines in most of its month-to-month trend indicators, however. Like the other index participants, Dahlka has seen a weakness in credit quality. April — the most recent month for which data available — saw credit-approval ratios decline by 1.2 percent from March, which had also experienced a decline.

The volume of new leasing transactions at LaSalle was flat in April, a month that saw a decline in new business throughout the industry compared with April 2006 (a difference of 1.5 percent) and March 2007. New business volume for April totaled $6 billion for new commercial equipment leases and loans, according to ELFA. When considering the index data for the year so far, however, the outlook is brighter: new-business volume for January through April 2007 was 10.3 percent higher than in the same period in 2006.

ELFA’s take on the data is a positive one for 2007. “Our members indicate a continued positive outlook over the near term,” says Kenneth Bentsen, president of the association. “We see no indication of companies pulling back from capital investment at this time.”

Along with new-business volume and credit approvals, ELFA’s monthly index looks at nonperforming assets, charge-offs, and its member companies’ head count to gauge the status of the leasing industry. The index collects input from 25 equipment-finance companies, including Bank of America Leasing, CIT, John Deere Credit Corp., and Wells Fargo Equipment Finance.

ELFA, which released its latest numbers earlier this week, also noted that the number of employees at leasing companies has decreased. The head count figures, which reflect a measure of the businesses’ stability, declined slightly between April and March (11,544 and 11,599, respectively), and showed a decrease of 7.2 percent compared with last year.