Capital Markets

Less than a Lease on Life for Leasing

Economic plight leads to a 33-percent plunge in November new-business volume for equipment leases.
Stephen TaubDecember 23, 2008

Add equipment leasing to the business indicators underscoring the rapid deterioration in the U.S. economy —.

The Equipment Leasing and Finance Association said that new-business volume decreased 33.1 percent in November from the previous November. In October, the year-to-year decline was 9.1 percent.

Year-to-date new-business volumes through November, however, were down 2.1 percent compared to 2007, according to the trade association in its Monthly Leasing and Finance Index.

“The equipment finance sector is beginning to feel the effects of the recession as companies pull back from investing in new plant and equipment,” said ELFA president Kenneth E. Bentsen Jr. “Portfolio quality shows slight deterioration, albeit from historically strong levels and well below that of other asset classes.”

The group considers the monthly leasing index to be is a barometer of the trends in U.S. capital equipment investment, and calculates that business investment in equipment and software accounts for 8 percent of the GDP. The commercial equipment finance sector, meanwhile, contributes about 4.5 percent to the GDP.

The index measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies representing a cross section of the equipment finance sector, including small ticket, middle-market, large ticket, bank, captive and independent leasing and finance companies. Five components are included in the survey: new business volume (originations), aging of receivables, charge-offs, credit approval ratios, approved vs. submitted) and headcount for the equipment finance business.

According to the latest survey — based on reports from 26 companies — month-to-month new business volume plunged from $6 billion to $4 billion, while receivables over 30 days increased to 3.7 percent, the highest level since January 2006. Charge-offs increased to 1.09 percent as compared to 1.01 percent the prior month. What’s more, compared to year-over-year data, charge-offs doubled in November.

Credit approvals reached historic lows, with nearly half the participating companies reporting fewer transactions being submitted for approval during the month, while underwriting standards tightened. Finally, the total headcount for equipment finance companies showed just a 1.3 percent declined in November.