PANTHERA LEASING SEIZES NEW OPPORTUNITIES
- Written by Philip Copple
Panthera Leasing (Panthera) was formed in 2011 to bring access to capital to US and global equipment leasing, renting and trading markets.
Panthera’s aim is to acquire operating leasing and equipment rental companies engaged in capital equipment leasing or rental. In addition, Panthera has the access to capital that will allow it to act as an equity partner supporting the operations of leasing companies, particularly with respect to residual value based equipment finance.
Asset Finance International spoke to Paul Weiss, one of the founding principals of the company, about how Panthera will operate:
“Over my career in leasing it’s become clear that demand for equipment, whether purchased, leased or financed, goes in cycles, and it always makes a comeback as the world comes out of recession,” said Weiss, “as there is both the appetite for equipment for expansion and the need to replace equipment. Even in recessionary times most equipment is still being worn out at nearly the same rate as in better times.”
“Our view is that equipment financing is on the verge of a three-to-five-year up-cycle. Now is an excellent time for new participants to come in to the equipment financing, leasing and rental markets.
Fueling the next cycle
“Its wonderful timing as there is a significant need for equity capital in the market today. It has been widely said that there is this significant shortage of capital to fuel the next cycle. Major financial institutions often own and support the finance companies, but true leasing companies constantly need outside capital, or hope to be bought by someone with access to this capital.”
“We formed our company with institutional scale capital in place, positioning us to enter into situations where capital is needed. Unlike private equity players, however, we do not come from outside the business looking for a quick flip. We have well in excess of 50 years in the business amongst us, almost 25 for me……and we can take a long-term view.”
As well as providing capital, Weiss believe Panthera’s expertise in the equipment leasing market will allow them to seize opportunities not noticed by others.
“It is interesting to contrast the development of equipment leasing and finance to real estate and finance – in the world of real property, the general consensus is that property will have significant future value, and will even possibly appreciate in value.”
Residual value risk
“Equipment is different as it is a depreciating asset, implying that residual value exposure is better avoided. In fact, equipment will depreciate very predictably over its economic life, with temporary conditions of over- and under-supply along the line to scrap value. True lessors can be fairly confident about the future value of equipment, while a typical funder may not be able to, or choose to, acknowledge this future value.”
“In sum, there is longstanding resistance on the part of institutions to be exposed to the risk of residual values with equipment leasing. But, if we look at the current market from the eyes of the equipment user, they want and need equipment on good terms now. This means options to rent, lease short term, lease long term, or finance a purchase.”
“So there is a big gap now, at the dawn of the next upturn – the needs of the equipment user are only met by existing funding sources. The answer since the dawn of equipment leasing has been equity taking residual value risk. We are positioned to be an investor, equipment owner, or joint venture partner to bring equity to bear on these situations.”
Flexible Due Diligence
With the past couple of years serving as potent reminder of the risks involved with careless investments Weiss and his colleagues are determined not to let Panthera be left vulnerable. He has a thorough system of due diligence, and one that is flexible enough to vary greatly “depending on the facts and circumstances”.
“In all situations we can imagine, existing management will continue to have a role as significant stakeholders. Due diligence is therefore somewhat relieved by key people remaining at the company, and they’re heavily incentivized by how it does.”
“When acquiring leasing companies there are two key analysis thrusts – due diligence with respect to existing portfolio and due diligence with respect to market opportunity.”
“The former is comprehensive but straightforward. There is the verification of underlying equipment and the underlying contract, whether by sampling or every file, depending on the portfolio. This is a proven practice – there are very few examples of a problem here as all the facts are ultimately verifiable. Historically, leasing frauds can be entirely attributed to due diligence failures, i.e. problems that were detectable at the outset.”
“The second, understanding the market opportunity in this dynamic environment, is far more subjective. Our targets are normally already highly successful but they have just had a disappointing couple of years. They will have a bright outlook with fresh capital. These are normally companies that have survived recent times, and so have done something right; the core business remains and the core customers remain. The common denominator is the sense of frustration and limitation attributed to lack of capital, the sense that with our help they can go from fine to terrific.”
Panthera Leasing has no wish to remain a domestic company and plans to pursue opportunities in Europe and the US with equal fervour. Although based in America the company does possess more global experience, with a principal shareholder, Tiger Group Investments, even being based in Hong Kong. Sean Hoel has served as managing director of Tiger and partners with Weiss in San Francisco, bringing considerable transaction experience to Panthera’s table too.
“We look to Europe with the same enthusiasm as US deals, but we are unlikely to move beyond there. I believe the two markets are very similar, with the European one possibly being even more equity constrained at the moment, so we do rate European operations very highly.”
“In comparison, the Asian markets are very different as true equipment leasing hasn’t developed to the same extent as over here. There are pioneering opportunities in Asia, perhaps some day we will turn to those too.”
An acquirer of portfolios
Weiss started his career in leasing in 1987, with the sole function and responsibility of acquiring leasing portfolios.
“There had always been some trading of portfolios, but the timing of when I came into the industry was very fortuitous. There were a significant number of US leasing portfolios built for tax reasons in the early 80s, but by 1987 the tax rules had changed. It was a significant challenge for most buyers to acquire a large portfolio, and a lot of these deals were very diverse and complex in terms of asset and credit qualities; many had real or perceived documentation issues.”
“I led the effort on a number of well known portfolio purchases which, ultimately, in 1996, led to acquiring what started as a portfolio deal. ICON Capital was a small fund manager, investing in equipment leases and raising funds from individuals. Ten years later we had grown the business so it was raising a very considerable amount of funds, had 50,000 investors and was a major domestic equity player, although ICON also had a decent number of European deals.”
Weiss sold his interest in ICON in 2006. Up to then, as a principal, Weiss had been responsible for more than $4bn of company purchases and equity investments in leases. His success led to wider recognition – in 2007 he was named by Leasing News as one of the industry’s 25 most important dealmakers:
“It was very gratifying to be recognised at all, there are some very influential people on the list and I wonder if I am really in their company. I think it was partly recognition by the editors that my career in equipment leasing has been unconventional, buying a large number of portfolios then, in a bit of a shift, buying ICON and achieving the stratospheric success that the company enjoyed while I was there. I like to think that I made a large mark on two aspects of the industry during my time.
“Ignoring the details of my career, the life lesson from this is that equipment has absolute lasting and predictable value; few people realise the equity return potential if equity is deployed correctly in the equipment market.”
“Our stated goal within the next 12 months is to have $100m worth of assets, but we know it could well be less than that, or a multiple of it. The most important thing is to have access to the capital to support these lofty goals, which we do.
“There is a need to be patient and take a long term view of the role we’re playing in the industry. There’s no reason to spend money quickly and unwisely, so we’ve built the firm with a prudent approach, happy to await the right opportunities.”
With the company built on more than 50 years of management experience, there are unlikely to be any hasty, foolish, decisions made here.