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Alternative Leasing Fund
Providing Asset Based Lending Facilities To The UK Agricultural Sector
Performance Data
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Investment
Objective
The investment objective of the Fund is to achieve long term capital growth
through investment in finance lease and hire purchase
contracts (“Finance Contracts”) which are
fully securitised against agricultural machinery assets.
The Fund will enter into Introducer Agreements (each
an “Introducer Agreement”) with one or more asset
finance arrangers in the United Kingdom who specialise
in providing farm machinery finance and commercial
mortgages for farmers and rural businesses (each an
“Arranger”).
Under the Introducer Agreements, the Arrangers will
submit business proposals to the Fund, having used
their extensive experience to assess the credit risk and security of each
proposal for finance. Provided that the Investment
Manager is satisfied, on behalf of the Fund, with
the proposal and security, the Fund will take an assignment of the
Finance Contracts, including all finance
documentation, direct debits and guarantees, as
appropriate, prepared by the Arrangers and completed
by the relevant customer.
The Fund will target annual total returns, based upon the interest rates
achievable on the Finance Contracts equal to or
greater than the STERLING LIBOR Index.
Investment Philosophy
The Finance Contracts will comprise hire purchase arrangements. With hire
purchase agreements, the customer chooses and uses the
goods, but pays the finance company
for them in instalments. Repayment terms are tailored to customers’ cash
flow, whilst the customers can reclaim depreciation
allowances, offset interest payments against tax and
reclaim Value Added Tax (VAT) on the purchase price.
The Investment Manager will be responsible for the
investment process, cooperating with each Arranger for the evaluation
of proposed Finance Contracts and monitoring the performance of the Fund.
The Investment Manager is granted full discretion over the
matters relating to the manner, the
method and timing of investments and transactions.
All currency classes of Participating Shares will invest in the same underlying
portfolio,the base currency of which will be GBP.
The Fund may invest in derivatives and other financial instruments in an attempt
to hedge the currency exposure between the non-GBP denominated classes of
Participating Shares and the GBP base reporting currency of the underlying
portfolio.
All gains and losses arising from the hedging of the currency exposure between
the non-GBP denominated classes and the GBP base reporting currency of the
underlying portfolio will be attributable to the relevant class.
Pending investments of capital of the Fund in accordance with its investment
objective, or to facilitate redemptions by its shareholders, the Fund may, among
other things, hold cash or invest in cash equivalents.
Among the cash equivalents in which the Fund may invest are obligations of the
United States Government, its agencies or instrumentalities, commercial paper
and certificates of deposit and bankers’ acceptances issued by the United States
banks that are members of the Federal Deposit Insurance Corporation.
The Fund may also enter into repurchase agreements and may purchase shares of
money market mutual funds in accordance with applicable legal restrictions.
Investment Manager
The Fund has appointed ODL Securities Limited as Investment Manager (the
“Investment Manager”) of the Fund pursuant to an Investment Management Agreement
(the “Investment Management Agreement”).
The Investment Manager was incorporated in 1994 as a limited liability company
under the laws of England and Wales. ODL Securities Limited is authorised and
regulated by the Financial Services Authority and is a member of the London
Stock Exchange and of Euronext.LIFFE.
The Investment Manager will decide periodically on the investments of the Fund
in each Class, review the investment process, cooperating with each Arranger for
the evaluation of proposed Finance Contracts and monitoring the performance of
the Fund. The Investment Manager is granted full discretion over the matters
relating to the manner, the method and timing of investments and transactions.
Typical Client Profile
The typical client of the Company could be described as a land owner with an
average of 500 acres owning a house worth in excess of £500,000 and a typical
Net Asset Value in the order of £2 to £3 million.
The majority of the customer portfolio [78%] consists of land / property owners
running family businesses and small Limited Companies, all deriving their
income from agriculture, ground care or equestrian activities. The balance of
the customer base [22%] is made up of contractors to the former main customer
group and other rurally located businesses servicing the agricultural sector.
The typical client will have an operating overdraft facility with a High Street
bank, will hold a number of agricultural machines which are unencumbered and
will have financed 60% of the purchase value of any equipment that is budgeted
for financing, this is typically worth perhaps about £50,000 of new borrowing
per annum.
The average values of individual assets leased by the Company are as follows:
Lending Statistics
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Average value of finance provided £30,000
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Average amount outstanding £25,000 [allows for run off]
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Average Loan to Asset Value 60%
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Average “lent book” £90 million
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Average payments due to banks £112 million
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Average lending period 3.25 years
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Minimum Lending Period 2 years
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Maximum Lending Period 5 years
Development Of Lending Book
Over the last 8 years the Company has used Retained Profits to start the process
of building its own Principal Lending Book; this book now stands at some
£445,000 of asset value. Currently only the top 1% of funding opportunities is
serviced by the Principal Lending Book.
The Company now intends to increase its levels of Principal Lending over the
coming years by “cherry picking” business from its better customers; those who
have a stronger credit covenant. The Company will in addition often be providing
general financial advice to these customers and in some cases assisting in the
financial management of their farming businesses.
It is expected that coupons of as much as 15% can be achieved in writing this
business with a minimum of perhaps 10% for higher quality clients; all of this
coupon will be available for distribution between the Company and its partner
funder.
In gaining access to a fund of new principal Lending monies ECF will in effect,
through lending this money, be building a bank of “equity” loans which it is
able to block discount to the retail and wholesale banks. This process, for
which ECF will receive 75% of funds on each block discount, will enable the
Company to further expand its lending book whilst generating higher returns from
the initial Principal lending monies.
Credit Management Systems
Underwriting systems are nowadays largely mechanistic and thus the Company will
carry out its own in-house underwriting assessments; for deals which do not fit
standard score card underwriting mechanisms ECF has access to an ex Lloyds TSB
credit underwriter on a consultancy basis. The present score card system was
adopted from experience gained through a close working relationship with
Barclays Asset Finance [Agricultural Division] between 2005 and 2008.
The Company requires new borrowers to pass the following hurdles:
01. Minimum of 3 years audited and published accounts.
02. Verified credit references.
03. Clear Partner or Director personal credit searches through Experian and
Equifax.
04. Experian Delphi rating above 60/100 for businesses and above 700/1200 for
individuals.
05. Substantiated cash deposits of 10% minimum or a trade in machine equivalent.
Once agreements are in place the Company will carry out credit searches on
existing customers at least once per year to monitor performance. Analysis of
Credit Searches and Customer Accounts are undertaken on an annual basis for
larger customers [>£100k].
The Company uses the Geoplex Finlex Agreement Management System; this system is
the same as is adopted by most of the High Street lenders. All client repayments
are made by Direct Debit or Standing Order. Standard banking / credit procedures
are in place to independently underwrite, administer, bill and collect
outstanding amounts.
All activity is managed and controlled within the Finlex system; this is used in
conjunction with Equifax and Experian credit reference data and HPI vehicle
data.
The Lending Book is documented on Hire Purchase and Lease Hire documentation
drawn up and approved in association with the Office of Fair Trading (OFT). The
full document process and transaction records are audited quarterly by the
company’s Independent Chartered Accountants in Cambridge.
The Company has an enviable Bad Debt history; this being in the order of 0.25
of 1% per annum and payment arrears in the order of 0.35 of 1%.
Portfolio Distribution - Client Base %
Please
contact us if you
would like to participate in this fund or require additional information.
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