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The Role Of The Asset Manager In A Captive/Vendor Leasing Relationship

The Role Of The Asset Manager In A Captive/Vendor Leasing Relationship. ELA Equipment Management Conference February 23, 2004 Paul R. Cogley, Jr. Capital Asset Services James R. Ranieri Citicapital. Nature Of Captive/Vendor Programs. Motivations For Creating Captive/Vendor Leasing Programs

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The Role Of The Asset Manager In A Captive/Vendor Leasing Relationship

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  1. The Role Of The Asset Manager In A Captive/Vendor Leasing Relationship ELA Equipment Management Conference February 23, 2004 Paul R. Cogley, Jr. Capital Asset Services James R. Ranieri Citicapital

  2. Nature Of Captive/Vendor Programs • Motivations For Creating Captive/Vendor Leasing Programs • Market Control – From Inception Through Disposition • Market Enhancement – Improved Margins, Increased Volume • Ancillary Income – Fees, Residual Sharing • Tax Benefits With Opportunity Comes Added Program Complexity

  3. Captive/Vendor Programs The Asset Manager Needs To Be Involved At All Stages Of The Captive/Vendor Program Relationship Program Execution Operating Agreement Negotiation Program Implementation

  4. Operating Agreement Negotiation • The Captive/Vendor Program Operating Agreement Provides A Contractual Basis For Asset Management Requirements • Residual Setting Policies • Recourse/Loss Pool Agreements • Upgrade, Early Termination Formulas • End Of Lease Process • Remarketing • Inspection, Recovery (Decommission, De-install, Pack, Ship) • Storage, Insurance • Maintenance (Defined Service Period) • Availability Of Spare Parts, Manuals, Encryption Dongles • Upgrades, Repairs, Reconfiguration, Recertification • Remanufacturing Services, Warranty, Training • Sales/Marketing Services • Continuing Obligations Beyond Program Termination Cost??? More Than Just “Best Efforts”

  5. Program Implementation • Implementation – “The Devil Is In The Details” • Lease Contract Language • Use, Maintenance & Return Provisions (Limitations?) • Purchase Option (FMV Definition?) • Renewal Provisions (Holdover?) • Residual Setting Process • “Residual/Pricing Committee” • Reporting Requirements • Asset Level Segmentation • Advance Expiration Notification • Residual Realization • Systems Integration • Remarketing Process • “No Surprises From The Factory Floor” Written Operating Guidelines – Replace “Theory” Of Operating Agreement With “Reality”

  6. Valuation Portfolio Management Remarketing/ EOT Program Execution Asset Management Strategy Ultimately Is Tailored To The Negotiated Captive/Vendor Relationship 2 27

  7. Valuation • Captive/Vendor Program Success Typically Highly Dependent Upon Accurate , Realizable Residuals Based On: • Expected Market Values (Secondary Market Demand) • Customer Behavior – Historical & Projected • Portfolio Management Approach • EOT Negotiating Strategies • Remarketing Process Residuals Drive Pricing, Volume And Profitability

  8. Booking The Deals • Factors To Be Considered • Basis For Residual • List Price • Actual Purchase Price • Hard/Soft Cost • Overbook Policy (Rollover Deals) • Recording Asset Level Detail Information • What Is Appropriate Level (Tradeoffs) • Reporting Requirements

  9. Portfolio Management • Mid-Term Activities Can Secure The Customer Base • Portfolio Protection • Refer Buyout Requests To Original Vendors • Reporting • Advance Expiration Notification • Selected Asset Segmentations • Actions • Upgrades/Extensions/Rewrites • Product Refresh Opportunities Objective Is To “Control The Footprint”

  10. EOT Negotiations • Negotiation Strategies • Guidelines • Notification Period • Holdover (Evergreen) Rents • Renewals • FMV Purchase Option • Return Provisions • Missing/Damaged Items • Dispute Resolution • Repurchases Captive/Vendor Expectations Will Influence Negotiation Strategies

  11. Remarketing Residual Realization Potential Improves As You Move Up The Remarketing Chain…. Same as New Warranty Latest Software Remanufactured to Current Standards Opportunity For Profit Sharing Refurbishment 3rd Party Parts 3rd Party Warranty Service Wholesale Trading Profit Wholesale Price to Broker/Dealer Retail Price to Broker/Dealer Retail Price to Captive/Vendor Partner Wholesale Price to Leasing Partner

  12. Remarketing ....And Opens Up Additional Opportunities • Access To Retail Sales Channel • Re-lease To New Footprint • Rental Pools • Mix & Match Remanufactured Product With New Product For Price Sensitive Customers Higher Realization Leads To More Aggressive Residuals/Better Pricing/Increased Volume

  13. Summary Involvement Of The Asset Manager In All Stages Of The Captive/Vendor Program Development, Implementation And Execution Is A Crucial Element Leading To The Overall Success Of The Captive/Vendor Relationship

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