Matt Akins,
Director, Credit Products,

Regions Equipment financing

For many in the United States, the COVID-19 pandemic began as distant headlines from China and early supply chain disruptions before the virus suddenly spread so quickly that the World Organization health declared it a global pandemic. Lenders have been left in the dark. As a result, reliable methods of measuring risk, such as past credit measurements, time spent in business, and credit ratings of guarantors, were no longer predictive.

Credit leaders were experiencing a new kind of event. “One of the most important things for us has been to make sure that we take as much time as possible, that we look at the facts and that we don’t react on a knee jerk reaction”, Chris Maudlin, CLFP, SVP, Director of credit at Wintrust Specialty Finance, says.

“The economic disruption due to COVID was progressing at a rate that truly exceeded the capacity of historical financial statements, even recent company projections prepared to accurately reflect what the risk factors would be for particular companies,” Matt Akins, who spoke mainly focuses on the buy side in his role as Director, Credit Products, Regions Equipment Finance, explains. “Our attention therefore quickly turned to a better understanding of our customers. “

Cécile Latouche, Director, Atalaya Leasing

“For us, it was really taking a step back on the leadership side and trying to identify where did we see the biggest potential impacts of what we knew about COVID. Then try to manage future risks through this new lens, ”explains Maudlin.

Maudlin’s team identified “high impact industries” such as limousine or coach companies that required close personal interaction between people. His team looked at why these companies needed equipment and what they were doing to manage the impacts of the pandemic. Ultimately, they witnessed a natural market decline in these affected industries as the need for equipment declined.

Maudlin and Akins both used what Maudlin calls “old school credit” or a return to basics.

“We developed what we called a COVID questionnaire,” Akins explains. “It was a first launch

Chris Maudlin, CLFP, SVP, Chief Credit Officer, Wintrust Specialty Finance

point in discussions with our clients to help us assess how the epidemic was directly or indirectly affecting their businesses. “

From there, the Akins team learned to reach out to customers during the underwriting process to discuss their projections and expectations. “It helped us assess two things: continued liquidity and management’s ability to articulate their plan,” Akins says. “We wanted to know if management was focusing appropriately on cash flow and the sources it had. “

“What was important was that during the pandemic, we were still able to create and maintain relationships, despite the fact that we did it from our home,” explains Cécile Latouche, who started the pandemic in as the credit risk manager for equipment financing at Sterling. National Bank before entering her current position as Director at Atalaya Leasing in September 2020. “We have managed the awkwardness of virtual meetings and have managed to conclude transactions without being face to face.

Purchase time

As for existing customers, many players in the equipment finance industry spent the early days of the pandemic wading through requests for postponement. Maudlin says Wintrust took a “less aggressive approach” when it came to granting deferrals. Initial requests were granted for 90 days and his team made it a priority to keep in touch with customers.

“We have had clients that we have continued to help through deferrals over the past year and a half,” said Maudlin. “It was about what was really going on with the client, their challenges and making sure it made sense to grant the deferral at that point. “

Likewise, in Latouche’s previous role, small note bank customers were hit first because they had to shut down. The bank has adopted a policy of granting deferrals for three months without asking questions. When businesses started asking for a second wave of deferrals, it was time to start asking harder questions.

“You start to take a closer look at what’s going on with the business and ask yourself ‘is this business going to do this? », Says Latouche. “The second wave of postponements really required more direct conversations.”

As the second wave inquiries arrived at Wintrust, the Maudlin team focused on truly understanding each client’s situation and partnering with them. “We wanted to make sure we gave them the opportunity to get back on their feet where we could,” says Maudlin. “The vast majority of our relief requests have resumed paying their regular payments and are paying since their initial relief requests, which helps us feel that things are stabilizing and normalizing. “

The Akins-side purchase portfolio manages experienced minimum deferrals that were granted for 90 days with interest only, while Regions Equipment Finance’s larger portfolio handled 384 COVID-19 related deferrals with payments added at the end of contracts. Despite an initial wave of activity across the organization, Akins says the postponements have not had a huge impact at REFCO and most clients are now back on track.

Maudlin believes the granting of deferrals has led to less travel on the way to repossession. Since Wintrust prioritized working with customers, when a business owner felt he had ‘reached the end’, he was more likely to return the equipment. As a result, repossessions did not have a major impact on Wintrust’s portfolio.

According to the Equipment Leasing and Finance Foundation’s first quarterly COVID-19 Impact and Recovery Survey, default rates in 2020 increased very slightly to 92 basis points, from 73 basis points in 2019.1

“This illustrates the fact that the portfolios overall have been very resilient given all the stimulus money pouring into the economy,” Latouche said. “In 2021, we expect default rates to be even lower than before the pandemic.”

On the collection side, Akins, Maudlin and Latouche agree that conditions are returning to normal. Maudlin points out that a surplus of carry-overs still exists in certain affected industries. Akins notes that his company’s collections team has noticed a dramatic shift towards using email over phone calls in their interactions with customers.

Since she deals mainly with expensive equipment, Ms. Latouche says her focus has shifted to managing pent-up demand: “Investments in equipment and software are expected to grow twice as fast as GDP this year. The post-pandemic rental space is booming and the market presents a diverse set of opportunities. We have a lot of focus on the future and we make sure we keep that momentum going. “

Maudlin and Akins both reported a slight increase in losses in 2020. As losses normalize, Maudlin says the hardest hit businesses may take the remainder of this year to return to full recovery levels.

Lessons learned

Latouche sees the pandemic environment more as an anomaly than a real slowdown. “The pandemic only slightly disrupted the industry, mainly in the second quarter due to statewide lockdowns, but with all government support, demand for goods remained particularly strong, as did investments in equipment. This is a trend that has accelerated and will likely continue throughout 2021. ”

Leading up to 2020, Maudlin and her peers spent a lot of time trying to identify when the longest economic expansion in U.S. history would reach its tipping point. None of them predicted a pandemic.

This generic event underscored the importance of credit quality management for Maudlin. “Have good credit fundamentals on the records that go into your portfolio because they’re more likely to weather a storm,” says Maudlin.

Another revelation for Maudlin was the fragility of industries which were generally rock solid. “As a lender, it’s important to understand that while an industry or asset class may not have experienced this downturn or had no problem, there is still a possibility that it there is a challenge down the road in this asset class or industry. that you hadn’t expected.

Latouche agrees: “If you didn’t have a diversified portfolio, it was probably difficult to navigate the pandemic. “

For Akins, the pandemic magnified the importance of really knowing your customer: “It was a very strong reminder that credit risk managers must continue to have a thorough understanding of management’s action plans in these times to. short term where there is potential extreme distress. The fundamental tenant of knowing your customer has always been essential, hasn’t it? But I think it’s even more true in events like a pandemic. “

“The lesson learned is that customers who show flexibility [and] solid management is really worth their weight in gold. And that flexibility starts with [a] healthy balance sheet. Do you have manageable debt maturities? Do you have diversified sources of liquidity? And I think those things are going to be assessed in more depth as we go along, as really important mitigation strategies for these short-term distress situations. “

1“COVID-19 Impact and Recovery Investigation,” Equipment Rental and Funding Foundation, May 2021.

Rita E. Garwood is Editor-in-Chief of To watch.