The Role of the Trustee/Backup Servicer in
                      Equipment Leasing Transactions

By: Robert N. Guimont 1, Vice President, Norwest Bank Minnesota, N.A   

In any securitization the Trustee provides the necessary cash control and  information processing that is required by Investors, Rating Agencies and Monoline Insurers. Similar services are required in most CP Conduits and Bank Warehouse Facilities.

In the equipment leasing market today Trustees perform many roles beyond what are commonly associated with traditional trust functions. Not only do Trustees provide a large range of services to the equipment leasing market, but Trustees are involved in a variety of different types of equipment lease transactions as well.

Norwest Bank Minnesota’s Corporate Trust Services (CTS) has provided corporate trust services since 1934. Norwest offers a variety of fiduciary and agency products to public and private corporations, government entities and the banking and securities industries. Over the past 20 years of our more than 60 year history, the corporate trust business has moved from the administration of homogeneous transactions to that of diverse and highly complex transactions including Asset Backed Securities (ABS).

The ABS Division at Norwest was established in 1993 to provide specialized trust services, cash and information processing, back-up servicing and custodial services. Our clients are enterprises that utilize structured finance vehicles such as commercial paper conduits, warehouse fundings and securitization as fundamental capitalization tools. We enjoy a national  reputation and serve as Trustee/Paying Agent for more than 380 public and private asset-backed issues totaling $60 billion in original issuance.

Norwest’s ABS Division is a leading trustee in both the public and private ABS market. In the ABS equipment lease market Norwest is #1 with over 25% market share. (See Asset Backed Alert,  Jan. 1999).

Our broad industry expertise enables us to administer a wide variety of asset-backed transactions involving assets such as:

Equipment Loans and Leases Credit Cards -- Prime and Distressed
Auto Loans and Leases Distressed Assets
MotorCycle Loans Manufactured Housing
Vehicle Leases Trade Receivables
Business and Franchise Loans Collaterallized Bond Obligation (CBO)
Floorplan Loans Collaterallized Loan Obligation (CLO)
Home Equity Loans Rehabilitated Consumer Credits
Aircraft Leases Structured Settlements
Timeshare Loans Boat and RV Loans
Energy Receivables Film Distribution Rights

Norwest currently serves on over 75 Equipment loan and lease transactions. Our dominant market share and experience was achieved by adding value to each customer in the different capacities in which we serve for each transaction.

The typical services that Trustees like Norwest provide to the equipment leasing market today are the following: trustee services, cash and information processing, backup servicing and document custody.

Trustee Services

Trustee services include the traditional roles of Trustee, Registrar and Paying Agent. The trustee is responsible for delivering physical securities to registered holders. Norwest’s Investor and Payment Services (IPS) processes over 6000 loans totaling over $171 billion in outstanding principal balance. In 1998, IPS made over 36,000 payments to registered holders totaling over $33 billion. We process approximately 800 securities transfers each month. The SEC requires a 3 business day turn-around on 90% of all transfers. In 1998 Norwest exceeded this requirement by achieving 72 hour or less turn-around on over 94% of all transfers. We provide a securities drop site at 55 Water Street, New York City. Norwest Corporate Trust Services also provides investor information through the Bondholder Communication Department. This department handles approximately 3000 calls each month with an excellent average queue time of only 50 seconds.

Trustees must also be able to participate in the Depository Trust Company’s Book Entry Program. Trustees work closely with DTC to ensure that all compliance issues are proactively addressed. Norwest CTS is in full compliance with all rules and regulations of The Depository Trust Company book entry program, including same-day-funds settlement. We maintain a Business Support Group that handles all communications with DTC and works with DTC to resolve issues if and when they arise.

Cash and Information Processing

Trustees must also be able manage trust account cash. Norwest has a variety of overnight investment options depending upon the timing and availability of funds in question. Norwest has the ability to invest trust funds in any of the trust document’s permitted investments. Norwest Reserve Asset Management, a unit of Norwest Bank Minnesota, N.A., can tailor a program to enhance yield on several types of trust accounts including collection account and reserve accounts.

Norwest’s investment strategy for CTS customers with respect to trust services is to provide the highest yield given the permitted investments and consistent with preservation of principal and customers’ expectations while managing the administration of trust investments to the customer’s expectations.

We have the ability to invest funds in Norwest-managed mutual funds, which have been rated AAA/Aaa and qualify as "Permitted Investments" in most Pooling and Servicing Agreements. These mutual funds provide liquidity so funds can be deposited and withdrawn at any time without penalty. Use of these funds requires much less account management time both for Norwest and the Issuer. Norwest’s trust system has the ability to sweep uninvested cash into the Norwest Advantage Mutual Funds automatically. Because of this technology, there are no trust transaction fees associated with investing trust funds daily in the Norwest Advantage Mutual Funds.

Norwest Reserve Asset Management can provide investment strategies that utilize a combination of investment vehicles to increase interest income generated in a variety of trust accounts. Through either Norwest Corporation’s investment subsidiaries or the investment division of Norwest’s Institutional Trust Department, we have the ability to invest trust funds in any of the "Permitted Investments" defined in most Pooling and Servicing Agreements. Collection Account Investment instruments usually include governments, treasuries, commercial paper (including master note arrangements) and certificates of deposit. Investments can be made daily. Common Reserve Account investments include investments with longer-term maturities.

Trustees are also responsible for bondholder communications. Norwest converted to Simulated Environment Inc. trust system in July of 1998. The benefits of the new system are the following: it allows for real time processing; it is fully year 2000 compliant; it provides the most advanced options in investor reporting.

CTSLink

In October Norwest will launch CTSLink, the first direct link to information on ABS securities. The CTSLink service provides information for securities issuance and portfolios administered by Norwest’s ABS group. Reports feature quality data which is updated monthly and available in industry-standard formats. Reporting on CTSLink is available around the globe and around the clock.

Backup Servicing

In the equipment leasing market, backup servicing is perhaps the most complex and involved service that Trustees are asked to perform. Levels of backup servicing depend on the transaction and include both "Hot" and "Warm" backup responsibilities. Although the terms vary, "Hot Backup" usually refers to parallel servicing while "Warm Backup" usually refers to a certain level of monitoring.

As a large retail bank, Norwest has an extensive servicing franchise that services a variety of consumer and commercial assets. Norwest Financial, Norwest Equipment Finance, Foothill, Norwest Mortgage, and the Minneapolis Servicing Center for Norwest Bank are among the largest servicers in their respective business lines. Norwest has become very familiar with portfolio conversions due to heavy acquisition activity over the past several years.

Norwest currently has over 200 transactions where we act as backup servicer. Our group has been organized to facilitate transactions in which extensive servicer oversight is required. Our back-up servicing team has over 20 years of loan servicing experience and has transitioned servicing for 15 asset-backed portfolios.

We have entertained numerous visits from the Rating Agencies to discuss back-up servicing. Norwest is on the approved list of all of the rating agencies. We maintain an open dialog with these agencies regarding advancements in back-up servicing. In addition to our superb reputation with rating agencies, we have also received mandates from Monoline Insurers that Norwest’s Asset-Backed Securities Division be involved in their transactions.

Document Custody

Another value-added service is a dedicated ABS vault and staff. We currently hold approximately 1,000,000 files containing the collateral for many of our customers’ transactions. Files come to Norwest for initial certification, that is, checking each incoming file for the required loan documentation as a borrowing base management tool for warehouse and CP Conduit fundings. Files are then safe kept in our fireproof vault and available for credit administration on a standard 48-hour turnaround. Fast initial certifications are our specialty.

Depending on the size and sophistication level of the trust department, other supplementary services may be added that would include following: transition agent, due diligence, electronic reporting, and consulting.

Trustees are involved in many types of equipment lease transactions including: commercial paper conduits, warehouse fundings and securitizations.

Commercial Paper Conduits

Many issuers are reducing their reliance on term securitization by utilizing Commercial Paper Conduits. Here they receive programatic liquidity for their receivables without individual investor scrutiny. In the third quarter of 1998 when the term markets came to a standstill, the CP Market continued to thrive and has become an increasingly popular funding mechanism. Norwest is a CP Conduit Issuing and Paying Agent through DTC.

Global ABS

Many domestic equipment leasing companies are accessing international markets particularly in Canada and Latin America. For this reason, Trustees need to be able to provide their services regardless of where it is being transacted. Norwest has experience with over a dozen international issuers. In addition, we work with many private issuers on a variety of asset classes including Sovereign Trade Credits. Internationally, our ABS group is able to offer extensive international banking services through the Wells Fargo International Group.

Summary

In the rapidly expanding equipment leasing market, the ability to fund your receivables through multiple means (Term, CP, Warehouse) grows each year. Whatever the vehicle, a trustee, back-up Servicer or custodian play essential control roles. Your trustee relationship can be carried through all forms of financing and provides a stabilizing partner for each transaction. Norwest provides unparalleled customer service and market credibility to your securitization transactions.

Robert Guimont,  Vice President and Business Development Manager, (612) 667-0775

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1. Rob is currently Vice President and Business Development Manager for the Asset-Backed Securities Division. He directs all marketing, sales, and pricing activity for the group. Rob has developed a national calling strategy that has made Norwest the top trustee in private ABS transactions. He has taken an active role in meeting with market leaders to enhance and expand the group’s services.   Return to Article

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