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
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
Trustees provide a large range of services to the equipment leasing
market, but Trustees are involved in a variety of different types of equipment
transactions as well.
Norwest Bank Minnesotas
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
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
reputation and serve as Trustee/Paying Agent for more than 380 public and private asset-backed issues totaling $60 billion in original issuance.
Norwests 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
Loans and Leases
Business and Franchise Loans
||Collaterallized Bond Obligation
||Collaterallized Loan Obligation
|Home Equity Loans
||Rehabilitated Consumer Credits
||Boat and RV Loans
||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
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 include the traditional roles of Trustee,
Registrar and Paying Agent. The trustee is responsible for delivering physical
securities to registered holders. Norwests 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 Companys 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 documents 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.
Norwests 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
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. Norwests 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
Corporations investment subsidiaries or the investment division of Norwests
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.
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
Norwests 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.
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
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 Norwests Asset-Backed Securities Division be involved in their
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
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.
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.
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
Robert Guimont, Vice President and Business Development
Manager, (612) 667-0775
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 groups services. Return to Article
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