INSIDE FINANCE—CFI TRUST DRIVES INTO PUBLIC MARKET

CFI chose to reduce energy consumption by creating many sources of natural light, such as windows and skylights throughout our building. Layered and independently switched lighting, and timers throughout our building control over how many lights are on at any one time.

by BARRY CRITCHLEY
The Financial Post
Monday, April 28, 2003

The slim ranks of non-bank Canadian securitizers is set to rise with the news that CFI Trust has filed a preliminary short-form prospectus to sell up to $500-million of receivable-backed notes over the next 25 months.

Indeed, when the first issue by the Toronto-based entity comes to the market, it will mark CFI Trust’s initial public offering.

Prior to this transaction, virtually all securitizations have been done by entities linked to either a chartered bank or a securities dealer.

“CFI’s upcoming deal marks their entry into the public term market,” said Huston Loke, senior vice-president at DBRS Inc., which has assigned a triple-A rating to CFI’s term notes. “But we have been dealing with them for many years as prior to this [they] raised capital on a private basis,” he added.

CFI Trust, which is part of Corpfinance International, a

Toronto-based investment banking boutique, is a special-purpose entity that was formed to issue term securities. Those securities are backed by the issuer’s pool of assets, which are largely a pool of leases on automobiles.

CFI, whose main business used to be in providing term loans to mid-sized Canadian companies with funds provided by insurance companies, has been in the securitization business for a number of years. It claims that it is the country’s largest non-bank financier of securitizations.

The securitization group is headed up by Kevin Andrews who has spent about a decade with CFI. About 18 months back, Andrews became CFI’s largest shareholder when he acquired 70% of the firm from founder Terry Wolff. (Canada Life has a 10% stake.)

Until this deal, CFI Trust financed those transactions privately. But CFI Trust issued rated securities to fund the acquisition of the receivables.

As at the end of February, CFI Trust had issued about $600million of securities. Almost two-thirds of that amount was in the form of term notes and one-third was via commercial paper.

CFI Trust’s former term notes are rated AA by DBRS while its commercial paper is rated R-1 mid.

Underpinning the $600-million of securities are (largely) auto loans from 28 originators - manufacturer-franchised automobile dealers and independent leasing companies located in B.C., Alberta, Saskatchewan and Ontario, said CFI Trust’s prospectus.

DBRS’s Loke said CFI Trust doesn’t originate auto leases from those dealers which are offering large interest-rate incentives to retail clients.

“It’s pretty tough to compete with 0%,” said Loke. “But there are always certain cars that are excluded from the incentives,” Loke said, adding that such autos can be a source of product for CFI Trust.

Initially the auto dealer will finance those automobiles in two main ways: from the finance arm of its parent (say GMAC or Ford Credit) or from the banks.

CFI will then come along and essentially buy those leases - but on more attractive terms. The proceeds from that sale ultimately make their way to the finance company or the bank. CFI Trust will now be able to fund those purchases with term notes sold in the public markets.

Coventree Capital is one example of a non-bank non investment dealer securitizer. Coventree is privately held and uses a number of multi-seller conduits to raise capital. Typically it sells commercial paper, though its conduits also have the capability to issue term notes. Coventree operates at least six such conduits, all of which have a celestial-theme. Names include Rocket Trust, Comet Trust, and Galaxy Trust. So far all of Coventree’s financings have been done via a private placement. In time it will do its first public offering. Other non-bank, non-dealer issuers include Maple NHA Mortgage Trust and DR Residential Mortgage Trust. Those two entities buy CMHC-insured mortgages and fund the purchase through the issuance of term notes. Column Canada has securitized commercial mortgages. A group of car-related issuers - including Chrysler, Honda, Nissan, General Motors, and AmeriCredit Canada - have also secur-itized their auto leases.