AIG Commercial Asset Finance

Dave B. Fate EVP/COO, AIG Commercial Asset Finance

Dave Fate is no stranger to new directions. After ITT sold its equipment finance unit to GE, he and Bill Farrell assembled their former team and scoured the market to find a home. They reassembled as Transamerica Equipment Financial Services in 1995 and enjoyed a successful run until January 2004, when the unit was sold to GE. For a second time in less than ten years, Fate and Farrell were looking for a new sponsor and began talks with AIG. In October 2004, they drove the creation and launch of AIG Commercial Equipment Finance (AIG CEF), where Farrell became president and CEO and Fate, EVP and chief operating officer.

Fate and his team are again orchestrating change as the AIG unit announced a new direction in April 2011. AIG Commercial Asset Finance (AIGCAF), the new name for AIG Commercial Equipment Finance, marks both a readjustment of market strategy and an enhancement of product offerings. Notably, AIGCAF has shifted its origination efforts from non-investment to investment grade to generate higher-quality investments for affiliated AIG insurance companies.

“Our basic origination channels have not changed — we still are pursuing the market on a direct basis and via our capital markets team,” Fate explains. “We are now focused on expanding our existing relationships and developing new ones in the investment grade space. Other AIG companies transact business with many of these customers, so they know and appreciate the level of customer service we bring to the table.”

AIGCAF is coordinating its origination efforts with AIG Asset Management Private Debt Investments Group to provide secured and unsecured corporate, project finance and equipment finance opportunities to a variety of industries including utilities, manufacturing, transportation, healthcare and high tech for companies located in the U.S., Canada and select international markets.

According to Fate, AIG is focusing on its core insurance business and says there is a direct connection between AIGCAF’s change in direction, the move to investment grade transactions and creating business for the benefit of insurance company affiliates.

“Our focus on investment grade transactions is driven by many months of strategic discussions with our parent and its affiliated insurance companies. Although our non-investment grade portfolio performed exceptionally well through the down cycle, insurance companies, by nature and by regulation, prefer less risk. We understand the investment grade credit space, and we think our team can make a considerable contribution in meeting the investment needs of AIG’s insurance companies,” Fate says.

New to the AIGCAF mix is offering select real estate financing, including credit tenant leases. Fate explains that owner occupied and single tenant real property financing has been a material part of several of the unit’s platforms since its inception. In the past, AIG CEF sought real estate collateral only in conjunction with related commercial equipment collateral, but with the strategic shift, CAF will underwrite select real estate transactions as well.

“Given our staff’s experience with this asset class and our life insurance affiliates’ appetite for long-term investments, the Corporate Real Property Finance platform was a natural extension,” Fate notes. “We now have the opportunity, whether with a mortgage or credit tenant lease, to work across all industries and property types including headquarters, manufacturing, warehouse/distribution and retail.”

Another notable change is the exit of AIG Rail Services. In April 2011, AIG and Perella Weinberg Partners announced that an affiliate of Perella Weinberg Partners’ Asset Based Value strategy had entered into a definitive agreement to acquire AIG Rail Services. The purchase and sale transaction closed in the second quarter of 2011 and will operate under the new name Flagship Rail Services. Eugene Henneberry, president and CEO of AIG Rail Services since February 2007, will continue in his role as president and CEO of Flagship Rail Services and will continue to run the business, along with AIG Rail Services’ former management team.

“We were very fortunate that the management team was able to build AIG Rail Services into a viable, profitable and independent company so quickly. Because AIG Rail was a separate operating business from our Commercial Asset Finance unit, AIG was positioned to divest the rail leasing business in line with its plan to focus its businesses along its core insurance offerings,” Fate explains.

In comparing year-end numbers for AIG Commercial Asset Finance, net investment in equipment-related loans decreased from Y/E 2009 to Y/E 2010 by 44%. Fate frames this change in light of AIG’s modification of its operations and structure to strengthen its financial condition and enhance the enterprise value of its nucleus of businesses to meet working capital needs and repay its obligations to the U.S. government.

“Investing in additional receivables was not considered the best use of AIG’s capital during that time frame so we simply focused on continuing to provide excellent service to our established customers. We kept our staff in place so that we would be ready to continue expanding the business once the time was right. That time is now and we’re excited to be in a growth mode once again. Additionally, we are proud to have participated in our parent’s successful efforts to repay its loan from the Federal Reserve,” Fate explains.

Likewise, the Commercial Asset Finance unit saw a portfolio decline Y/Y of 44% from 2009 to 2010, yet volume, when considered in the context of booked and syndicated volume, was up significantly. “We reduced our portfolio by approximately $1 billion in 2010, which led to the 44% decline in total portfolio. This year we expect our managed portfolio to stay in line with what it was at the end of 2010. This will occur as our new business growth is largely offset by the recent sale of AIG Rail Services,” says Fate.

As AIG is focusing on restructuring and rebuilding, Fate forecasts healthy growth for AIGCAF. A month after announcing its change in marketing strategy, AIGCAF issued a $100 million commitment for lease financing for an investment grade provider of oil field services in the U.S.

“Although it’s slow and there appear to be some bumps, there is evidence that the economy is in a recovery phase, and loan and lease demand has continued to pick up. With investment grade-quality credits, we are more comfortable taking larger positions, where our normal level of due diligence supports it.” says Fate.

As an industry leader who sees change as a catalyst for success, Fate sees AIGCAF’s new direction — including its access to capital, disciplined structuring and underwriting and focus on customer service — as a means to positioning AIGCAF as a key player the investment grade financing space.

“Our parent has re-emerged focused on its core insurance business and given us this opportunity by mandating us to originate new loans and leases with investment grade companies,” Fate notes. “Following the recent upheavals in the credit markets, we welcome the ability to actively participate in the market again.”