What is Pawnee Leasing and what sort of transactions do you typically fund?
Gary Souverein: Pawnee is a credit-based funding source that specializes in transactions under $350,000, with an average transaction size of $70,000. We purchase 100% of our business from leasing brokers, lessors, other funding sources and affiliates. Many of our brokers have been with us for 10 to 20 years, some longer. Our value proposition to our origination partners is that we have perhaps the widest array of risk-based pricing of any funding source, allowing our partners to distinguish themselves from traditional leasing companies that only do prime credit. We’ve become best known over our 40 years for our start-up and “C” credit underwriting, which we have done hundreds of millions of dollars of, but the past decade, we’ve rounded our lending array to be a price leader in “A” and “B” credit as well. We’ve become a one-stop-shop for our origination partners and their vendors.
How did Pawnee get its name?
Souverein: I wish I had some cool fintech story to tell you about our name but the truth is the company was named after the street the company’s founder, Rob Day, lived in Sterling, CO. In reality, it is named after the Pawnee National Grasslands which neighbor Sterling in the northeastern plains of Colorado.
Can you tell us about the early years of Pawnee?
Souverein: I wasn’t around for the first decade of Pawnee, but it was a very small independent, quasi-captive funding source for a handful of Connecting Point/Apple computer dealers in Colorado, Wyoming and Nebraska that also had a minority interest in Pawnee. Rob Day was a practicing optometrist in Sterling and did Pawnee on nights and weekends. In the late 80s, he sold his eye practice and moved to Fort Collins to focus 100% of his time on Pawnee.
How did Pawnee decide to be a niche funding source for start-up and less traditional small-ticket credit in its early years?
Souverein: Like every great business our market niche, the decision came a bit by accident. We wanted to deploy our capital at a specific, higher yield, and brokers are a very efficient allocators of capital, so higher rates ultimately only attracted start-up and “C” credit profiles. We probably wanted “better credit,” but after a while, we were only seeing start-up and “C” credits and we acknowledged then that we specialized in only funding these credit profiles for our partners. Even today, we remain active in these segments and they are a very valuable part of our business. First, we’ve been able to manage this high-risk segment very profitably through many economic cycles. Second, it has established and underpinned a culture focused on risk management and collections in our organization that we do very, very well. And third, this silo of business acts as our “canary in the mine shaft.” These receivables act as a leading indicator to macro-economic conditions, and we’ve been able to identify credit trends and adjust our business earlier than our peers.
What were some milestones the business underwent over the years?
Souverein: There have been a number of events in our business that I’d describe as transformative.
First, in the late 90s, there was a realization that we were on a trajectory to outstrip the capital required to support our growth. As we were privately-held, our minority shareholders could no longer support the continuing capital needs of the business and sold their interest to Dick Monfort and our then banker, Sam Leeper. Monfort is best known as chairman of the professional baseball organization, the Colorado Rockies. Monfort would provide the capital firepower and Leeper would redefine our banking relationships to support the next stages of growth. Within a couple years, Rob Day, Pawnee’s founder, handed the leadership of the business to Leeper, who he recognized was best suited to lead Pawnee to a larger and more structured enterprise. Day and Leeper, who remain significant shareholders in Chesswood to this day, left a lasting imprint on our business and team.
Second, was the sale of the business in 2006 to Chesswood Group, a publicly-held specialty finance company located in Canada. That transaction was essentially an IPO of Pawnee on the Toronto Stock Exchange. The transaction would provide the foundation and fuel for Pawnee’s continuing evolution and expansion. Despite being a small-cap in Canada, Chesswood enjoys a blue chip board that is well known and respected on Bay Street, the Canadian equivalent of Wall Street.
Finally, and most transformative, has been Pawnee’s successful expansions, first into “B” credit in 2008, and then “A” credit in 2015. These expansions moved the company from $100 million to more than $1 billion in assets in 2022, leveraging our proven infrastructure, systems and disciplined operating team. Brokers appreciated us as a niche funding partner, but our expansion to the significantly larger prime and near-prime market segments that represented most of their originations has allowed us to support a much larger share of our partners’ business activity and our team-earned market share quickly. Our goal as an organization is to be the leading funding source available to the TPO community.
Can you reflect on the highs and lows in the past 40 years?
Souverein: We’ve been fortunate to have enjoyed many more highs than lows.
Highs definitely include our sale to Chesswood Group. While an important liquidity event for the owners of Pawnee, it would also become the catalyst and set the stage for scaling the business much further. The IPO process was a career high for me. While it’s a grueling process to sell any business into a public framework, which culminated in two weeks spent in Toronto preparing for a road show and then two weeks in every major city in Canada and then Boston and New York City presenting the Pawnee-Chesswood story at least a half dozen times each day with potential investors, it was a once-in-a-career opportunity.
Lows for the company include the pandemic. We had been through the dot-com bubble and 9/11 and the Great Recession. We found our business to be a bit counter-cyclical in times of economic disruption. When credit cycles were causing contraction, that created opportunity. In late cycle periods when competition was the most heated, our discipline tended to dampen our growth. The spring of 2020 brought a cycle we hadn’t completed any sensitivity analysis for — providing deferrals for 35% of our portfolio and a rapid contraction of originations and our team. It was a very uncertain time, as we were trying to understand what might happen to our own business when thousands of our customers, with thriving businesses, were mandated to cease, or substantially change their operations by their local governments.
We felt it was in the best interest of our customers, and ourselves, to provide free payment holidays for much of spring and summer of 2020. That was a terribly difficult decision because of the cash flow challenges it would create for ourselves, and the resulting impact it would have on our employees. Our company never had lay-offs or pay cuts until 2020. Fortunately, the resiliency of the American small business was on full display and with a healthy dose of help from our federal government, the vast majority of our customers quickly resumed making payments, appreciative of the assistance we provided.
What has contributed the most to Pawnee’s success?
Souverein: Two things: disciplined culture and our people.
First, Chesswood has been looking since 2006 for a company that generates returns better than Pawnee and it hasn’t found one. We are very fortunate to have an excellent, high-performing business model that has excelled though multiple business cycles. For companies that have survived for many decades, discipline permeates every part of the business culture. For us, that has meant sticking to our knitting in times when competition became irrational. Likewise, taking a dip-your-toe-in approach when the path to higher originations wants to jump right in. The stalwarts of equipment finance don’t get enamored with sales but stay a steady course with an overarching disciplined mindset that equipment finance companies are risk management and collection enterprises at their core.
Second, and while its cliché, equipment finance is a people business. Technology is important, but at the end of the day, people do business with people. We have always had a great, attentive team that is empowered to make decisions, responds personally and quickly to our customers’ needs. We also have an abundance of amazing, supportive broker relationships — many of which we have grown alongside with. I remind our team regularly of the symbiotic relationship we have with our partners, as without them, we would have no business.
Moreover, we have had some truly remarkable people that have had an ever-lasting influence on our business. Rob Day led the business until the late 90s, nurtured the company in its early years and rooted our bottom-line culture; I’ve not met a more instinctive, passionate and creative leader. Second, Sam Leeper, who served as president from 1998 to 2005. Leeper was our banker before he joined Pawnee to succeed Day and an engineer by education and he delivered the disciplined culture that Pawnee needed at the right time for Pawnee.
And finally today’s executive and broader management team are the foundation of the business and have spearheaded our exceptional accomplishment of taking us from a $100 million asset business a decade ago to well over $1 billion in 2022.