From Chesswood’s original roots in the new car automotive retail and leasing space in Canada in the late 1990s, sprung Chesswood Income Fund (later Chesswood Group), in May 2006. As part of the simultaneous transaction of becoming Chesswood, a publicly traded income fund on the Toronto Stock Exchange (similar to a BDC), a $60 million initial public offering (“IPO”) and the closing of the acquisition of Pawnee Leasing Ltd., of Fort Collins, CO, Chesswood Income Fund was launched. This is where our journey in equipment finance began, 17 months before December 2008, and the full onset of the financial crisis.

But Chesswood’s story starts in late 2004 when we determined, in Chesswood’s predecessor automotive focused business, that there was a better opportunity in equipment finance to produce more attractive long-term risk-adjusted returns for our shareholders. To seize that opportunity, we needed to find the right platform on which to build out our equipment finance business while divesting of our automotive assets, when timely and convenient. Our 18-month search across Canada and the U.S. had us meet with more than 30 equipment finance businesses as we learned about the market and became familiar with many of the main independent players.

This is how a Canadian businessman with a diverse background that did not include equipment finance, came to meet with three guys from Northern Colorado who wondered why the heck “a bunch of Canadians in the car business in Toronto” would be interested in Colorado-based Pawnee?

Many people say that you can feel real chemistry when it happens. In our case, we quickly learned that we had all put on suits and ties for one another but none of us actually wore them at work! This was a great early sign that broke the ice quickly. And we took off the suits and ties too. There were numerous other signs of good compatibility including a very similar style of conducting business. This all occurred in late 2004, a year and half before Chesswood was formed.

We quickly came to know the founder and CEO of Pawnee, Rob Day and Sam Leeper, respectively, along with Gary Souverein their newly appointed President. Following completion of due diligence, Gary, Sam and I would, some 18 months later, find ourselves spending two weeks on a road show raising funds for the IPO of Chesswood and the purchase of Pawnee Leasing.

After renegotiating Pawnee’s lenders’ agreement twice while waiting for our Canadian banks’ approvals, and completing a successful road show, we closed our IPO in May 2006 and Chesswood Income Fund — later to become Chesswood Group Limited — was born. At the time of the IPO, Chesswood was a public income fund that paid out all of its income to shareholders, just like a BDC. In 2011, we became Chesswood Group Limited, a “regular” public company that has continued to pay significant monthly dividends to shareholders.

At our start in 2006, we had $121 million of equipment finance receivables, all in non-prime “B-“ and “start-up” commercial credits originated by the third-party (equipment finance brokers) channel, Pawnee’s long-time sole market focus.

Our journey from IPO in 2006 to today includes too many twists and turns to list here, while our greatest competitive advantage, our tenured and highly effective team, has steered the ship throughout.

The challenges have been many, most notably including the financial crisis of 2008. We began to see unusual stress in our portfolio in the fall of 2007 on the heels of having tightened credit early in 2006, despite the very aggressive nature of many competitors and the resultant contraction of our portfolio. From November 2006 through October 2008, our portfolio contracted for 23 straight months as we followed our conviction that the general underwriting and pricing behavior in the market at that time was unsustainable through a correction. This was a very difficult strategy to deploy and commit to, especially as a public company, where growth is almost everything, usually to the extreme.

As part of our approach to rising irrational market behavior at that time — and in answer to our own planning question of “where would we like to be upon a correction?” — we launched our new “B” commercial credit product in September 2008 at a time that we believed was ideal for our entrance into a new credit tier, as no one would really take notice or concern themselves about our entry. The “B” market was exponentially larger than our traditional “B-“and “start-up” markets, and our entry allowed us to leverage our efficient infrastructure and the third-party relationships we already had for a “greater share of wallet”.

While we take on new products with care and managed speed, this decision turned out to be extremely prescient. We found ourselves in December 2008 at the start of the financial crisis, as one of only a few funding sources still available to the third-party channel, and we were overwhelmed with demand for our new product, as a result. In December 2008 our portfolio was US$114 million and five years later, by the end of 2013, helped significantly by a wider product suite and our access to plenty of capital, our portfolio had grown by 68% to almost US$200 million, despite our deliberately limiting new “B” volume growth in our first few years in that market.

In the period from the financial crisis to today, in addition to the events described above, we reached many operating milestones including; being the first national small-ticket funder to offer eDocs (2013), the build-out of a sizable in-house technology development team, the launching of our proprietary portal in 2014 through which brokers process all applications and fundings (and more), the multiple renewals and expansions of our credit lines with a broad syndicate of leading American and Canadian banks, a 2015 public markets capital raise for the acquisition of Blue Chip Leasing our Canadian equipment finance business, deployment of the same strategic approach as with “B’ credit in 2008, in entering the prime market in January 2015 to again leverage our originations channel, and the launch of our new vendor channel equipment finance business, Tandem Finance, in January 2019.

Also during this period, we launched and shuttered Windset Capital, a working capital loan business we started in 2013. While this was a profitable exercise for Chesswood, we wound down this business due to what was, in our opinion, a rapidly rising risk tolerance by the market coupled with continuing opportunities to grow our core equipment finance businesses. The same is true for our legal finance business, which we were in briefly, located in New York City. While profitable, once we determined that we could not scale that business, we sold it profitably, in 2015.

So today, we offer our customers equipment financing in all credit tiers from “A” to “C” including start-up while our total portfolio ended 2019 at just over $1.0 billion. And we have paid-out to our shareholders more than $136 million in dividends during this period! A Chesswood Group shareholder that bought our stock in 2009 has enjoyed an average annual return of 30%, for a decade!

The one constant for Chesswood throughout our first 13 years is our team and teamwork. While an often-over-used management axiom, it is without a doubt a very key ingredient to our success. This includes, in addition to the team at Pawnee, our new President and team at Tandem Finance, our newly launched vendor finance business out of Texas, as well as our team at Blue Chip in Toronto.

Our management team members at Pawnee however, by far our largest business, are almost unchanged since 2009 when our SVP and COO (and then Credit Manager) Wayne Woolley joined Pawnee following the retirement of his predecessor. Our other senior Pawnee management team members, Gary Souverein (President), Mike Prenzlow (Chief Financial Officer) and Jennifer Schmidt (Chief Portfolio Officer) have been with us since the IPO in 2006, or earlier, while our broader management team has, on average, 12 years of tenure. This management group, along with Chesswood’s support, have grown the Pawnee portfolio to approximately US$650 million and the total Pawnee team from 39 employees to 105 (many of our employees have very long tenure with us) while generating excellent profitability along the way.

Identifying talented management while supporting their efforts as much as possible and allowing them latitude to operate have been the key drivers of success for Chesswood Group in the long-run. This is how Pawnee Leasing, Blue Chip Leasing and Tandem Finance have been successful and how they continue to operate today. It’s not a new recipe, just one that often gets over-looked, but stands the test of time!

It has been my great fortune and pleasure over these last fourteen years to work with such a fine group of people.

Thank you all!