Thursday, September 16, 2010

RSI Annual Meeting & Marketing Outlook Event Report, Part II

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David Nahass (below), Senior Vice President, Railroad Financial Corporation, spoke about the present state of the freight car and locomotive leasing marketplace, and a fundamental change coming in federal accounting standards:

david-nahass.jpg

“From Railroad Financial's perspective, there isn't a whole lot of optimism in the marketplace, despite that freight traffic is coming back.  We see opportunistic railcar and locomotive sales and purchases going on throughout the marketplace. There is a lack of a fundamental appetite for risk today—no speculative appetite for off-lease equipment or equipment coming off lease.

“Changes in federal accounting standards from FASB (Federal Accounting Standards Board, which reports to the Securities and Exchange Commission) are under way that will significantly impact the freight car andlocomotive leasing marketplace. There are three basic things to keep in mind”:

• The end of off-balance-sheet leasing, where everything is treated as a capital lease.

• The end of traditional leveraged leases. Banks will be required to take non-recourse debt and put it on their balance sheets.

• No more grandfathering for existing leases.

“Timing for implemenation is roughly 2015, but we will see the market begin to tony-kruglinski-speech.jpgrespond once the final changes are approved,” Nahass concluded. “Exactly how is a challenge to figure out, but the cost of leasing is expected to increase.’

Added RFC President and Railway Age Financial Editor Tony Kruglinski (at left), “Certain elements in the industry are considering selling thelessee the transportation services, much like FedEx and UPS, instead of leasing the equipment. The interesting thing is that today’s lessors would become the railroads' customers.”

 

—William C. Vantuono, Editor