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Table of Contents To lease or to buy? That is the question 4 Getting your financial “house” in order 6 About Advantage Funding 9 About CH Bus Sales 11 About Prevost 13 About REV Group 15 | BUSRIDE


Equipment Finance / To Lease or to Buy: That is the Question BUSRide spoke with a select group of financial thought leaders in the bus and motorcoach industry for a roundtable discussion on the issues, trends and practices that affect operators’ borrowing, acquisitions and all-around financial health. Craig Lentzsch, executive chairman of All Aboard America! Holdings and former president and CEO of Greyhound Lines, Inc., moderated this high-level discussion with the following panelists:

Greg Berg, director of commercial finance, REV Group Al Damiani, president and CEO, Advantage Funding Robert Foley, president and CEO, CH Bus Sales Matthew Hotchkiss, vice president – Commercial Vehicle

Group, Wells Fargo Equipment Finance David Scoular, director of financial services, Prevost

Craig Lentzsch: Please introduce yourselves and tell us your company’s relevance to the bus industry. Al Damiani: Advantage Funding is a commercial finance company that’s been in business for about 18 years financing motorcoaches as well as other commercial transportation vehicles for our entire history. We are a wholly-owned subsidiary of Macquarie Group, which acquired us in July 2015. Bob Foley: CH Bus Holding has a wholly-owned subsidiary, Coach Finance Group, that finances motorcoaches. I personally have been involved in financing motorcoaches in the industry since 1985. David Scoular: Prevost sells motorcoaches and I personally have 20 years of financial experience. Matt Hotchkiss: I’ve been with Wells Fargo Equipment Finance for about 14 years. Prior to that I worked at ABC Bus Financial Services and GE Capital. I came to Wells Fargo to develop its bus segment, and my focus has been primarily motorcoach. I’m originating business in the coach market, but also managing all bus segments including shuttle bus, school bus, transit and motorcoach. Greg Berg: REV Group is a diversified manufacturer of transportation equipment and I’ve been in the industry for 25 years. We bus operators are typically not as financially sophisticated as all of you. Identifying for us the different financial products in the marketplace, as well as their pros and cons, is critical to your process. As operators, it’s also critical we thoroughly understand what your products will do for us. So if you’re talking to a bus operator and they’re trying to figure out whether to finance a coach with you for resale – what’s your perspective on their decision process? Hotchkiss: The primary products that we offer in this market are either going to be loans or standard TRAC leases. We provide other types of leases, but they’re less common than loans and TRAC leases so for the purposes of this question, I will focus on these two. In my 4


opinion, the primary factor in this decision is who can utilize the depreciation benefit the most – the operator or the finance company? If an operator has adequate tax write-offs already, either because of having enough depreciation, having net operating loss carryovers, or just not making a lot of taxable income – it makes sense to let the finance company take the depreciation, because that translates into an interest rate that will be significantly lower than what the loan interest rate will be — and that’s going to help the cashflow significantly. With Bonus Depreciation currently available, the interest rate between a loan and a lease can be up to 100 or 125 basis points depending on the time of the year and the finance term. This has a significant positive impact on cashflow. There are variations here, but if you’re financing a half-million dollar bus for seven years, you can save as much as $30,000 over the term doing a TRAC lease. Damiani: From our perspective, I agree with what Matt is saying in terms of who shares the depreciation and the tax benefits. But we find that for a smaller operator they are more concerned with cashflow, so many times a lease versus loan decision is made based on whether the sales tax is paid upfront or over the term of the contract. In states where sales tax is due upfront we typically write more leases. We find in many cases this is a crucial piece whereby they make the decision less so from the income tax standpoint. That means that they’re basically deferring the sales tax over the time of the lease. They’re not avoiding it all together? Damiani: That’s right. They’re not avoiding it. It’s just that the customer pays the sales tax over the contract term versus a lump sum upfront, which could be rather substantial for a lot of these customers, especially the smaller operators. Berg: I think both Al and Matt hit the nail on the head. It’s really all about your tax planning. I think our customers might not have an exact handle on their tax planning in Q1 or Q2 – they are looking at new contracts and other variables early in the year. They don’t know where they will end up at the end of the year from a net income perspective yet. Come Q3 and Q4, our customers have a better handle on their tax planning. They will know at that point if a loan or

Equipment Finance / To Lease or to Buy: That is the Question a lease will best suit their needs. No one product is really the sole answer for our customers. Foley: I would only add a little twist to the decision process, in which operators have specific contracts, i.e. a college to transport students for activities or possibly an employee shuttle contract for a specific period of time. It could be a two or three-year contract, and they’re not sure if they want to commit to owning a vehicle and then having to deal with selling it at the end of the contract if the contract is not renewed. There are also lease options that fit with these types of contracts. We talked about three different kinds of financing. We talked about purchase money financing – referring to borrowing money against the value of a motorcoach and paying that off over time as one product. Another product being a TRAC lease where it is a lease for tax purposes, but usually treated as a purchase for balance sheet purposes. There’s a true lease, where the lessee has no interest in the residual value of the equipment. And then there is a hybrid called a split TRAC. Please talk about the difference in those four products and how it affects financial statements and cost of financing? Scoular: The split TRAC lease is basically a glorified lease. It has some off-balance sheet items, but it’s not a fair market value lease. TRAC is similar to the split TRAC but it is not an off-balance sheet lease as the split TRAC and true Operating Lease are considered. The loan is obviously on the balance sheet. Typically with loans there is money down and leases are completed with advance payments as they are not allowed per accounting rules to have equity. From financial statement standpoints, loans are going to count against the operators’ cashflow and leverage, while the leases are generally just cashflow items since they are not typically balance sheet items. In the long run, since the coach finance business is cashflow driven, the leases and loans are captured fairly equally as most lenders also review the operators overall debt/lease schedule against their fleet list.

enhance our ability to accurately assess cashflow. Are all of the financings you’re talking about fixed rate financings, or are there floating rate versions of these products? Berg: Yes, there are, just not that many. In an increasing rate environment, I wouldn’t recommend it at this point, not for the long-term. Scoular: Loans can be floating rate, but given the potential rising rate environment it has been and will be seldom used. Leases are fixed but in actuality, leases don’t have rates. They only have payments or rentals. Why should your customers borrow money and hawk their equipment as opposed to leasing? What’s the positive side of that approach? Scoular: The loan offers operators the ability to depreciate the asset on their books versus recording the rental as an expense on the P&L. The recent bonus depreciation is also more favorable to owning than leasing. In reality, the coaches are used as collateral in leases similarly as they are used as collateral on a loan, so the main difference is for leverage calculations. Foley: Well, I really think it goes back to the discussion that we had earlier when it was loan versus lease. If they have income that they need to shelter, they should look at a loan. If they’re focused on cashflow and they don’t have a lot of income, then they’re better off looking at a lower rate through a TRAC lease. If they are looking to add a vehicle for a specific contract, they may want a true lease to match the terms of the contract. How does residual value affect this decision? Is it a consideration?

Berg: Once these new rules go into effect, the split TRAC lease basically goes away because it has no benefit anymore. There’s no such thing as an off-balance sheet starting in 2019.

Scoular: Well, that’s the big difference. All leases have residuals, something in backend, so if it’s a difference between buying and leasing, you can buy a straight 84-month and not have it balloon for seven years. TRAC leases still have the residual finance and still have something to do at the end. That’s another difference between loan and lease.

Are your companies going to change the way you look at the customer’s balance sheet when the rules change?

You get the cashflow benefit in leasing, but you pay for it eventually, right?

Scoular: I think, overall, not as much as everyone thinks. Again, in the coach finance business it’s mainly about cashflow, which is P&L driven, and leverage secondarily – which is where the balance sheet items flow through.

Scoular: Potentially yes, if you decide to keep the coach and refinance the residual. If you trade or sell the unit, you may see some benefit in the cashflow savings.

Hotchkiss: I think it just gives us a more accurate picture of the customer’s balance sheet. With the way we calculate it now, we try to estimate what the off-balance sheet debt is by either looking at lease expense or lease payments. So, we’re kind of doing it already. We’re probably not always accurate on how we calculate it now, and that’s really the purpose of the law – to make disclosure transparent. Damiani: I agree with that. It’s going to make our lives a lot easier as it will enhance financial transparency. Currently we need to request full fleet and debt schedules, as typically many customers do not carry all of their debt obligations on the balance sheet. Under the new rules all lease and loan obligations will be on the balance sheet which will

Hotchkiss: It goes back to what your depreciation appetite is. If you don’t need the accelerated depreciation, then you are better off leasing. If you are paying more taxes today because of not taking accelerated depreciation, then you need to measure that against the cashflow savings of the lease. Read the August / September 2016 edition of BUSRide for the second chapter of this roundtable discussion – Getting Your ‘Financial House’ In Order – What Lenders Look For.

A BUSRide Roundtable Discussion

Equipment Finance Getting your financial “house” in order

BUSRide spoke with a select group of financial thought leaders in the bus and motorcoach industry for a roundtable discussion on the issues, trends and practices that affect operators’ borrowing, acquisitions and all-around financial health. Craig Lentzsch, executive chairman of All Aboard America! Holdings and former president and CEO of Greyhound Lines, Inc., moderated this high-level discussion with the following panelists:

Greg Berg, director of commercial finance, REV Group Al Damiani, president and CEO, Advantage Funding Robert Foley, president and CEO, CH Bus Sales Matt Hotchkiss, senior vice president – Commercial Vehicle

Group, Wells Fargo Equipment Finance David Scoular, director of financial services, Prevost



Craig Lentzsch: What are the most important factors affecting an operator’s creditworthiness in the eyes of an equipment vendor or lessor? Al Damiani: A lot of things are important, depending on the size of the operator. We look at balance sheet and fleet size; the kind of debt loan they have; and if they have a tangible equity in the business. We also look at cash flow, working capital and debt service coverage, to assure ourselves that the operator has the ability to manage the debt. Is it a replacement or is it new? If it’s new and if it’s substantial, we like to also understand what’s driving the need for new vehicles. Robert Foley: It depends on the size of the credit, but for the midmarket credit, for me, it’s cashflow. Most of the companies we work with are owner operators, so we also look at their personal payment histories and credit scores. David Scoular: With cash flow, I look at net income depreciation. Matt Hotchkiss: The two most critical things we need before we consider a deal is cashflow and positive credit history. This would typically be personal credit history (CBR) and business credit (Paynet and Dun & Bradstreet). If I don’t have those two things, it’s hard for us to move forward. Greg Berg: I agree with everything that everyone else has said. I think everybody here has been through two or three business downturns. All of our businesses, whether you’re an operator, a finance source or a bank, you have been impacted in some way, shape or form by the business cycle. How you react to those difficult situations is important. Did you handle it appropriately, and what did you do to try to work out of it? Lentzsch: Does the makeup of an operator’s fleet affect lending decisions? Scoular: We’re trying to keep everybody in the industry competing and getting the best deal, so there are competing factors for operators if they want to buy new and different equipment. It’s usually no problem if an operator is buying smaller vehicles because of a special contract. If someone is moving “upward” into the heavy-duty coach market, I’m a little more concerned. We really like to know what operators are doing and why they’re doing it, for that reason. When operators are just buying and mixing fleets it gives us some concern. They may have specific needs, like customer preference, which is just fine – we get that. It just makes it a little difficult from the manufacturer’s standpoint, always in competition, but it is what it is. Lentzsch: Robert, you recently had a competitor compliment one of your buses. Foley: Well, that was very nice of them! The collateral side of it does matter. If we use 35-foot coaches for an example, there have been a half-dozen different models sold in the past decade - some are body on chassis versus a monocoque structure, which makes a difference in collateral value. But in the 45-foot coach segment, if you are looking at the predominant manufacturers, it is a level playing field. Berg: I’ve always treated all the core manufacturers represented in our industry as equals. They are all fine vehicles. I do think, from a lender’s perspective, it is more difficult to launch new equipment into our industry. With service and parts responsibilities, it’s a difficult market to enter.

Damiani: We are concerned if there is a wide range of vehicles types, so we typically do a bit extra due diligence to understand what the customer is doing. It’s all about knowing your customer and why they have a mix. If they’re going to be going from exclusively shuttles to adding motorcoaches, we want to understand why. We also look at the type of vehicle. In terms of the OEMs, we’re not concerned with any of the major manufacturers because we are comfortable with their level of support for parts and repairs. We do have a little concern with foreign manufacturers, having had some negative results in past years. We look at that, as well as an operator’s ability to remarket and resell a vehicle. Lentzsch: Is there any technology, available now or in the future, that you would encourage your customers to purchase? Or would you rather not enter that dialogue with an operator? Hotchkiss: Typically not, although back when the discussion was occurring about three-point seat belts and the likelihood that they were going to come out, I encouraged any operator financing coaches to install three-point seat belts. It was likely going to become standard and if you didn’t have that it would negatively influence the value in the resale market. With newer safety technology, I don’t really get into those discussions with operators. Berg: From a lender’s perspective – when you talk about any technology, whether it’s hybrid, CNG or electric power, it does play into the discussion on whether the lender will want to fund that collateral. It could be the greatest technology in the world, but the issue is that in some cases advanced technology is not universally accepted in all markets. So there’s a potential that the operator will limit his or her ability to resell the equipment. Scoular: Other technologies to consider, much like self-driving cars, are automatic braking systems for coaches. From a lender and manufacturer’s perspective, that’s not something we’re going to push anyone into. We tell operators that if they want it, it’s available, but it’s not something I typically discuss in depth. Lentzsch: Do you underwrite leases differently than loans? Damiani: We do not offer FMV-type leases so, generally speaking, we do not underwrite leases differently than loans. Hotchkiss: When it comes to standard TRAC leases or loans it doesn’t matter. If we’re talking about a FMV-operating type lease, it does matter because there is more term risk as well as end of term risk. We want to be a little more discerning on the credit if we look at that type of structure. Berg: I agree with Matt. The only thing I have to add on that is that as a manufacturer, we like to get our pre-owned equipment back on FMV leases. We love our used equipment. Our equipment has great resale values and we’re active daily in those markets. Scoular: Even from a manufacturer’s standpoint, you want to know who your customer is. The maintenance of the backend for residuals is important. So we observe their credit and their reputation, because we’re probably going to get that coach back or want to know they’re maintaining these coaches. Foley: From our standpoint, the credit information and the process is virtually the same. When it comes to a fair market value lease from a manufacturing side, I would say that we’re in a position to understand the risk and be more aggressive than the standard lenders. | BUSRIDE


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Headquartered in Lake Success, NY, Advantage Funding is one of the largest transportation finance firms in the United States. But to our customers, we’re so much more: Financial partners. Problem solvers. Trusted advisors. We’ve been helping commercial and vocational transportation companies grow for nearly 20 years. Whatever your specialty, from towing to livery, first-response to motor coaches, wastehauling to vocational trucks, we can help you obtain the financing solutions you need to grow and thrive. Our success is built on three guiding principles: • Understanding the intricacies of the transportation industry • Taking a genuine interest in our customers and their needs • Offering products and services that give those we serve a distinct advantage—regardless of credit history We know your business. We care about your success. And, we have the flexibility to create solutions for you when banks and others cannot. Our Mission At Advantage Funding, we’re committed to being the best at what we do—helping our clients develop, fund and maintain their vehicle and fleet acquisition strategies. We strive to provide the best financing value in the ground transportation industry while building lasting relationships with those we serve. Our customers are vehicle dealers, distributors, manufacturers, and end users who are seeking innovative solutions that banks and other financial institutions cannot provide. Whether you’re in the market for a single sedan or a fleet of vocational trucks, our aim is to provide you with easy financing and leasing programs that improve your profits and productivity. First, we listen carefully to your needs. Then, we put our nearly 20 years of experience to work for you, designing customized leases and loans that help you preserve cash flow and keep your business on the road.

Our History Advantage Funding was founded in 1997 by finance professionals with extensive backgrounds in the transportation industry. With distinct creativity and a hunger for innovation, our founders knew they could bring a fresh perspective to transportation financing customers. Our company started small and through hard work, experienced 20% growth each year for nine consecutive years—steadily adding customers and employees. Key to our growth has been our focus on a personal approach to every transaction and our referrals from satisfied customers. As of July 31, 2015, Advantage Funding became a wholly owned subsidiary of Macquarie’s Corporate and Asset Finance group (CAF). Macquarie Group is a global financial services provider with offices in 28 countries. Its expertise covers advisory and capital markets, trading and hedging, funds management, asset finance, financing, research and retail financial services. Macquarie’s corporate and asset finance division specializes in the aircraft, motor vehicle, technology, healthcare, manufacturing, industrial, energy, rail and mining sectors. Its lending business specializes in corporate and real estate investing and lending. As at March 31, 2015 Macquarie had $28.7 billion globally in loans and leases under management. Today, Advantage Funding has more than 50 employees. Customers range from one-vehicle businesses to companies with large fleets. Despite our rapid growth, we continue to stay true to our original vision: providing flexible financial solutions, delivering timely service, and building longterm customer relationships.

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THE smart choice

…for A TRUSTED NAME. When you choose CH Bus Sales, you’re making a decision to work with some of the most experienced management and service teams in the industry. We’ve partnered with Temsa – a great quality European manufacturer – to provide you with dependable products that match our reliable service.  Now that’s a winning combination. Our team is focused on helping you improve your business.   When you buy a Temsa, you become our partner in success and a part of our family.   We believe in relationships that last, and service that comes in first.

For more information, contact CH Bus Sales at: 877-723-4045 or visit

CH Bus Sales is the exclusive distributor of Temsa motorcoaches in the U.S.

CH Bus Sales began as the exclusive distributor of TEMSA motorcoaches in September of 2011 by first solidifying an industry experienced ownership and management team. CH Bus first distributed the TS 35 mid-size motorcoach in response to the recognized industry trend of charter and tour groups getting smaller. Now the industry had a high quality and comfortable coach that offered all the amenities of a full-size coach but was more economical to purchase. With much success in this niche market, CH introduced a smaller 30-foot, fully integral, mid-size coach in 2012, which seats up to 34 passengers. Once the TEMSA brand grew in the market, it was only a matter of time that operators would be looking for a full-size model. After many years of thoughtful construction, CH Bus introduced the full-size TS 45 coach in 2014. The supreme quality of manufacturing that TEMSA brings to the market, partnered with the experience of the CH Bus Sales team is a driving force for success that is unmatched.

More About CH Bus Sales: Company Contacts Sales Contacts Services | BUSRIDE


BEST VIEW FROM EVERY ANGLE. Prevost coaches deliver the luxury experience that today’s charter travelers are looking for. With their fuel-efficient powertrain and low-maintenance design, they’re as comfortable on your balance sheet as they are for your passengers.

Cabinet-maker Eugene Prevost created his first wooden coach body in 1924. Since that modest beginning, Prevost’s legacy of fine craftsmanship and superior quality has been passed from generation to generation. Over the years, our inspiration and expertise have kept us on the cutting edge of design and technology. Our uncompromising commitment to quality and continuous improvement, and our dedication to safety and sustainability are instilled in every aspect of our business – from our birthplace in Sainte Claire, Quebec, and to our North American parts and service facilities. The Strength and Values of Volvo As part of the Volvo Group, Prevost has access to the financial strength, product development capabilities, and quality manufacturing technology of one of the world’s largest manufacturers of heavy-duty diesel engines, and the second-largest motorcoach and transit bus manufacturing group. Volvo recognizes a clear responsibility to reduce the environmental impact of its products, and safety has been a guiding principle since the company was founded in 1927. Over the years, a series of pioneering innovations has made Volvo a world leader in automotive safety. Dedication to safe, professional drivers Prevost recognizes that motorcoach operators are greatly challenged in recruiting, training and retaining qualified drivers. To that end, Prevost and the United Motorcoach Association (UMA) have joined forces to update and expand the Bus and Motorcoach Academy, creating a new program called Prevost Preparatory School for Professional Motorcoach Drivers, or “Prevost Prep.” Presented by Prevost, UMA and the College of Southern Maryland, Prevost Prep is designed specifically for drivers to meet the driver training needs of the motorcoach industry. The course prepares prospective drivers to pass the CDL written exam and provides a thorough review of applicable industry regulations for those already licensed. | BUSRIDE




What do school, shuttle, luxury and transit buses all have in common? Purpose. Each are called to perform duties that impact lives. We never lose sight of that responsibility and place it into every vehicle we make. We are REV and we make eight of the hardest working, most reliable, bus brands on the road.

Finance Through REV Group - Flexible term vehicle loans with competitive rates and TRAC/Split TRAC/FMV leasing options available.

REV is a leading manufacturer of motor vehicles for bus, emergency, specialty and recreation markets worldwide. Our companies innovate, design and build products that connect and protect thousands of people every day. REV’s lineup of products includes ambulances, fire trucks, shuttle buses, transit buses, terminal trucks, street sweepers, luxury motorhomes and wheelchair accessible vans. REV owns 26 brands, employs more than 6,000 people in 16 different plants in the U.S. and produces more than 20,000 specialty vehicles annually.

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Equipment Finance Roundtable Discussion  

BUSRide presents a two-part, educational roundtable discussion on motorcoach equipment finance.

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