1FitchRatings

Benchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry PeersBenchmarking Against Industry Peersfor Better Risk Managementfor Better Risk Managementand Capital Markets Accessand Capital Markets Access

ELA Annual ConventionOctober, 2003

Abbreviated Version

John BellaSenior DirectorFitchRatingsABS Equipment Lease Group(312) 368-2058

Tom WareSenior Vice PresidentPayNet, Inc.PayNet Analytical Services(847) 965-9800 ext. 26

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FitchRatings

Benchmarking - Introduction / Agenda

1. The Need for Benchmarking

2. Reporting Best Practices & Facilitating Access to Capital Markets

3. Industry Trends

4. Case Studies

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FitchRatings

1. The Need for Benchmarking

4

FitchRatings

Trends in Equipment Leasing Volume

(15)

(10)

(5)

0

5

10

15

20

1997 1998 1999 2000 2001 2002 20030

100200

300

400500

600

700800

900

% Change in Business Investment in Equipment % Change in Equipment Leasing Volume

Business Investment in Equipment Equipment Leasing Volume

Source: U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, and Equipment Leasing Association of America; 2002 estimates and 2003 forecasts by Financial Institutions Consulting, Inc.

(%, Year over Year)

( $ Bil.)

5

FitchRatings

9,704

13,607

12,522

9,420

7,879

33

35

29

23

14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1998 1999 2000 2001 20020

5

10

15

20

25

30

35

40

Issuance No. of Transactions

1998–2002 ABS Equipment Issuance — Public and 144A Private

($ Mil.)

6

FitchRatings

7,8799,42012,52213,6079,704

2,7324,5502,2814,050

2,487

2,719

5,829

7,485

6,8352,530

499

1,033

1,013

1,078

210

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1998 1999 2000 2001 2002

Transportation CE and AG Small Ticket Medical and Dental

1998–2002 ABS Equipment Issuance by Type — Public and Private($000)

CE and AG – Construction equipment and agricultural equipment.

7

FitchRatings

Uses of Benchmarking

8

FitchRatings

Evaluating Performance

Good Bad

GoodAccepted (though perhaps for wrong

reasons)

Common mistake to reject

Bad Common mistake to accept

Rejected (though perhaps for wrong

reasons)

Rel

ativ

e P

erfo

rman

ceAbsolute Performance

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FitchRatings

Users & Uses of Benchmarking

USERS

• Line Management• Senior Management• Boards of Directors• Regulators• Rating Agencies• Institutional Investors• Potential Acquirers

USES

• Identify Weaknesses• Correct Weaknesses• Evaluate Performance• Refine Strategy• Revise Credit Policy• Project Losses• Evaluate Risk• Reduce Risk• Optimize Capital Structure

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FitchRatings

Increase Demand for Analysis

• Basel II Capital Accord – Risk-based capital standards for large U.S. & foreign banks

• Enhanced Wall Street modeling skill (and new-found skepticism)

• RAROC – Risk Adjusted Return on Capital• Overall increased focus on risk and its

impact on capital adequacy

Globalization, larger institution size and growing sophistication increase the demand for deeper analysis:

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FitchRatings

2. Reporting Best Practices & Facilitating Access to Capital Markets

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FitchRatings

Reporting & Tracking Best Practices

1.Eliminate Hiding Places – separating problem accounts in repo, litigation or work-out categories makes the remaining numbers meaningless (as can excessive extensions and rewrites). Also look at 180+, 360+ and 720+ days past due to make sure losses aren’t being hidden within the delinquencies.

2.Eliminate Subjectivity – making significant “manual adjustments” to the numbers is a slippery slope

3.Look at True Exposure – report on dollars not number of accounts, and track the entire balance of accounts that are past due, not just the past due amount

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FitchRatings

Reporting & Tracking Best Practices

4.Separate Risks – maintain separate statistics for different types of risk, such as residual renewals or floorplan lending

5.Enforce Process Discipline to Eliminate “Noise” –resolve payment misapplications as quickly as possible, and consistently run delinquency reports on the same day of each month, and use these archived numbers forever, rather than recalculating them each month

6. Follow Industry Practice – the industry uses month-end, so don’t use mid-month, average throughout the month, etc. And use 31, 61 and 91 days, rather than 30, 60 and 90, so the numberof days in the month does not affect delinquency

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FitchRatings

Reporting & Tracking Best PracticesWhy do all these things?- To see problems sooner rather than later, so they can

be corrected sooner rather than later…..

- This applies across the spectrum, from major losses being swept under a rug eventually leading to disaster, to subtle structuring nuances within select niches and segments that could be “tweaked” to slightly improve performance…if the data is clear enough to see the issue

- And so there are no “surprises”

- Like a medical exam, it’s better to know the truth sooner

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FitchRatings

Reporting & Tracking Best Practices

Rating Agency Perspective (System Reporting)Qualitative Analysis

Rating ApproachServicer ReviewOrigination/Underwriting

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FitchRatings

Facilitating Access to Capital Markets

Quantitative Analysis

Delinquency Measures

Default Benchmarks

Loss Curve Analysis

17

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3. Industry Trends

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FitchRatings

0

1

2

3

4

5

6

7

8

12/97 3/9

8

6/98

9/98

12/98 3/9

9

6/99

9/99

12/99 3/0

0

6/00

9/00

12/00 3/0

1

6/01

9/01

12/01 3/0

2

6/02

9/02

12/02 3/0

3

6/03

30–60 Days 61–90 Days 91 Days or More Total > 30 Days Past Due

Fitch Ratings’ Equipment Lease ABS Delinquency Index

(%)

19

FitchRatings

0

1

2

3

4

5

6

7

8

12/97 3/9

8

6/98

9/98

12/98 3/9

9

6/99

9/99

12/99 3/0

0

6/00

9/00

12/00 3/0

1

6/01

9/01

12/01 3/0

2

6/02

9/02

12/02 3/0

3

6/03

Three-Month Average 12-Month Average Total > 30 Days(%)

Total Delinquencies vs. Three-Month vs. 12-Month Moving Averages

20

FitchRatings

0

10

20

30

40

50

60

70

80

12/97 3/9

86/9

89/9

812

/98 3/99

6/99

9/99

12/99 3/0

06/0

09/0

012

/00 3/01

6/01

9/01

12/01 3/0

26/0

29/0

212

/02 3/03

6/03

30–60 Bucket 61–90 Bucket 91+ Bucket

Delinquency Buckets’ Proportion of Total Delinquencies(%)

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FitchRatings

TopTop--Down vs. BottomDown vs. Bottom--Up DataUp Data

Fitch data is “topFitch data is “top--down” public information as down” public information as reported by the lending institutions themselves to reported by the lending institutions themselves to the SEC and investorsthe SEC and investors

PayNet data is “bottomPayNet data is “bottom--up” as calculated from up” as calculated from millions of individual lease and loan transactions in millions of individual lease and loan transactions in the PayNet database with a total original contract the PayNet database with a total original contract value of over $230 billionvalue of over $230 billion

TopTop--Down and BottomDown and Bottom--up are different, but both are up are different, but both are useful, complementary ways of looking at the datauseful, complementary ways of looking at the data

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FitchRatings

Office Equipment vs. Construction EquipmentOffice Equipment vs. Construction Equipment

How long has delinquency been improving for these How long has delinquency been improving for these industries?industries?

A.A. Since 2000Since 2000

B.B. Since 2001Since 2001

C.C. Since 2002Since 2002

D.D. Varies significantly by industryVaries significantly by industry

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FitchRatings

Office Equipment 31+ Day Delinquency %: 2000Office Equipment 31+ Day Delinquency %: 2000--20032003Includes PayNet equipment codes COPY, TELE, COMP and OFFCIncludes PayNet equipment codes COPY, TELE, COMP and OFFC

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

High Decile 13.33% 12.38% 10.01% 9.71% 9.84% 8.81% 7.19% 7.17% 6.91% 6.94% 6.24% 5.93%High Quartile 8.19% 8.32% 7.04% 7.05% 6.98% 7.02% 5.93% 4.94% 4.89% 4.89% 4.33% 4.17%Average 5.51% 5.59% 4.90% 5.05% 5.06% 4.89% 4.07% 3.67% 3.51% 3.50% 3.09% 3.04%Low Quartile 1.78% 2.37% 2.49% 2.79% 3.03% 3.07% 2.57% 2.38% 2.19% 2.08% 1.75% 1.82%Low Decile 1.04% 1.84% 1.81% 2.10% 2.40% 2.10% 2.00% 1.74% 1.61% 1.48% 1.29% 1.37%

4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 Summer'03

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FitchRatings

Construction Equip. 31+ Day Delinquency %: 1999Construction Equip. 31+ Day Delinquency %: 1999--20032003Includes mining equipment and gasIncludes mining equipment and gas--powered forklifts; does not include logging/forestry equipmentpowered forklifts; does not include logging/forestry equipment

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

High Decile 4.52% 4.25% 4.26% 5.40% 5.37% 5.07% 5.31% 6.77% 6.77% 6.58% 7.50% 6.93% 8.20% 7.66% 7.15% 7.15% 7.07% 6.82% 6.21%High Quartile 3.76% 3.78% 3.96% 3.94% 4.38% 4.50% 5.02% 5.74% 6.38% 6.45% 7.42% 6.57% 6.93% 6.42% 6.44% 6.44% 6.58% 5.80% 5.93%Average 3.05% 2.56% 2.70% 3.62% 3.68% 3.81% 4.01% 4.55% 5.18% 5.41% 6.01% 5.80% 6.88% 6.18% 6.02% 6.15% 5.79% 5.74% 5.47%Low Quartile 2.21% 0.79% 1.99% 2.64% 3.12% 3.64% 4.21% 3.64% 4.64% 3.85% 4.54% 5.20% 6.04% 5.67% 5.24% 5.59% 5.42% 4.98% 5.37%Low Decile 2.08% 0.69% 1.27% 2.38% 1.66% 2.25% 2.31% 2.30% 3.39% 3.77% 4.06% 4.87% 5.93% 4.86% 4.94% 5.13% 4.58% 4.98% 4.62%

1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 Summer '03

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FitchRatings

Office Equipment vs. Construction EquipmentOffice Equipment vs. Construction Equipment

Large Borrowers vs. Small Borrowers Large Borrowers vs. Small Borrowers –– which of the which of the following is true:following is true:

A.A. Small Borrowers usually have higher delinquencySmall Borrowers usually have higher delinquency

B.B. Large Borrowers usually have higher delinquencyLarge Borrowers usually have higher delinquency

C.C. Small Borrowers have higher delinquency early in Small Borrowers have higher delinquency early in a recession, while Large Borrowers have higher a recession, while Large Borrowers have higher delinquency late in a recessiondelinquency late in a recession

D.D. Patterns vary significantly by industryPatterns vary significantly by industry

26

FitchRatings

Office Equipment 31+ Day % by High Credit: 2001Office Equipment 31+ Day % by High Credit: 2001--20032003Includes PayNet equipment codes COPY, TELE, COMP and OFFCIncludes PayNet equipment codes COPY, TELE, COMP and OFFC

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Summer'01 5.04% 5.75% 6.41% 7.73% 7.23% 6.87%

Summer'02 4.08% 4.47% 4.80% 4.84% 5.49% 4.87%

Summer'03 3.41% 3.61% 3.87% 3.83% 4.53% 3.63%

$0-10m $10-50m $50-150m $150-500m $500m-2mm $2-10mm

27

FitchRatings

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Summer'99 4.49% 5.30% 3.44% 1.99% 3.17%

Summer'00 4.11% 5.81% 5.01% 3.44% 2.48%

Summer'01 5.41% 8.07% 7.89% 6.06% 1.66%

Summer'02 3.94% 6.78% 7.27% 6.82% 5.00%

Summer'03 3.76% 5.58% 6.55% 5.42% 5.60%

$0-50m $50-150m $150-500m $500m-2mm $2-10mm

Construction Equip. 31+ Day % by High Credit: 1999Construction Equip. 31+ Day % by High Credit: 1999--20032003Includes mining equipment and gasIncludes mining equipment and gas--powered forklifts; does not include logging/forestry equipmentpowered forklifts; does not include logging/forestry equipment

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FitchRatings

Transportation Equip. 31+ Day % by High Credit: 2000Transportation Equip. 31+ Day % by High Credit: 2000--20032003Class 8 Tractor/Trailer; does not include medium duty, vocationaClass 8 Tractor/Trailer; does not include medium duty, vocational or offl or off--road, which are separate categoriesroad, which are separate categoriesHigh Credit Amount is borrower’s high credit amount with a partiHigh Credit Amount is borrower’s high credit amount with a particular lendercular lender

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

Summer'00 9.94% 7.27% 6.71% 5.12% 3.73% 2.50% 0.12%

Summer'01 8.07% 10.07% 10.10% 8.16% 5.64% 4.34% 2.10%

Summer'02 5.74% 8.41% 9.73% 8.46% 6.15% 3.37% 3.17%

Summer'03 4.55% 6.29% 6.86% 3.87% 3.57% 2.57% 1.08%

$0-50m $50-150m $150-500m $500m-$1mm $1-2mm $2-5mm $5-10mm

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FitchRatings

Office Equipment vs. Construction EquipmentOffice Equipment vs. Construction Equipment

Predictive Power of Credit Scoring Predictive Power of Credit Scoring –– which of the which of the following is true:following is true:

A.A. Credit Scoring only works well for transactions under Credit Scoring only works well for transactions under $50,000$50,000

B.B. Credit Scoring only works well in unsecured lending, Credit Scoring only works well in unsecured lending, such as for Office Equipmentsuch as for Office Equipment

C.C. Credit Scoring seems to work well for most all types Credit Scoring seems to work well for most all types of small business equipment financeof small business equipment finance

D.D. Patterns vary significantly by industryPatterns vary significantly by industry

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FitchRatings

Office Equipment: 2001 Originations 31+ Day % by PayNet RatingOffice Equipment: 2001 Originations 31+ Day % by PayNet RatingIncludes PayNet equipment codes COPY, TELE, COMP and OFFC; PayNeIncludes PayNet equipment codes COPY, TELE, COMP and OFFC; PayNet Rating as of 1/1/2001t Rating as of 1/1/2001

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

5-10 0.00% 7.56% 12.24% 13.83% 13.08% 8.34% 7.70% 10.04% 9.75% 9.51%

15-20 0.00% 3.69% 6.77% 7.94% 8.50% 7.96% 9.91% 9.32% 10.29% 9.96%

25-40 0.00% 3.93% 6.02% 7.26% 6.75% 5.52% 5.85% 5.55% 6.10% 6.53%

45-60 0.00% 1.25% 3.53% 4.67% 5.86% 5.55% 4.60% 3.52% 4.69% 4.24%

65-80 0.00% 1.95% 2.83% 2.90% 3.62% 2.88% 3.24% 3.48% 3.37% 2.69%

85-100 0.00% 2.26% 3.65% 3.21% 2.67% 2.94% 2.93% 2.83% 3.23% 3.43%

Not Rated 0.00% 1.76% 3.91% 4.47% 4.68% 4.86% 4.22% 4.28% 4.90% 4.43%

Overall 0.00% 2.51% 4.43% 4.91% 4.98% 4.67% 4.57% 4.46% 5.02% 4.76%

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03

31

FitchRatings

Construction: 2001 Originations 31+ Day % by PayNet RatingConstruction: 2001 Originations 31+ Day % by PayNet RatingIncludes mining equipment and gasIncludes mining equipment and gas--powered forklifts; does not include logging/forestry equipmentpowered forklifts; does not include logging/forestry equipment

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

24.00%

26.00%

5-10 0.00% 3.98% 11.09% 19.16% 20.31% 24.71% 22.32% 25.57% 16.42% 22.14%

15-20 0.00% 2.09% 4.61% 6.47% 12.03% 12.72% 9.15% 9.91% 9.79% 10.57%

25-40 0.00% 1.51% 2.83% 4.86% 5.62% 4.63% 5.88% 8.52% 6.47% 7.43%

45-60 0.00% 0.68% 1.34% 2.10% 2.81% 3.45% 4.79% 3.10% 3.75% 5.24%

65-80 0.00% 5.16% 2.60% 1.79% 2.41% 6.26% 6.38% 4.90% 3.55% 6.19%

85-100 0.00% 0.04% 0.78% 0.80% 1.38% 1.57% 1.94% 1.74% 2.38% 3.16%

Not Rated 0.00% 1.53% 2.75% 2.85% 5.03% 5.76% 6.26% 8.65% 8.10% 8.16%

Overall 0.00% 1.73% 2.72% 3.52% 5.26% 5.76% 6.11% 7.47% 7.22% 7.26%

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03

32

FitchRatings

Transportation: 2001 Originations 31+ Day % by PayNet RatingTransportation: 2001 Originations 31+ Day % by PayNet RatingClass 8 Tractor/Trailer; does not include medium duty, vocationaClass 8 Tractor/Trailer; does not include medium duty, vocational or offl or off--road, which are separate categoriesroad, which are separate categories

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

5-10 0.00% 2.65% 14.37% 14.82% 21.62% 16.02% 16.01% 15.23% 19.79% 20.15%

15-20 0.00% 2.93% 5.36% 6.94% 8.20% 10.00% 9.64% 11.31% 14.27% 10.78%

25-40 0.00% 0.55% 3.27% 3.86% 5.58% 6.00% 7.44% 7.68% 8.68% 7.00%

45-60 0.00% 0.34% 0.95% 2.59% 2.73% 2.66% 3.80% 3.82% 5.55% 4.75%

65-80 0.00% 0.36% 1.63% 2.78% 2.90% 3.45% 2.09% 3.20% 3.90% 3.64%

85-100 0.00% 0.00% 0.48% 0.49% 0.58% 0.47% 0.64% 0.68% 1.87% 1.76%

Not Rated 0.00% 0.74% 2.31% 3.85% 5.42% 7.43% 7.12% 7.40% 9.29% 8.60%

Overall 0.00% 0.96% 3.30% 4.44% 5.84% 6.20% 6.21% 7.03% 8.70% 7.67%

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03

33

FitchRatings

Agricultural: 2001 Originations 31+ Day % by PayNet RatingAgricultural: 2001 Originations 31+ Day % by PayNet RatingDoes not include logging/forestry equipmentDoes not include logging/forestry equipment

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

5-10 0.00% 0.00% 10.42% 8.94% 7.58% 4.82% 6.44% 11.23% 9.34% 12.93%

15-20 0.00% 1.56% 3.99% 4.51% 6.36% 4.02% 5.93% 6.36% 9.08% 9.00%

25-40 0.00% 0.55% 2.53% 4.57% 3.49% 2.78% 3.94% 4.37% 5.24% 5.35%

45-60 0.00% 1.51% 1.53% 7.20% 5.85% 1.35% 1.80% 1.98% 2.70% 2.59%

65-80 0.00% 0.75% 0.65% 0.41% 0.94% 1.20% 1.74% 1.88% 1.87% 1.74%

85-100 0.00% 0.14% 1.53% 0.52% 0.56% 1.79% 0.98% 0.96% 1.19% 0.76%

Not Rated 0.00% 0.92% 1.46% 1.97% 2.34% 2.30% 2.97% 2.92% 3.50% 3.37%

Overall 0.00% 0.76% 1.72% 2.43% 2.47% 2.18% 2.41% 2.96% 2.96% 2.94%

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03

34

FitchRatings

Office Equipment vs. Construction EquipmentOffice Equipment vs. Construction Equipment

Regional Economies Regional Economies –– which of the following is true:which of the following is true:

A.A. All parts of the country are feeling the effects of the All parts of the country are feeling the effects of the recession more or less equallyrecession more or less equally

B.B. The recession started in the South and New England, The recession started in the South and New England, then moved West and is finally now affecting the then moved West and is finally now affecting the MidMid--AtlanticAtlantic

C.C. Patterns vary significantly by industryPatterns vary significantly by industry

35

FitchRatings

Office Equipment 31+ Day % by Region: 2001Office Equipment 31+ Day % by Region: 2001--20032003Includes PayNet equipment codes COPY, TELE, COMP and OFFCIncludes PayNet equipment codes COPY, TELE, COMP and OFFC

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Summer'01 7.5% 5.7% 6.9% 7.4% 5.2% 7.1% 5.4%

Summer'02 6.2% 3.8% 5.0% 5.1% 4.1% 4.6% 4.5%

Summer'03 5.3% 3.0% 4.2% 4.1% 3.3% 3.8% 3.5%

New England North Central Western Mid-Atlantic Great Lakes Southeast South Central

36

FitchRatings

Construction Equip. 31+ Day % by Region: 1999Construction Equip. 31+ Day % by Region: 1999--20032003Includes mining equipment and gasIncludes mining equipment and gas--powered forklifts; does not include logging/forestry equipmentpowered forklifts; does not include logging/forestry equipment

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Summer'99 3.0% 4.5% 2.4% 2.1% 1.7% 4.6% 2.8%

Summer'00 5.0% 5.4% 4.5% 3.5% 4.2% 3.6% 2.5%

Summer'01 5.3% 8.8% 7.2% 5.3% 5.8% 5.4% 4.7%

Summer'02 4.5% 7.7% 7.5% 6.5% 7.2% 4.9% 3.9%

Summer'03 4.4% 5.9% 5.2% 5.1% 5.2% 5.8% 5.3%

New England Southeast South Central Great Lakes Western Mid-Atlantic North Central

37

FitchRatings

Collections Effectiveness by Lender/Lessor TypeCollections Effectiveness by Lender/Lessor Type

Putting differences in credit quality aside, rank order Putting differences in credit quality aside, rank order Banks, Captives and Independents in order of their Banks, Captives and Independents in order of their Collections Effectiveness (most effective to least):Collections Effectiveness (most effective to least):

A.A. Independents, Banks, CaptivesIndependents, Banks, Captives

B.B. Banks, Independents, CaptivesBanks, Independents, Captives

C.C. Captives, Independents, BanksCaptives, Independents, Banks

38

FitchRatings

Independent

Captive

Bank

-1.00%

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

CEI -0.83% 0.33% 0.65%

Independent Bank Captive

Collections Effectiveness IndexCollections Effectiveness IndexTM TM by Lender/Lessor Typeby Lender/Lessor Type

39

FitchRatings

Collections Effectiveness by Lender/Lessor TypeCollections Effectiveness by Lender/Lessor Type

Putting differences in credit quality aside, rank order Putting differences in credit quality aside, rank order the Collections Effectiveness of lenders/lessors based the Collections Effectiveness of lenders/lessors based on their average transaction size:on their average transaction size:

A.A. <$50m, $50<$50m, $50--150m, $150m+150m, $150m+

B.B. $150m+, $50$150m+, $50--150m, <$50m150m, <$50m

C.C. Some other orderSome other order

40

FitchRatings

Collections Effectiveness by Average Transaction SizeCollections Effectiveness by Average Transaction Size>$150m

<$50m

$50-150m

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

CEI -1.31% -0.14% 2.69%

<$50m $50-150m >$150m

41

FitchRatings

Credit Quality vs. Collections Effectiveness Credit Quality vs. Collections Effectiveness by Lender/Lessor Typeby Lender/Lessor Type

How does Credit Quality vs. Collections Effectiveness How does Credit Quality vs. Collections Effectiveness affect Captive/Bank/Independent portfolio performance?affect Captive/Bank/Independent portfolio performance?

And which factor is the key driver for each type of lender?And which factor is the key driver for each type of lender?

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FitchRatings

By Lender/Lessor Type By Lender/Lessor Type –– Independents vs. Banks vs. CaptivesIndependents vs. Banks vs. CaptivesCollections Effectiveness Index, PayNet Rating & DelinquencyCollections Effectiveness Index, PayNet Rating & Delinquency“Bubble” size = 31+ Day %“Bubble” size = 31+ Day %

3.7%

3.4%

5.3%

50

51

52

53

54

55

56

57

58

-1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00%

Strong CreditStrong

Collections

Weak CreditStrong

Collections

Strong CreditWeak

Collections

Weak CreditWeak

Collections

IndependentsCaptives

Banks

PayN

et (

Cred

it) R

atin

g (

high

er=

bett

er)

Collections Effectiveness IndexTM (lower = better)

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Collections Effectiveness Index, PayNet (Credit) Rating & DeCollections Effectiveness Index, PayNet (Credit) Rating & Delinquencylinquency“Bubble” size = 31+ Day %“Bubble” size = 31+ Day %

TM

7.2%

5.9%

5.0%

6.7%

5.7%

2.8%

5.9%

3.0%

5.7%

2.6%

2.9%

2.6%

2.6%

4.4%

5.5%

3.9%1.2%

5.4%7.7%

1.0%

1.6%

38

42

46

50

54

58

62

66

70

-5.00% -4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00%

Strong CreditStrong

Collections

Weak CreditStrong

Collections

Strong CreditWeak

Collections

Weak CreditWeak

Collections

Collections Effectiveness IndexTM(lower = better)

PayN

et (

Cred

it) R

atin

g (

high

er=

bett

er)

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4. Case Studies

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Benchmarking Case Studies Benchmarking Case Studies –– PayNet MethodologyPayNet Methodology

Benchmarking’s objective is “applesBenchmarking’s objective is “apples--toto--apples” comparisonapples” comparison

Adjustments made to increase comparability Adjustments made to increase comparability –– exclude:exclude:

-- All borrowers with exposures All borrowers with exposures everever greater than $10mmgreater than $10mm-- Accounts once they become more than 180 days past dueAccounts once they become more than 180 days past due-- Delinquencies on accounts in the first 91 days after originatioDelinquencies on accounts in the first 91 days after originationn-- Delinquencies of less than 10% of a regular payment amountDelinquencies of less than 10% of a regular payment amount-- Leases in renewal (i.e. after their original lease term)Leases in renewal (i.e. after their original lease term)-- Lenders without significant quantity of the relevant equip. typLenders without significant quantity of the relevant equip. typee-- Government borrowersGovernment borrowers

Time series comparisons are made on a “same store basis” Time series comparisons are made on a “same store basis” so that all time series are from a constant set of lendersso that all time series are from a constant set of lenders

46

FitchRatings

31+ Day Delinquency % 31+ Day Delinquency % -- Captives, Banks & IndependentsCaptives, Banks & Independentsas of 1Q03 (data is for one specific equipment type only)as of 1Q03 (data is for one specific equipment type only)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

High Quartile 5.61% 5.70% 6.90%

Median 2.79% 3.61% 6.25% 5.38%

Low Quartile 0.76% 2.30% 5.81%

Independents Banks Captives (Subject Co.)

47

FitchRatings

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Subject Co. 7.64% 6.55% 5.42% 4.98% 4.89%

Benchmark 6.25% 6.09% 5.04% 7.41% 4.37%

Subject vs. Benchmark 1.38% 0.45% 0.38% -2.43% 0.52%

Northeast West Central Southeast Great Lakes

31+ Day % by Region, Subject vs. “Custom Regional Benchmark”31+ Day % by Region, Subject vs. “Custom Regional Benchmark”Custom Regional Benchmark calculated by adjusting Other Lenders’Custom Regional Benchmark calculated by adjusting Other Lenders’ Regional Averages by the difference in the National AveragesRegional Averages by the difference in the National Averages

48

FitchRatings

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Subject Co. 4.85% 3.30% 2.50% 1.56% 0.34%

Core Average 5.67% 5.81% 4.86% 3.85% 1.66%

Broad Average 6.45% 4.29% 3.90% 3.06% 0.99%

1999 2000 2001 2002 2003

31+ Day % by Year of Origination, Office Eq. 31+ Day % by Year of Origination, Office Eq. –– Subject Co. vs. Other, 1999Subject Co. vs. Other, 1999--20022002As of 2Q03, for transactions originated in each yearAs of 2Q03, for transactions originated in each year

49

FitchRatings

31+ Day % by Original Term in Months and Transaction Amount31+ Day % by Original Term in Months and Transaction AmountFor Subject Co., average delinquency for 24 months ending 1Q03For Subject Co., average delinquency for 24 months ending 1Q03

$0-100m$100m-250m

$250m-500m$500m-10mm

49+Months 37-48

Months 0-36Months

0%

2%

4%

6%

8%

10%

12%

49+ Months 10.9% 11.3% 8.6% 5.4%

37-48 Months 6.6% 5.2% 4.4% 5.2%

0-36 Months 3.4% 2.0% 2.6% 4.3%

$0-100m $100m-250m $250m-500m $500m-10mm

50

FitchRatings

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

31+% 0.00% 1.96% 3.28% 3.69% 4.58% 4.97% 4.67% 6.01% 4.50% 5.33% 5.81% 7.81% 7.60% 9.35%

Variance -5.33% -3.64% -2.22% -1.74% -0.94% -0.88% -0.78% -0.38% -0.33% -0.17% 0.16% 2.10% 2.23% 3.70%

Benchmark 5.33% 5.60% 5.51% 5.43% 5.52% 5.84% 5.45% 6.39% 4.84% 5.50% 5.65% 5.71% 5.37% 5.64%

Person A Person B Person C Person D Person E Person F Person G Person H Person I Person J Person K Person L Person M (No Name)

31+ Day % by Credit Approver vs. Custom Regional Benchmark31+ Day % by Credit Approver vs. Custom Regional BenchmarkAs of 1Q03, Custom Regional Benchmark is expected delinquency, uAs of 1Q03, Custom Regional Benchmark is expected delinquency, using industry averages by state, for each approver based on sing industry averages by state, for each approver based on their portfolio outstanding in each state, for approvers with ovtheir portfolio outstanding in each state, for approvers with over 100 transactions and more than $1mm outstandinger 100 transactions and more than $1mm outstanding

August 2003

Delinquency Directions By Sara Grohl

Production efficiencies generated from technological investments made in the 1990scaused commercial enterprises and leasing companies to soften capital expendituresduring the economic slowdown. Productivity gains have stalled job creation, business growth, and business investments, while consumers have used their home equity wealth to sustain the economy. To illustrate, business spending and investment haveremained relatively stagnant since the spring of 2001. In contrast, consumer spending, which accounts for roughly 75% of total U.S. spending, has buoyed the sluggish economy over the past few years. While the economy has languished, leasing companies, inparticular, have been concentrating on their core markets, improving business models and strengthening underwriting standards. Results of these industry enhancements are evident from healthier overall portfolio performance and lower delinquency rates in Fitch Ratings’ Equipment Lease ABS Delinquency Index.

Recent data and reports suggest that the roles of commercial and consumer spending may soon reverse. As consumer mortgage

Fitch Ratings ABS Equipment

Lease Group

Wendy Cohn Senior Director 1 212 908-0681 wendy.cohn@fitchratings.com

John H. Bella, Jr. Senior Director 1 312 368-2058 john.bella@fitchratings.com

Joseph S. Tuczak Director 1 312 368-2083 joseph.tuczak@fitchratings.com

Brigid E. Keyes Director 1 312 606-2361 brigid.keyes@fitchratings.com Sara M. Grohl Associate Director 1 212 908-0564 sara.grohl@fitchratings.com

Du V. Trieu Analyst 1 312 368-2091 du.trieu@fitchratings.com

Sahil Patel Analyst 1 312 606-2335 sahil.patel@fitchratings.com

refinancing slows, signs point to a mild rebound in business spending. In the second quarter of 2003, business spending rose at an annual rate of 6.9%, its strongest pace in several years, an indicator that could facilitate lessors portfolio growth if businesses allocate funds to lease equipment. Despite these positive trends, however, economists debate whether or not an up-tick in business spending will

www.fitchratings.com

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30–60 Day s 61–90 Day s91 Day s or More Total > 30 Day s Past Due

Fitch Ratings’ Equipment Lease ABS Delinquency Index

(%)

INSIDE THIS ISSUE

Delinquency Directions………..………1

August 2003 • Volume 2 • Issue 2

Equipment ABS Issuers After the Storm: Where are They Now? ……...5

Financial Institutions RatingAction Summary …….. …….. ………..9

Fitch-Rated Equipment Lease Transactions …….. …….. ……….. 10

DVI, Inc. Update … ………..…………4

INSIDE THIS ISSUE

Delinquency Directions………..………1

August 2003 • Volume 2 • Issue 2

Equipment ABS Issuers After the Storm: Where are They Now? ……...5

Financial Institutions RatingAction Summary …….. …….. ………..9

Fitch-Rated Equipment Lease Transactions …….. …….. ……….. 10

DVI, Inc. Update … ………..…………4

2

August 2003

compensate for decreased consumer spending as a resultof fewer mortgage refinancings. More importantly, economists note that the purpose of business expenditures (i.e. technology replacement, business expansion, or new product development) will play a crucial role in determining the degree of any upturn.

It is uncertain what the current macroeconomic trends may bring for future performance of Fitch’s ABS Equipment Lease Delinquency Index, although one fact holds true: issuers within Fitch’s index remain stable and have delivered solid performance over the past two years. Generally, the issuers who currently comprise the index have survived industry tiering and boast proven business models along with strong historical portfolio performance. Fitch believes equipment lease ABS investors can still expect stable credit performance in most securitized leasing portfolios and low ratings volatility throughout the remainder of 2003.

During the second quarter of 2003, Fitch added the CNH 2003-1 and DVI 2003-1 transactions to its Equipment Lease ABS Delinquency Index, while six transactions paid out. As of June 30, 2003, Fitch’s delinquency index contained 53 transactions issued by 29 different entities, although historically, the index encompasses 94 transactions over a five-year period. The chart on page 3delineates each issuer’s share of the current index as of June 30, 2003 by their transactions’ outstanding aggregated discounted receivable balances (ADRB). The index’s ADRB currently stands at $7.1 billion, which is relatively unchanged from the first quarter.

Index Reaches 66-Month Low, Although MonthlyVolatility Develops During the second quarter of 2003, total delinquencies over 30 days past due fell 25.6% from the first quarter of 2003 to reach 2.97%, hitting its lowest level since October 1998 (see chart, page 1).

Although delinquencies reside at historical lows, Fitch has observed greater month-to-month index volatility in 2003 compared to the past two years. During 2001, for example, the index’s greatest monthly change was a mere 5 basis points (bps), while in 2002 the greatest monthly change was 15 bps. On the other hand, between May and June 2003, monthly volatility quadrupled compared to prior years as total delinquencies dropped 130 bps from 4.27% in May to 2.97% in June. Fitch believes the volatility was driven in part by three transactions that paid out and had traditionally exhibited high delinquencies. The exiting of Orix 2000-B from the index, which averaged a 14.12% total delinquency rate, significantly impacted delinquency severity. Further aiding lower

Delinquency Directions continued from page 1

Issuers Driving Index Delinquencies (%)

Issuer Share of IndexShare of

Delinquencies

Case Credit Corporation 24.93 1.70DVI Financial Services, Inc. 24.78 39.24CIT Financial USA, Inc. 15.98 28.78Caterpiller Financial Services Corporation 5.03 5.45Copelco Financial Services Group, Inc. (Citicapital) 3.75 2.59Marlin Leasing Inc. 2.67 2.01First Sierra Financial, Inc. (AMEX) 2.47 2.13HPSC, Inc. 2.38 1.57Xerox Corporation 2.17 1.96UniCapital 1.21 5.61

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Three-Month Av erage 12-Month Av erage Total > 30 Day s

Total Delinquencies vs. Three-Month vs. 12-Month Moving Averages

(%)

3

August 2003

delinquencies are CNH and BALET, whose total delinquencies did not exceed 26 bps and 86 bps, respectively, during the quarter.

The three- and 12-month moving averages, which smooth out monthly fluctuations, both fell 6% during the quarter and have continued their downward trends since August 2002 and November 2001, respectively. As of June 2003, the three-month average stood at 3.79% while the 12-month moving average fell to 4.28% (see chart, page 2).

The issuers contributing the most substantial amounts to the index’s delinquencies this quarter and each issuers’

respective share of total delinquencies include DVI (39.24%), CIT (28.78%), UniCapital (5.61%), and Caterpiller Financial Services (5.45%). The table on page 2reveals each issuer’s share of the index versus its share of delinquencies. Together, CIT and DVI comprise 40.76% of the index’s ADRB yet account for a disproportionate 68.02% of the index’s total delinquencies.

In contrast, CNH now carries the heaviest weight in Fitch’s index comprising almost one-fourth of ADRB, yet CNH accounts for an immaterial proportion of total delinquencies (1.7%). Considering CNH’s large proportion

01020304050607080

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30–60 Bucket 61–90 Bucket 91+ Bucket

Delinquency Buckets’ Proportion of Total Delinquencies

(%)

Delinquency Directions continued from page 2

Other 6.6%

Xerox Corporation2.2%

Ry der Sy stem, Inc.1.6%

Marlin Leasing Inc.2.7%

HPSC, Inc.2.4%

GreatAmerica Leasing Corporation

2.0%

Copelco Financial Serv ices Group, Inc. (Citicapital)

3.8%DVI Financial Serv ices, Inc.

24.8%

First Sierra Financial, Inc. (AMEX)

2.5%

Case Credit Corporation24.9%

CIT Financial USA, Inc.16.0%

Caterpiller Financial Serv ices Corporation

5.0%

Bank of America Leasing & Capital, LLC

5.6%

Equipment Lease ABS Delinquency Index by Issuer(% of Aggregated Discounted Receivables Balance, As of June 30, 2003)

Note: Numbers may not add to 100% due to rounding.

4

August 2003

of Fitch’s index and the fact that CNH’s securitizations typically exhibit low delinquencies, Fitch expects this issuer to help keep the index at relatively low levels.

CIT’s contribution to total delinquencies should not go unnoticed. CIT’s higher delinquency levels stem from the firm’s asset writedown process within their CIT-EF 2001 securitization. Specifically, delinquencies as reported on CIT’s servicer report includes defaulted account balances (net of valuations) which have masked improved portfolio delinquency performance since July 2002.

Bucket Analysis: 91+ day Bucket Accounts for 30% of Total Delinquencies Equipment ABS total delinquency rate improvements are somewhat offset by higher delinquency roll rates and increases in later stage delinquencies, particularly the 61–90 day and 91+ day buckets (see chart, page 3). Over the past 18 months, the 91+ day bucket has hovered over the 61–90 day past due bucket line despite a near equalization between the 61–90 day and 91+ day buckets in May at 20.4% and 20.6% of the total, respectively.

While the 91+ day bucket deflated in size during May 2003, June performance reversed this trend. Although the 91+ day bucket size is off its October 2002 high of 35.3%, 91+ day delinquencies accounted for a hefty 29.76% of total delinquencies as of June 2003, falling only 44 bps from March 2003.

As such, Fitch continues to watch possible near term upward pressure on gross defaults, partly driven by portfolios with concentrations in owner-occupied trucking, telecommunications, construction, and certain manufacturing segments across small and midticket sectors. In addition to the higher frequency of default, the amount of time to realize on a default, as well as the ultimate loss severity in equipment collateral, will continue to exhibit the negative trends impacting this market space since 2000. Combined, these events will put some pressure on available credit enhancement, but Fitch anticipates little impact on outstanding ratings.

Delinquency Directions continued from page 3

DVI, Inc. Update

On July 1, 2003, Fitch placed all DVI, Inc. sponsored medical equipment asset-backed transactions on Rating Watch Negative. This action affected 60 classes ($1.8 billion) of nine DVI medical equipment transactions.

On Aug. 25, 2003, Fitch downgraded DVI, Inc.’s senior unsecured debt rating to ‘D’ from ‘C’ and removed the rating from Rating Watch Negative. Approximately $155 million of debt is covered by Fitch’s action. The rating action reflects DVI’s announcement on Aug. 25 that is has filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.

A ‘D’ rating reflects Fitch’s belief that recovery potential for the rated securities is very low (below 50%). This view is based on the lack of any substantial unencumbered assets on DVI’s balance sheet. Furthermore, a meaningful component of the value of assets pledged to secured lenders in excess of secured obligations consists of non-accruing, delinquent, and repossessed assets. Fitch also believes that DVI’s historical delinquency and chargeoff trends may weaken if the company or its principal lending officers are not

able to continue servicing the receivables. Loss severity may be heightened depending upon the scope of the company’s misrepresentations regarding its collateral.

All DVI sponsored medical equipment and health care receivable asset-backed transactions remain on Rating Watch Negative. Fitch’s ABS group continues to work in conjunction with Fitch’s Financial Institutions group, keeping current on DVI’s financial status.

Given the recent spotlight on DVI and its percentage of the index, the chart on page 5 compares DVI’s aggregate securitized portfolio performance since January 2000 to the overall index. In evaluating the two trendlines, DVI has exhibited more erratic delinquency performance than Fitch’s index. Considering the nature of mid- and large-ticket contracts, where one large obligor or account can significantly affect delinquency ratios, DVI’s volatile performance is not surprising. Notwithstanding contract performance characteristics, however, the chart clearly shows that DVI’s delinquencies have been higher than the overall index since April 2001.

5

August 2003

The U.S. equipment lease and finance industry is emerging from what the industry has dubbed “The Perfect Storm.” Industry bankruptcies, mergers, and acquisitions,combined with reduced and more costly funding sourcesduring the economic slowdown created a ripe atmosphere for this storm. Over the last several years, industry volatility has dramatically impacted the amount, the underlying composition, and the performance of equipment lease ABS.

Equipment ABS Issuance Volume Over the 1998-2001 period, approximately $45.2 billion of equipment lease and loan-backed securities were issued via public offerings and private placements. This amount consisted of 121 transactions completed by 48 issuers (see table, right). Issuance peaked in 1999 as 35 equipment-related transactions worth $13.6 billion were executed via 22 public offerings worth $11.1 billion. Also in 1999, the market witnessed 13 144A/private placements totaling$2.5 billion. Post-1999, however, the languishing economy and leasing industry contraction pushed 2000 issuance volume down 8% to $12.5 billion. Issuance decreased another 24.8% in 2001 and an additional 16.7% in 2002 to settle at $7.9 billion.

As capital investment in equipment declined alongside the sluggish economy, leased equipment volume fell in step (see chart, bottom of page 6). Business investment in equipment dropped 12% in 2001 from $796 billion in 2000, and fell another 6% to $655 billion in 2002. Consequently, the volume of leased equipment (historically around 30% of investment in equipment) also declined.

Lower equipment ABS issuance was further exacerbated by the acquisition, bankruptcy, or exit of many equipment securitizers. For example, of the 48 issuers that utilized term securitization during the 1998–2001 period, only 12 continue to tap the term ABS market (see Issuance table, page 7). Nine of the 48 issuers that were responsible for $8 billion, or 17.8%, of total issuance during those four years have since been acquired by companies that have not used securitization as a funding source (see table, page 8). Six issuers, responsible for $1.57 billion of 1998–2001 issuance, have since filed for bankruptcy while five have ceased operations and/or exited the industry altogether. Of the 48 issuers from that period, 16 no longer utilize securitization as a funding source.

By dollar volume, of the 15 largest securitizersthroughout 1998–2001 (see table, page 7), only seven(who represented a majority 63.4% of all 1998–2001 issuance) remain active. Generally, these active issuers are larger, well capitalized entities with strong and lengthy securitization track records compared to those of

1998–2001 Equipment ABS Issuers (As of June 30, 2003)

Issuer Status No. of

Issuers No. of Deals

Isssuance ($ Mil.)

% of Issuance

Still Securitizing 12 52 30,077 66.5Acquired by a Nonsecuritizer 9 25 8,032 17.8No Longer Securitizing 16 23 4,127 9.1Bankruptcy/Exit 11 21 2,987 6.6 Total 48 121 45,223 100.0

0

2

4

6

8

10

12

1/00

4/00

7/00

10/00 1/0

14/0

17/0

110/

01 1/02

4/02

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10/02 1/0

34/0

3

DVI Financial Serv ices, Inc. Total Index

DVI Financial Services, Inc. vs. Total Index Delinquencies > 30 Days Past Due

(%)

Equipment ABS Issuers After the Storm: Where are They Now? By Joseph Tuczak

6

August 2003

past issuers. Copelco, First Sierra, Heller Financial, and Conseco/Greentree, who collectively represented 15.8% of all 1998–2001 issuance, were acquired by institutions that have not yet used securitization as part of their funding strategy. Of the four remaining issuers, Provident Bank and Ryder have not utilized term securitization since 2001. Additionally, Orix has not securitized since 2000, while Advanta Leasing exited the market in 2001.

Equipment Composition of Issuance Turmoil plaguing the equipment leasing industry from 1998 to 2002 impacted the composition of equipment ABS deals during the period (see chart, top of page 7). Carrying the heaviest burden were small ticket lessors who experienced the most turmoil during the period ofmergers, acquisitions, and bankruptcies. To illustrate, in 1998, approximately 60%, or $7.5 billion, of all equipment ABS was issued by small ticket lessors. Yet,

by 2001, small ticket issuance dropped 66% to $2.5 billion, which represented only 26% of all equipment ABS issuance that year. Small ticket volume in 2002 rose slightly to 35% of total equipment ABS issuance.

Transportation-related securitizations peaked in 2002 at $2.3 billion, or 18% of all issuance, before being cut inhalf to $1.3 billion in 2001. Remaining at these same levels in 2002, Fitch correlates the decline in transportation securitizations with the softening demand for truck leasing during the economic slowdown. Despite softer truck demand, however, transportation-related ABS issuance remained stable (between 11%–18% of total issuance) over the 1998–2002 period.

In contrast to relatively consistent issuance amounts for transportation-related ABS, agricultural and construction equipment loan volume has varied dramatically. The solid

7,8799,420

12,52213,607

9,704

14

23

29

35

33

02,0004,0006,0008,000

10,00012,00014,00016,000

1998 1999 2000 2001 2002

0510152025303540

Issuance No. of Transactions

1998–2002 ABS Equipment Issuance — Public and 144A Private

($ Mil.)

(15)(10)

(5)05

101520

1997 1998 1999 2000 2001 2002 2003

0100200300400500600700800900

% Change in Business Inv estment in Equipment % Change in Equipment Leasing VolumeBusiness Inv estment in Equipment Equipment Leasing Volume

Trends in Equipment Leasing Volume

Source: U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, and Equipment Leasing Association of America; 2002 estimates and 2003 forecasts by Financial Institutions Consulting, Inc.

(%, Year over Year) ($ Bil.)

Equipment ABS Issuers continued from page 5

7

August 2003

financial condition of larger issuers permitted them access to the commercial paper and long-term debt markets, which offered an economical alternative to securitization as a funding source for new originations. Agricultural and construction equipment ABS issuance peaked at $4.5 billion (48% of all issuance) in 2001, driven in part by CIT Group’s first securitization of construction-related loans.

Over the past five years, medical- and dental equipment-backed ABS volume has boasted the strongest expansion rate. While only $210 million (a mere 2.2% of total equipment issuance) of medical and dental equipment ABS was issued in 1998, this sector’s issuance volume

more than quadrupled to $1.0 billion by 2000. Although this number remained flat in 2001 and 2002, medical and dental equipment ABS has grown as a percentage of total equipment ABS because issuers like DVI, Sky Financial,and HPSC, Inc. increased both the frequency and size of their transactions. Going forward, Fitch does not expect the proportion of medical and dental ABS to continue its growth due to DVI’s bankruptcy filing.

Volatility Impact on Deal Performance Not surprisingly, instability within the leasing industry impacted securitizations’ delinquency and loss performance in several ways. In the case of issuers affected by merger and acquisition activity, the results are mixed. In some

Equipment ABS Issuers continued from page 6

15 Largest Equipment ABS Issuers Over 1998–2001 Rank by Issuance Issuer No. of Deals

Issuance ($ Mil.)

% of Issuance Securitization Status/Most Recent Term Securitization

1 CNH (Case Credit and New Holland) 11 8,407 18.6 Still Active - May 2003 - Case Acquired New Holland in 2000 2 CIT/Newcourt 7 8,200 18.1 Still Active - June 2003 - CIT Acquired Newcourt Credit in 2001 3 Navistar Financial 6 3,355 7.4 Still Active - June 2003 4 Ikon Office Solutions 6 3,269 7.2 Still Active - April 2003 5 Copelco Capital 5 3,037 6.7 Not Active - Acquired by Citibank in 2001 6 Conseco/Greentree Finance 4 2,113 4.7 Not Active - Acquired by Wells Fargo Equipment Finance in 2001 7 DVI 7 1,966 4.3 Still Active - May 2003 8 Caterpillar Financial 3 1,800 4.0 Still Active - May 2003 9 John Deere Credit 2 1,658 3.7 Still Active - July 2003 10 First Sierra 6 1,250 2.8 Not Active - Acquired by American Express Business Finance in 200111 Advanta 3 880 1.9 Not Active - Exited - 2001 12 ORIX Credit 3 807 1.8 Not Active - Last Term Securitization in 2000 13 Ryder Leasing 3 783 1.7 Not Active - Last Term Securitization in 2001 14 Heller Financial 2 746 1.7 Not Active - Acquired by GE Capital in 2001 15 Provident Bank 2 691 1.5 Not Active - Last Term Securitization in 2000

15 Largest Issuers 70 38,962 86.1

1998–2001 Total Issuance 121 45,223

9,704 13,607 12,522 9,420 7,8792,487 4,050 2,281 4,550

2,732

2,5306,835

7,485

5,8292,719

2101,078

1,013

1,033499

02,0004,0006,0008,000

10,00012,00014,00016,000

1998 1999 2000 2001 2002

Transportation CE and AG Small Ticket Medical and Dental

1998–2002 ABS Equipment Issuance by Type — Public and Private

($000)

CE and AG – Construction equipment and agricultural equipment.

8

August 2003

instances, the acquiring company (typically larger and more capitalized) provided financial stability. Furthermore, the acquirer offered an ability to substitute leases, the capacity to provide servicer advances, a more sophisticated servicing/collections platform, as well as expanded asset management resources (e.g. legal, equipment repossession,and asset disposition outlets).

On the flipside, some transactions were impaired as servicing operation functions relocated, merged, and consolidated, which often resulted in the loss of key personnel. While no credit was assumed for substitutions during the ratings process, some transactions no longer benefited from substitutions if the acquiring company elected to opt out of this structural strategy.

The 10 transactions executed by six different issuers who filed for bankruptcy between 1998–2001 endured a stressful transition to a successor servicer. These transitions were hampered by, among other things, the underperforming nature of collateral prior to the transition, the meltdown nature of the original servicer’s removal (which often resulted in inadequate record keeping and the lack of access to key servicing personnel), and the lack of a more formalized back-up servicing arrangement upon the

close of those transactions. Of the 11 securitizations from five issuers during 1998–2001 that have subsequently exited the industry, only seven transactions remain or remained serviced by the original servicer.

Outlook As the leasing sector emerges from the storm that has plagued the industry for several years, positive trends continue to surface. Equipment ABS issuance of $5.9 billion for the first six months of 2003 compares favorably with $7.8 billion of equipment issuance for all of 2002. Consolidation, as well as the frequency andmagnitude of equipment ABS rating actions, has slowed considerably. Continued positive “tiering” among equipment lease ABS issuers has resulted in active issuance dominated by financially stronger companies. As the economy regains strength, Fitch believes the amount of annual equipment lease issuance will modestly increase as the demand for leasing resumes. However, the rate and amount of issuance will be dictated by the urgency of issuers’ attempts to lock in longer term funding in an uncertain interest rate environment that may or may not make securitization an attractive funding source.

Equipment ABS Issuers continued from page 7

1998–2001 Equipment ABS Issuers Acquired by Nonsecuritizers -

Issuer No . of Deals Issuance ($ Mil.) % of Issuance Acquirer (Date)

Copelco Capital 5 3,037 6.7 Citibank (2001) Conseco/Greentree Finance 4 2,113 4.7 Wells Fargo Equipment Finance (2001) First Sierra 6 1,250 2.8 American Express Business Finance (2001) Heller Financial 2 746 1.7 GE Capital Corp. (2001) Center Capital 2 282 0.6 Webster Bank (2001) Fidelity Leasing 2 263 0.6 Citibank (2001) Charter Financial 1 171 0.4 Wells Fargo Equipment Finance (2000) Telmark 2 117 0.3 Wells Fargo Equipment Finance (2002) El Camino Resources 1 56 — GATX (2001) Issuance of Acquired Issuers 25 8,035 17.8

1998–2001 Total Issuance 121 45,223

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Fitch’s rating actions year-to-date in 2003 generallyreflect the continued challenging environment faced bycommercial and consumer finance companies. Between Jan. 1 and Aug. 15, 2003, eight commercial and consumer finance companies were downgraded. In addition, DVI, Inc., Bombardier Capital, Inc., and AmeriCredit Corp. were downgraded more than once during the period. Only two companies, Xerox Credit Corp. and Doral Financial Corp., were upgraded year-to-date in 2003. However, 11companies were also affirmed without a rating change, as several trends also began to emerge that suggest rating stabilization is possible in the near term.

The deflation that has gripped the equipment finance sector for over three years continues to play a significant role in Fitch’s view of commercial and consumer finance companies. Although a few equipment classes have begun to stabilize, most have yet to experience any meaningful firmness in lease residuals or loan loss recoveries. Specifically yellow iron, widebody commercial aircraft, and automobiles continue to see some combination of oversupply, weak pricing, and subsidized manufacturer financing. Collectively, these factors have eroded valuations for used equipment. The only strong point from an asset value appreciation standpoint has been residentialreal estate and, to a lesser degree, class A commercial real estate that to a large extent has been driven by low interest rates.

One of the bright spots in the finance industry has been improving delinquency levels for many commercial finance companies. Some issuers have responded to industry-wide challenges by either improving underwriting standards, reducing growth, or de-

emphasizing less profitable business segments. In Fitch’s view, these actions have not provided sufficient rationale for a positive rating action as they are responsible defensive measures taken by management in a challenging operating environment.

Rating actions on DVI, Inc.’s senior unsecured debt stem from an unusual series of events and resignation by its long-time independent auditors Deloitte and Touche management’s misperception of the market’s sensitivity to disagreements with auditors. Loss of confidence by the credit markets stemming from these events resulted in lower advance rates for collateral that effectively eliminated DVI’s borrowing flexibility.

The lone upgrade in the commercial equipment finance universe in 2003 was Stamford, CT based Xerox Credit Corp. along with its parent, Xerox Corp. All of Xerox Corp. and Xerox Credit Corp.’s senior unsecured credit ratings were raised following the execution of a comprehensive recapitalization plan, sourcing of vendor capital from General Electric Vendor Financial Services, and a comprehensive overhaul of Xerox’s business lines.

Companies involved in aircraft production or financing have seen rating and outlook actions reflecting challenges in the commercial aerospace market. Textron Financial Corp. was downgraded in part due to diminished financial performance and weaker aircraft deliveries at its parent company, Textron, Inc. International Lease Finance Corp. and Boeing Capital Corp. were also placed on rating watches or outlooks reflecting, in part, weakness in commercial aircraft values and the declining credit quality of airlines.

Financial Institutions Rating Action Summary By Matthew D. Gallino and Philip S. Walker, Jr., CFA

Summary of Issuers on Rating Watch/Outlook

Company Rating* Status Date Initiated Key Strengths or Concerns

Rating Watch Transamerica Finance Corp. ‘A’ Positive 9/6/03 Completion of GECC acquisition of most of Transamerica's commercial

finance portfolio Rating Outlook International Lease Finance Corp. ‘AA–’ Negative 9/20/02 Challenges in aircraft operating lease market John Deere Capital Corp. ‘A’ Negative 9/28/01 Slump in agricultural market, decline in non-agricultural businesses, weak

but improving operating metrics Navistar Financial Corp. ‘B+’ Negative 5/18/01 Weak industry environment, employee and retiree costs Textron Financial Corp. ‘A–’ Negative 10/23/01 Weak business environment and aircraft deliveries, operating trends Boeing Capital Corp. ‘A+’ Negative 6/10/03 Weakness in commercial aerospace market, customer credit quality, rising

trade-in obligations

*Only senior unsecured rating shown. GECC – General Electric Capital Corp.

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Copyright © 2003 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriters, and other sources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, the information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

Fitch-Rated Equipment Lease Transactions (Second-Quarter 2003)

Transaction Name Class Amount ($) Rating

DVI Receivables XIX, LLC, 2003-1* Class A-1 71,810,000 ‘F1+’ Closing Date: 5/22/03 Class A-2a 25,200,000 ‘AAA’ Class A-2b 27,000,000 ‘AAA’ Class A-3a 229,620,000 ‘AAA’ Class A-3b 32,000,000 ‘AAA’ Class B 17,010,000 ‘AA’ Class C-1 5,740,000 ‘A’ Class C-2 9,000,000 ‘A’ Class D-1 6,340,000 ‘BBB’ Class D-2 5,000,000 ‘BBB’ Class E-1 9,340,000 ‘BB’ Class E-2 2,000,000 ‘BB’ Total Issuance 440,060,000

CNH Equipment Trust 2003-A Class A-1 228,000,000 ‘F1+’ Closing Date: 5/22/03 Class A-2 251,000,000 ‘AAA’ Class A-3a 150,000,000 ‘AAA’ Class A-3b 108,000,000 ‘AAA’ Class A-4a 107,000,000 ‘AAA’ Class A-4b 96,000,000 ‘AAA’ Class B 32,500,000 ‘A+’ Total Issuance 972,500,000

Marlin Leasing Receivables VII, L.L.C., Series 2003-1 Class A 197,290,000 ‘A’ Closing Date: 6/25/03 Class B 15,090,000 ‘BBB’ Class C 6,380,000 ‘BB’ Total Issuance 218,760,000

*All classes placed on Rating Watch Negative on July 1, 2003.