Element Financial Corp. is spinning off its North American commercial finance business into a separate public company to allow its fleet management business to focus on its core business and generate higher returns as a stand-alone company.
by Staff
February 16, 2016
3 min to read
Element Financial Corp. is spinning off its North American commercial finance business into a separate public company to allow its fleet management business to focus on its core business and generate higher returns as a stand-alone company.
The company will set up Element Fleet Management as a $19.5-billion fleet management company and Element Commercial Asset Management as a $7-billion commercial finance company by the end of 2016 at two publicly-traded entities, according to an announcement.
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Brad Nullmeyer, who has served as president of Element Financial Corp., has been named vice chairman of the commercial finance company. Steve Hudson, Element's chief executive, has been named vice chairman of the fleet management company.
"Following the completion of a comprehensive strategic review of our operations and corporate structure, we've concluded that Element is comprised of two very different businesses that will be more effective at maximizing performance for the benefit of shareholders, lenders, customers and employees if they are structured and capitalized as separate public companies," Hudson said.
Element Fleet Management will remain the largest North American fleet management company with a fleet portfolio of $17.5 billion following the move with assets in the U.S., Canada, Mexico, Australia, and New Zealand. The company will continue its alliance with BNP-Arval. It will have 2,600 employees.
Element Commercial Asset Management will include the company's North American commercial and vendor finance business, as well as the company's aviation and rail asset management businesses with a $3.3 billion portfolio of commercial finance assets and $2.2 billion portfolio of commercial aviation assets established in June as Element Commercial Aircraft Funds. The company manages the aviation business on behalf of 30 institutional investors.
The company's on-balance-sheet aviation finance business is being discontinued and the current $1.5 billion portfolio of fully-performing aviation assets will be transitioned to a future aviation fund, sold or managed to maturity.
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Element decided to split the companies because the two businesses have "different operating profiles, growth trajectories, leverage and capital requirements," according to Element. A combined company "limits their ability to achieve their full potential."
Element Fleet Management will retain access to $4.8 billion raised through its Chesapeake Funding II asset-backed security funding in December that could help fuel additional acquisitions. The stand-alone fleet management company can generate higher returns with increased balance sheet ratings and higher leverage that's more comparable to other fleet management companies, according to the company.
Element is in the process of integrating GE Capital's fleet management business it acquired in August. The acquisition came a year after it acquired PHH Corp.'s fleet management business.
Element will provide additional details about the allocation of assets, liabilities and capital structure of the company, as well as the structure of the board and the deployment of current corporate services staff between the two new entities at a later date.
The separation is subject to regulatory approvals and final approval of Element's board. BMO Capital Markets, Barclays Capital and INFOR Financial are serving as financial advisors.
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