ELFA Best Practices Roundtable
Industry Update
Bill Phelan – President
Tom Ware – Senior Vice President
April 4, 2017
Sponsored by:1
Lending Activity vs. Loan Performance
1.2% 0.6% 0.0%
SBDI 91-180 Day Delinquency Index
120
100
80SB
LI
Ori
gin
ations
Index
60
Cycle
Change?
140
11
1. Standardized Approach (Rated
Exposures)
a) Risk Weight from Lookup Table
2. Internal Ratings Approach (Unrated
Exposures)
a) 100% Risk Weight
18
Basel III - General Corporate Exposures
For jurisdictions that use external ratings
for regulatory purposes
19
External
rating of
counterparty
AAA to
AA-
A+ to
A-
BBB+ to
BBB-
BB+ to
BB-
Below
BB-Unrated
“Base” risk
weight20% 50% 100% 100% 150% 100%
Basel III – Standardized Approach for Corporate
Basel III – Small Medium Enterprises (SME’s)
• For Unrated Corporate SME’s
• 85% Risk Weight
• SME defined as sales <€50 million
20
• New FASB regulations• “Current and Expected Credit Loss” (CECL) will require
accounting for expected lifetime Losses
• PayNet now building models to predict lifetime Losses
(not just Defaults)
• Which requires:• Loss Given Default (LGD)
• Exposure at Default (EAD)
• Probability of Default (PD) – beyond two years
21
Expected Loss: Loss Given Default & Exposure at Default
8 Factors Drive Loss Given Default (LGD):
22
The Deal The Timing The Parties
Equipment
Type
Copier – Truck
Equipment Type
Copier – Truck
Transaction
Size
$20k – $500k
Time to Default
12 months –
36 months
Economy
Recession –
Booming Times
Borrower
Deadbeat –
Deep Pockets
Relationship
New Customer –
Repeat
Lender
Experience in
Asset Class