WASHINGTON - The financially pressed Chrysler Corp., one of the biggest players in the municipal vendor lease market, is folding its leasing division and has sold most of its tax-exempt lease portfolio to Koch Industries Inc.

The big-three auto company's decision to exit the municipal finance business was part of a strategy to focus on providing only "core" financial services that support sales of the company's cars and trucks, said Robert Reynolds, executive vice president of Chrysler Capital Corp., the parent company of the divested public finance unit.

While the municipal lease division underwrote the sale of millions of dollars of Chrysler products to state and local governments in its years of operation, it was even more active in providing the financing for diverse equipment purchases from computers to medical technology.

As a result, only a minor part of the lease portfolio purchased by Koch, which is valued in the tens of millions of dollars, actually financed Chrysler products, said Mr. Reynolds and C.J. Nelson of Koch, a privately held oil and gas company. They both declined to give the actual value of the portfolio.

Mr. Nelson said Koch intends to carry on Chrysler's mission as an extensive underwriter, buyer, and holder of municipal equipment leases through a subsidiary, Koch Financial Corp., which he heads. The Wichita, Kan., company previously has been active in real estate finance, he said.

But the "thrust" of the company's activities will be "to make investments and hold those for our own portfolio," Mr. Nelson said. The company will not, as Chrysler did, package its leases for sale on the public market, he added.

Chrysler's decision to close its Kansas City, Mo., public finance unit, which included such well-known professionals as Senior Vice President Robert C. Neptune and Manager Douglas M. Bell, sent riples through the municipal leasing community, where Chrysler had been one of the biggest players.

Only two of the office's professionals, Paul Hearle and Jeff Thompson, will be retained by Koch to maintain and expand its new leasing portfolio, said Mr. Hearle.

Chrysler "historically had been a very active, aggressive participant in the leasing market. We certainly saw them as a competitor," said David A. Glessner, vice president of GE Capital Public Finance Inc., another of the market's major players.

Mr. Glessner is chairman of the Association for Governmental Leasing and Finance, with which Koch has applied for membership, he said.

Mr. Glessner said Chrysler helped shape the leasing industry not only by fostering the growth of the private placement market, but by being a ground-breaker in 1990 with the first sale of a new hybrid on the public market: municipal lease-backed corporate securities.

Chrysler's $35 million asset-backed deal in July of that year was followed closely by GE's own sale of $138 million of lease-backed securities and an even larger IBM Credit Corp. offering of $300 million.

Mr. Reynolds said Chrysler's operating losses in recent quarters, as well as widely reported decline in the profitability of the vendor leasing business, had little to do with the corporation's decision to close its public finance division.

But Mr. Glessner and Michael Wilds, Koch's comptroller, said the auto company's inability in recent quarters to use the federal tax exemption on interest earnings from its municipal portfolio most likely figured into the equation.

"I would have to guess that clearly had an impact. Tax-exempt income is only beneficial if you're a taxpayer," Mr. Glessner said.

Mr. Wilds added that at the present time, "Based on what I know about Chrysler from publicly available information, clearly the tax advantage of the securities doesn't work for them."

The thinner profit margins being experienced with municipal vendor financings could have been a contributing factor, Mr. Glessner said.

"The margins are not what they were five years ago, or even three years ago. It's become a much more competitive marketplace," he said. Among other things, "governmental lessees are smarter about the way they go about acquiring this type of financing, and they're negotiating better deals."

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