David A. Glessner wears two hats as vice president of GE Capital Public Finance Inc., a major leasing firm, and chairman of the association for Governmental Leasing and Finance.
In his corporate job, Glessner underwrites and invests in state and municipal equipment leases, husbanding a multimillion-dollar tax-exempt portfolio for his parent firm, General Electric Co. He is known as a long-time and influential player in the equipment leasing world.
In his other role, as chairman of the leasing association since last year, Glessner has sought to raise the consciousness and profile of the group. Once primarily composed of lease dealers, banks, and government officials involved with equipment leasing, the association has expanded in recent years to include a broad array of public-leasing market professionals.
Under Glessner's stewardship, the association has not shied away from controversy in the leasing market. An association conference scheduled for Nov. 5 and 6 in Tuscon will feature sessions on the Richmond, Calif, Unified School District's default last year on its certificates of participation, good COPs and bad COPs, and unauthorized vendor lease deals, among other topics
In this interview with staff reporter Patrice Hill, who will be moderating a conference session, Glessner gives his perspective on the association, leasing, and issues in the news.
Q: Have you been changing the direction of the leasing association?
A: The association has made a transition from a relatively narrow focus to a broader focus in recent years. It's also become more of an advocate for the leasing business, and we're being more proactive on legal and legislative issues.
We're doing things a little differently with the conference, too, making the topics more exciting. Neil Budnick, [director of Municipal Bond Investors Assurance Corp.], is the organizer of the event.
We've been successful in getting some high-profile speakers like Steve Juarez, [executive director of the California Debt Advisory Commission], and Bruce Babbitt, [former governor of Arizona].
We're having some sessions from the issuer's perspective, which we hadn't tried before. And it's unusual to have [a Bond Buyer reporter] involved moderating a session.
Q: Richmond has stopped making payment on a $7 million equipment lease contract it had with International Business Machines Corp. Yet so far IBM has done nothing, at least publicly, about the default. How do you view this?
A: It is difficult to come out of a situation like that in a positive way. I don't know how they're feeling, but if we were in their shoes, we'd be going back and trying to make sure it never happens again. Of course, hindsight is 20-20, but there were signs up front that they should not have done this transaction.
Richmond's COP issue [to finance operating deficits] was a red flag that would have killed it for us. But at this point, all IBM can do is go into the court system and the political system. It's going to be a mess. Of course, IBM could repossess the equipment, to the extent the lease allows, and if the school district cooperates and returns the equipment. That's the standard approach if there's a default or non-appropriation.
But it may not have much collateral value, and as a result they may just want to wait and see if the school district emerges with a repayment plan. They would come out better than they would otherwise if the customer uses the asset. And from a longer-term perspective, the district in some way, shape. or form could be an IBM customer in the future.
Q: Will IBM get its money back?
A: Because there has been so much emphasis and focus on the COPs default and lawsuit, I would say IBM will probably take a back seat to the COPs investors when it comes to getting payment. But there is a tax write-off [for nonperforming business leases], so it is less painful for a business than for individual investors.
If only because of the scope and scale of a business operation, it's easier to view it as a write-off. Of course, individuals who have investment losses or capital losses can claim a tax deduction as well, so everything is relative. The whole Richmond situation speaks to the need to do your homework to determine the financial strength and credit quality of the issuer. There have been deals like the Richmond one which were really a stretch.
You have to look back and say, "What was the investor thinking and what was the borrower thinking when they came up with this quick-fix solution?"
It created a problem that's up to the marketplace to solve. Hopefully, the market can resolve it rather than have legislative or judicial solutions imposed on it.
Q: What about GE? Has it had any problem with defaulted leases?
A: We recently had a non-appropriation by a major university on a supercomputer lease in the neighborhood of $800,000. That's a big one for us. It was due to financial difficulties at the university.
We considered repossession. We have the rights to the equipment, and to the extent the lease is not paid off, we will repossess and remarket it. The university has unplugged the system and said we can come and get it. But we may not want to do that. We're considering legal action and we may want a legal environment more friendly to what we're trying to accomplish. It might be better to just let them keep the equipment for now.
