Q4 2021 ECN Capital Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the E. C N Coffey till first quarter 2021 results conference call.
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I would now like to turn the conference over to Mr. John Wayne set. Please go ahead Sir.
Thank you operator, good afternoon, everyone first I want to thank everyone for joining this call joining us today are Steven Hudson, Chief Executive Officer, and Michael <unk>, Chief Financial Officer.
Unusually summarizing these results was issued this afternoon and the financial statements and MD&A for the three month and year end period ended December 31, 2021 had been filed with SEDAR.
Documents are available on our website at Www Dot <unk> capital Corp, Dot com presentation slides to be referenced during the call are accessible on the website as well.
In PDF format under the presentations section of website.
Before we begin I want to remind our listeners that some of the information. We are sharing with you. Today includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties I refer you to the cautionary statements section of the MD&A for a description of such risks uncertainties and assumptions.
Although management believes that the expectations reflected in these statements are reasonable we can obviously give no assurance that the expectation of any forward looking statements will prove to be correct.
You should note that the company's earnings release financial statements MD&A and today's call could references to a number of non <unk> measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non <unk> measures to <unk> measures can be found in our MD&A.
All figures are presented in U S dollars unless explicitly noted and with these introductory remarks complete I'll now turn the call over to Steven Hudson Chief Executive Officer.
Jonathan Good evening and welcome to <unk> fourth quarter.
Earnings call turning to slide six we're happy to add source one to our operating banner operating partner banner welcome aboard turning to slide seven.
Slide from our recent Investor day, as I mentioned at Investor Day, We have three core components of our robust business model first of which is our deep origination platforms. We have 5000 nationwide dealers between Tri Ed a source one.
Kessler group has the background and history of 6000 affinity credit cards created by kg.
Beside the origination platforms, our committed loan partnerships, which we continue to expand and broaden these partnerships as we will highlight shortly in the Tri Ed section. We've got Great News to report on these these expanded partnerships and underpinning the first and second component is our.
Our robust and industry, leading servicing advisory and portfolio management platform.
This is a significant source of recurring revenue pretty soon.
Turning to slide eight slide you've seen before we've completed the service finance sale for $2 billion in cash represents a six five return on investment in four years.
Turning to source one New addition to the ECM PARP shifting family.
Sources, Prime RV and marine loans for consumers, it's 100% consistent with <unk> proven model.
Credit assets asset light no recourse obligations on behalf of banks and credit Union partners.
And finally, and probably most important is accretive to both 'twenty, one and 'twenty two operating earnings.
Turning to page nine our tuck in strategy.
This strength led by John <unk> is underway.
<unk> one marks the first the.
The strategy, which we will continue to rollout in 'twenty two 'twenty three.
Really important to us as we look at these opportunities that they would be accretive to the ECM that they'd be asset light and fee oriented business within our scope.
Scope of competency.
Third that the high quality credit assets are in demand by our existing institutional partners are funding partners and that would be non recourse.
And then we have very limited integration risks, we think source one score as well in each one of those components.
Turning to page to slide 10.
A little bit on the fourth quarter, which will get through in a moment happy to report six cents of EPS. This quarter <unk> from the sale of our credit card portfolio.
Service Finance is reported as discontinued operations in the fourth quarter.
We are really reiterating our guidance for 'twenty two 'twenty three from our Investor day.
And as I've mentioned epic at that.
Investor Day, I'm guiding you to the high end of that range and I'll speak to in a moment Janney.
January and February have been strong in the business tried is at the high end of its origination for those months those two months don't make a year, but they certainly underpinned in the first quarter, we're quite confident I think our past execution of the strength of these businesses gives us a high degree of confidence in our earnings forecast.
<unk> one is above our expectations. So it's above the high end and <unk> at the high end. So I think the first quarter will put us in great shape.
Tri Ed.
Results are strong in the fourth quarter had a 51% increase in originations. We are fully funded through 'twenty. Two 'twenty three we're pleased to announce our multiyear partnership with Blackstone and we will speak to that in a moment kg front adjusted earnings came in at pretax earnings of $17 2 million.
And we mentioned earlier, our specialty lending company, which is an affiliate of Blackstone, which we launched with a $450 million portfolio of credit card portfolio purchase in the fourth quarter.
We feel that <unk> has delivered on its promise to prove to the financial markets that we can successfully introduce institutional investors into acquiring and managing credit card portfolio.
Turning to the operating highlights on slide 12.
With respect to Tri Ed happy.
Happy to report.
Operating adjusted earnings of $13 9 million.
Up 56% year over year originations were up 52% in our floor plan assets stood at a $182 million.
Okay.
Also happy to report that we added 15, new funding partners institutional investors, who purchase our loans in 'twenty. One that we are about to announce the Blackstone partnership we're maintaining our guidance of $1 40 to $1 six and again I would guide you to the high end of that range.
Turning to slide 13 is a slide we provided at Investor Day I.
I wouldn't comment on it other than to say, it's a good slide but at the very bottom part of that slide last bullet I think is very important and very significant we're pleased to announce our new multiyear funding partnership with Blackstone and first quarter. It's a two year plus commitment to purchase up to $1 $25 billion of manufactured home loans and sorry.
Both channels and land home and bronze and silver it goes across the entire menu of products. This is really the third chapter of our partnership with Blackstone. It started with a very successful service finance program for $1 5 billion, it's followed by a multibillion dollar.
Our commitment with respect to credit cards and this is the third chapter we're very happy with this partnership.
See lots of runway going forward.
Slide 14, I won't speak to again this was a slide.
<unk> day.
Originations on 15, our <expletive> presented originations of 50% growth continue to.
Demonstrate the robust nature of the Tri Ed platform.
The origination bridge on slide 16, I'll, just take a moment and highlight the I'm not sure the color blue showing up on your screen, but the light blue.
<unk> Blue, which is land home for 2012.
Two and if you think about land home and the industry land homes market size is three times the size of the channel our channel business stands at about $1 billion of forecasted originations for 'twenty two.
That means our land home opportunities approximately $3 billion.
Forecast of 300 million indicates that the $2 $7 billion opportunity over the next several years several years, we feel confident about the continued.
Origination growth and profitability of Tri Ed.
Turning to slide 17, again, we added slides from Investor day.
Guide you to the high end $70 million.
Turning to source what John .
Thanks, Steve So on page 18, we are reiterating the guidance for <unk>, one that we introduced at Investor Day 22, we're thrilled to have added source. One is an operating partner on our first acquisition in our tuck in strategy and really think there is a substantial opportunity for platform growth overtime.
The end markets in marine and RV have very similar demographics to triad and the model is on target asset light Prime credit on behalf of bank and credit Union partners. We intend to follow the proven playbook, we used at service finance and triad to drive growth and have identified significant growth opportunities, which we detailed at Investor day.
We're currently anticipating 26% growth in originations at the mid point importantly, we have started 22 strong with January and February origination growth ahead of plan at 31% and 40% respectively.
Without the benefit of any of the growth initiatives, which are still in early stages. We will update you as we move forward.
The addition of source one adds around $12 million to $14 million adjusted operating income before tax which is 47% growth at the midpoint year over year.
Sure.
Page 19.
We review Q4 results for kg, which produced adjusted operating income before tax of around $17 2 million, an increase of 87% year over year. This includes a realized gain of around $2 $5 million net of tax from the earlier announced sale of <unk> credit card investments to SLC as discussed in Q3.
As discussed at Investor Day, AKG added a significant new co brand partnership with Q4 in Q4 with a major Canadian Bank also as previously discuss kg launched the partnership with SLC for the CCM platform.
In Q4 as part of this launch we closed $450 million CCM portfolio transaction and sold <unk> on balance sheet credit card investments to SLC.
Transactions in the long term partnership with SLC validate the thesis of the build out of the CCM platform.
On page 20, we repeat a brief recap some of the highlights from 2021 as discussed at Investor Day, We will now segment kg into partnership services CCM in performance marketing, primarily as a result of the growth of the CCM platform we.
Touched on the partnership services in CCM highlights, but I wanted to highlight.
The performance marketing.
Performance marketing at kg added 10, new marketing clients, including many in new verticals and onboard at its first card as a service clients.
Cardinal services, particularly exciting and as noted at Investor Day Kgs added two more credit union customers that are larger than our launch client and has partnered with one of the major card networks to launch a card program for a $60 billion Bank 2022 should be an exciting year for card as a service.
Finally on page 21, we are reiterating our 2022 guidance from Investor Day, We raised adjusted operating income before tax guidance from 52 to 59 million to $55 million to $60 million, which is roughly 15% growth at the midpoint after.
<unk> for the realized gain on sale of the legacy credit card portfolios to SLC.
With that I'll hand, it over to Michael to discuss our consolidated financial summary.
Thanks, Sean turning to page 23, and the Q4 consolidated operating results key highlights our triad originations of 300 million, which is a new record for the quarter were up $50, 52% compared to the same prior year quarter, reflecting continuing strong growth in their business.
Q4, adjusted net income applicable to common shareholders was $13 8 million or <unk> <unk> per share compared to $1 5 million.
<unk> per share in the prior year quarter again, reflecting the strong growth at both Tri Ed and kg in Q4.
Discontinued operations in Q4 reflect the $1 billion gain on the sale of service finance after taxes and transaction costs.
In addition to complete the wind down of the legacy business and returned $35 million in capital in the near term we have taken the following charges on our legacy assets.
$11 4 million in aviation assets $14 6 million on a legacy corporate aviation asset $2 4 million in CMV and $11 1 million on a railcar assets.
Turning to page 24, and the balance sheet.
Key highlights are that.
Assets were down over $600 million compared to Q3 as a result of the sale of service finance total debt was down approximately $240 million, primarily due to the net cash flow from the sale of service finance and debt will increase again at the end of Q1, when we make the income tax payment due on the sale sale of service finance.
We completed two issuances of senior unsecured debentures in Q4 of Canadian $86, $2 $5 million and Canadian dollars $60 million, respectively. These debentures carry interest rates of 6% six 5% or approximately four 5% after tax and it can be settled with the issuance of ECM shares at the Companys.
Option for this reason they are treated as equity pursuant to a senior loan covenants and therefore represent attractively priced long term capital for the company.
The proceeds from the senior unsecured debentures funded the acquisition of <unk>, one and the retirement of the series a preferred shares at the end of Q4.
Turning to page 25, and the income statement total revenues of $69 5 million were up 94% compared to Q4 2020 in total.
Reflecting the strong performance of both our triad and <unk> businesses.
The increased revenues drove increased.
250% increase in adjusted EBITDA and as noted previously Q4 2021, adjusted EPS was <unk> <unk> per share slightly above analyst consensus for the quarter compared to only <unk> <unk> per share in the same prior year quarter.
Turning to page 26, and operating expenses key highlights are higher business segment operating expenses, primarily driven by the growth in originations and managed assets and new products at triad and higher revenues at kg overall operating operating expenses increased by 67% year over year compared to <unk>.
Revenue growth of 94% year over year, demonstrating the strong leverage in our business model.
Corporate operating expenses of $4 6 million compared to $5 4 million in the same prior year quarter.
Finally legacy business expenses.
The $1 6 million.
Largely offset by legacy business revenues of $1 6 billion.
Yeah.
And finally, turning to page 27, and our consolidated 2022 forecast.
Which is unchanged from our Investor day as noted earlier key highlights include business segment operating income range of 129% to $144 million adjusted operating income before tax range of $92 million to a $101 million and adjusted EPS of <unk> 29 to 31 per share and an effective tax rate of <unk>.
Approximately 20%.
Now I will turn it back to John .
Thanks, Michael.
On page 29 is a slide you've seen before.
But I thought it was again important to highlight that ECS has returned in excess of $2 5 billion to shareholders through buybacks quarterly dividends and our special distribution from the service finance transaction.
The <unk> steward of capital shareholders has been a prime directive and we will continue to be going forward.
Management are substantial shareholders and we will make it we make all our decisions with the goal of maximizing shareholder value.
And with that I'll turn it back to Steve to conclude thanks, John just by way of summary on slide 30.
Service Finance was closed and provided a $7 50 special dividend to our shareholders, we're quite proud of that track record.
<unk> proud of our partnership with Mark Merch and his team.
On the source one side happy to have closed that transaction as part of John's.
Acquisition Tuck in acquisition strategy, we think that this transaction.
There are lot of fruit.
Some others to come.
And the successful operating results reflected by the success in the quarter those results combined with the execution by the team and the employees and partners gives me a high degree of confidence in our ability to deliver earnings at the high end or slightly above the high end of our forecast for 'twenty two.
With our track record on our return of capital to shareholders. I think it reflects I don't think it does reflect our commitment as good stewards of capital. We continue to have an NCI be active in the marketplace.
It's my final comments before we open for questions. So as I mentioned earlier.
The risk of repeating myself I would guide you to the high end of 'twenty two guidance, we have a high degree of confidence that we will meet or exceed those targets with that operator, we are happy to open the call to questions.
Thank you.
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Okay.
Our first question is from Tom Mackinnon with BMO capital. Please go ahead.
Yes, thanks, very much and good afternoon.
The Blackstone partnership.
You mentioned, we've got third chapter of it now with.
Where I'm, helping add on trial.
Ed.
One quarter.
Is that how.
How can we see that relationship evolving further infer.
So for them too.
To purchase.
More with respect to triad.
Can they do anything with towards one.
Indicated they do anything more with Kessler just yet.
The relationships evolving and evolving rapidly here and just wondering if you can add some color.
Thanks for that Brian .
Thanks, Tom.
It is an important relationship I would say we treat our 100 funding partners is all equally important.
Because we pride ourself, although although these are non course non course relationships, we want our assets to perform and I think that's reflected in this growing.
<unk> partnership in the first two legs that performed at or above their expectations.
This is an important step forward, we still have a number of core funding partners at.
At triad.
To answer your question I think it's safe to assume Tom without getting the details that we would win.
Look at acquisition that probably didn't involve some input from Blackstone.
To kind of stop there but.
We don't we don't make an acquisition that our bank partners don't look at we don't make an acquisition that our funding partners don't want to buy assets.
So I think I think it's safe to assume Tom that they had some input on source what clearly they are not buying source one paper yet.
But I think that Dave.
We certainly we certainly cherish their views.
Okay.
That's great.
With respect to triad I think we've talked about average ticket.
Size is increasing nicely throughout 2021.
Do you know.
Can you tell us what's been driving that.
I mean, what are you seeing is it.
Is it really just for the industry or is it are you seeing higher ticket.
Specifically with respect to triad.
And where might you see some of these higher ticket.
Coming from are they in.
Silver or bronze.
<unk> home or chattel, or where where are you seeing.
I think the ticket size I don't think the ticket size is uniform across all products com. So it's not it's all all above youre seeing price increases that the manufacturers as they deal with inflate.
Inflationary pressures that's part of it Tom.
They're part and they've been successful in passing that along which benefits us because we've got higher tickets.
Higher origination fees and higher management fees, because our balances are higher.
I would say that probably the bigger component.
So is that inflation is just demand.
Unprecedented demand for affordable housing. This is this is the solution maybe John wants to jump in yet Tom I was just going to add so in in 2020, while we saw obviously substantial demand for manufactured housing really across the board. What you saw in the industry channel pricing overall was up around 20% are pricing at <unk>.
<unk> was actually up around 25% now that's skewed a bit because we launched the land home business, which has much higher ticket sizes then.
Then you would get in your typical chattel because remember your financing not just the home, but the land as well and.
So we did a little bit better once you adjust out the land home side, we were a little bit better than the market. If the market was up 20, we were up 21 or 'twenty two in terms of pricing, that's really a function of demand and it's really a function of the builders are passing along pricing through the dealers to customers, which obviously benefits us quite a bit since we get paid.
<unk>.
Percentage of the interest income over the life of loan.
Okay, that's great and my last one just a quick numbers question the $2 5 million after tax gain what was the pre tax.
Soon on that.
Just like it was a $5 million.
Okay.
<unk>.
Healthy tax rate applied to that.
It costs applied to that as well so it's not a not all tax that's after tax and.
After compensation, if you think about the revenue line would have been around $5 million that is a game like you would think of that.
Any other business there were expenses associated with that so people aren't comp et cetera, as a result of that gain and strip that out and after taxes to as you know the team that built that portfolio our balance sheet. Most I think almost all of their compensation was deferred until we had a successful exit.
You've had you've had comp deferred so you are right. It is a big number but the deferred comp.
To the management team at HCN to.
To the to the people that originated and manage that portfolio thats out.
Accounts for just to be clear the $5 million is really a revenue number yes. There are expenses associated with it and then after tax it was $2 5 million for the tax rate itself isn't materially different.
So the <unk> revenue would've been.
$5 million last excluding that one timer.
Revenue yes.
Okay. Thanks.
And then Tom you know that.
As we mentioned before the return on this portfolio was exceptional free sand shareholders return was over 35% compounded over the period of time, which which exceeded our expectations, but more importantly, it proved out the model that we could allow for blackstone's This world and others too.
In the past these trades are bank to bank and other bank institutional investors silver for concept made us a lot of money.
And the team that did the deal we got they finally got paid as it was sold.
Okay. Thanks for that.
Thanks, Tom.
Our next question is from Nick <unk> with CIBC capital markets. Please go ahead.
Yes. Thanks, just a couple of questions for me going back to the Blackstone partnership at Triad.
Should we I guess, we should just be thinking of that as a large funding partner right and should we think of the commercial terms being generally comparable to other funding partners with triad or is that a relationship because of the size you may have any concessions there.
I don't we don't comment on individual.
Economics, but I would assume that.
Larger deal gives us better economics.
Okay, Okay fair enough.
Yes, and I think the most important part.
And I wouldn't say that that's a big number is the most important part here is that since we've owned triad and source one's new because we've really focused long and hard on counterparty exposures.
When we bought these businesses a series of small credit unions, who are important to our business, but as we've rapidly grown these origination side, we push for more substantive counterparties.
After we get through the first two years with Blackstone that turns into a perpetual program.
And Thats you can assume that's where.
That arrangement is going to become a template for other businesses.
So a little more money, but more importantly longer term.
And a perpetual program.
Okay.
Understood Okay.
And then on the charges on the legacy assets that I think were included in discontinued operations.
What was the nature of that really just rate breakdowns or impairment charges to bring the carrying value of closer to fair value that how we should interpret that.
It's a really good question what I wanted to do was rapidly exit those businesses because they wanted the capital back to deploy it and John Tuck in M&A strategy.
We had we could clear then we could have held on for another two or three years and worked out but that was the last bit of the legacy business.
I will just such a great job on cleaning up but I wanted to capital.
So those those are marks on those books, where we'd rather sold them.
In rail, where we will sell them very shortly here in the next few weeks.
I see okay understood.
Okay. That's it for me thank you.
Thanks, Nick.
Our next question is from Jamie growing with National Bank Financial. Please go ahead.
Yes. Thank you.
So just looking at the MD&A on the on the legacy assets just some color on this so the the $107 million total assets held for sale.
That would be much lower now.
Suppose or is it completely at zero.
Hi, Jamie it's Michael.
It doesn't.
There's going to be about $50 million remaining.
I'm, just not going to be legacy anymore, we're just going to bring them onto.
We can get rid of assets held for sale no discontinued ops next year, so there'll be about $50 million remaining.
Mostly aviation assets that are.
Under various leases that will just keep on a.
Going forward, our corporate assets, Jimmy just to Michael's question. There is nothing left that we can sell.
The remaining aircraft are under mid to long term leases, we will sell them Theres no more we put a mark on them, So theres no more losses coming.
Okay got it.
Going back to the Dci revenue and.
In Kessler.
So I guess adjusting for the gain the revenue would have been around $14 million.
That seemed a bit higher than the guided.
Our run rate on a quarterly basis, so what else might be driving.
Strong revenues in the quarter or is that the run rate.
Yes.
Remember.
When we sold a number of the portfolios that we sold over to SLC, we got to realize a number of the performance fees in.
In the quarter that we would have recognized over a longer period of time.
Those those were earned so we don't view those as sort of one time going forward.
What you saw what we tried to describe in Investor day, the biggest difference between <unk> and 2021 and 'twenty versus 2022, as we no longer have those assets that are sort of on the balance sheet.
Which does not means we're not earning interest income or we're not earning equity returns anymore. We're just starting those management fees. So if you look at the year.
Year over year.
Guidance for four.
CCM it will truly be an asset manager going forward, it's not going to be a reflection of principal returns.
Okay got it and just so I'm clear the guidance is that reflecting base management fees and some performance.
<unk> revenue or just.
Is it just on the base management fee.
Okay.
Basically just base management fees in 2022, but we obviously have the opportunity to continue to earn further upside performance out performance.
Okay. That's great. Thank you very much.
Thanks Jen.
Our next question is from Geoff Kwan with RBC capital markets. Please go ahead.
I just had one question.
When I kind of think about it.
The business has evolved over the years, whether at service finance and triad in Kessler.
Probably part of the.
The realization.
Yielding credit quality of what those businesses do but.
From a funding perspective.
Maybe.
Having really low rates and the lack of yield opportunity for financial institutions and institutional investors, maybe attracted them to those assets.
As we start to see rates increase.
You see some of your funding partners.
Having that same allocation or maybe shift a bit to the allocation to other investments.
And as a result, do you kind of think about.
Focusing still on trying to diversify and deepen those funding relationships.
It's a good question I think if you look back to three or four years ago, we saw a bump in treasuries.
Are you able to see both service finance and triad come along with increased pricing.
So I think we're in good shape, Jeff we are pricing will track the marketplace.
So we're not going to we're not going to offer compress yields to our institutional investors that said.
The demand from from banks and credit unions life insurers sovereign wealth funds is unprecedented.
If we had $4 billion of manufactured home loans and 22, it will be sold.
Not terribly price sensitive, but I think the key takeaway here and this comment is that we have a history of being able to price increase increased rates into our product.
Yes, Jeff and I was just going to add like if you go back and look at Investor Day. There is a slide in there that talks a little bit about interest rate risk and it shows that.
Triad for example is.
He has had a very consistent premium over over mortgages for I don't know I cant remember how long that chart goes back but at least a decade.
And frankly, it goes back way longer than that if we wanted to put put it out there so.
These are assets that have similar to better credit quality than your traditional your traditional mortgage with a lack of convexity because prepayments are very rare because the ticket sizes et cetera. So this is a really high quality asset youre getting several hundred basis points of excess yield for it so I'm not real worried that we're not going to have demand for the paper.
Anytime in the near future.
Similar to what you see at both <unk> and <unk>. These are these are.
Different different asset classes, obviously, but these are asset classes that where you can get excess yield have good credit quality, they're in demand assets by financial institutions really across the board, whether it's banks credit unions institutional investors.
Insurance companies. So we feel pretty good about about the group of businesses that we have we think theres going to be demand and yes, we're always trying to continue to diversify our funding.
Partners.
Great. Thank you.
Our next question is from Vincent <unk> with Stephens. Please go ahead.
Hey, Thanks, good evening.
Just I guess one related question, but.
So the market prices have generally been volatile and you guys sold non core assets freed up some capital there.
Curious how the pipeline is of potential tuck in acquisitions and.
What you might be looking for and then Relatedly.
How youre thinking about deploying capital for share repurchases. Thank you.
I'll, let John jump in here, but the.
I think that the impact what's happened on the geopolitical front has caused some private equity firms and others that were building finance platforms to now realize they haven't got an exit through capital markets.
And then pricing is better.
Maybe John .
I mean look.
As you know and we've talked about this quite a bit we look at an awful lot of potential transactions, but we're very very picky in terms of the types of things that meet our criteria.
At a very high level, it's all the things that we always talk about asset light no recourse prime credit assets on behalf of banks credit unions et cetera.
Our partners right, we're trying to add to that partnership base.
I think we see a number of opportunities here over the next.
Several quarters that are that are potential tuck in acquisitions, but.
We're really happy with source one I think it's a good example of the kind of thing that we can do not only do we get a great financial deal on the way and it's accretive we feel really good about about the transaction that we did with <unk>.
Identified a number of different ways that ECM Ken.
Do what it does and really work with the company to grow the business and really create a multiple of current earnings.
To the extent that we can find those kinds of opportunities we'll jump on them.
And continue to continue to build out the tuck in strategy.
Okay, Great and then on share repurchases. So you can just remind us.
How much youre able to do and how youre thinking about share buybacks.
Well, we've got a fair amount of dry powder coming into this week.
Don't have a lot of utilization on our senior line.
Sure.
So.
When we see value, we will we will execute.
We are in the midst of this tuck in.
Tuck in strategy is important to us so I want to keep some dry powder as we go into 'twenty, two particularly as the capital markets.
While we may.
Particularly as they remain with this level of volatility.
But if the stock is presented to us at a reasonable value we will purchase it.
Great.
Makes sense great. Thanks, so much.
Vincent.
Our next question is from Mario Mendonca with TD Securities. Please go ahead.
Good evening, Michael can we go.
Through a few detailed questions first your corporate <unk>.
<unk> expense can you give us an idea of the quarterly run rate for 2022, and maybe the same for preferred share dividends.
Preferred share dividends since we retired the.
The one series is going to be three to $1 4 million a quarter going forward, depending on exchange rates.
Okay.
And the corporate interest.
Corporate interest expense.
I believe that should run about $5 million a quarter.
Let me.
Thank you all.
I'll confirm with you offline if that's okay.
Yes.
I just want to make sure I'm not making any big mistakes one other quick thing Michael to understand.
Where things got recorded this quarter I do see a big gain.
So stated with.
The sale of the service finance going through this quarter the $928 million gain.
Gain on discontinued operations.
The charge associated the legacy business.
Netted against that gain.
Yes, it's all it's all recorded in the discontinued operations in the MD&A will there is a breakdown of the various components.
Okay. So that helps me understand where everything is recorded now Steve if we could go go back and just revisit the big decision.
Made many years ago, when you decided to get out of all of these legacy businesses aviation real everything else.
It was a big decision at the time.
And I think one could argue that it paid off really big as evidenced by the sale of service finance.
This is a good time to maybe just reflect back and say.
Clearly there was a lot of value added by the service finance purchase and sale, but there was also a lot of there were also a lot of write downs on this on all of the legacy business. My suspicion is that the value added by service finance dwarfs any write offs related to the legacy but would be helpful. For me to understand is how great word.
These write offs on the legacy business from that time, you made that important decision to exit the businesses sit today when you're essentially done.
Im asking the question that way because I really want to see how that compares to the value created by service service finance transaction.
Okay.
Fair enough Mario I think if you look at the write downs on legacy Youll have to reflect on the sale of our U S vendor business to P&C, which was at a substantial gain one six times book, So that one of the go through and see where the net ended up merial.
It probably was a little bit of money lost a few back to look at that game against the other ones I think the important part I've learned over the three decades now as that.
I never believed in our belief, but I think I believe that we could actually have a model, where we could rent out balance sheets from.
Credit unions banks life co sovereign wealth funds and by sticking with their credit adjudication. We created this model, which is a far better model.
We have in the past a lot of our assets. If you look to our vendor finance business, we sold the P&C.
That would qualify for our flow arrangements now.
But I didn't know that at the time.
In terms of this last last go I think there will be some interesting.
Smallish type tuck ins and I wanted the capital available to do it we could have worked them out over the next two and a half years. The railcars were going through a two year retrofits.
Could have worked our way through the entire two two and a half years, but I think this is a better call.
So would I be correct.
Sort of.
Let me see if I can summarize would it be fair and maybe John some of these numbers might stick in your head a little bit.
Well would it be correct to say that the big the value created by the P&C sale the sale of the P&C.
Mostly offset the write offs in the legacy business such that.
We can kind of look at the service finance gain or value created there sort of an adulterated and say that that was the value created by that decision way back to exit everything and go into this model.
Yes, I think Thats fair or.
Thats, a fair assessment, let us do the math, but I think thats a fair assessment if the assets we have in our balance sheet. We could go back to the time that was split where credit good assets. So we should have been able to protect book value. So we will go back in.
Improve that.
And I guess and then I can talk about the service finance.
Service Finance was was a great business I think try and in source, one or better and why do I say that is because we have very deep pocketed partners, who need these origination platforms and they value them differently than we look at people how they value ECM from a perspective of <unk>.
Public or shareholders.
The value of these assets as they take the raw yield less their cost to manage it off their off their deposit base.
It's a very large very large if you look at true us they had forecasted $300 million of income.
Office service finance within three years same sort of math holds true for.
For Tri Ed and.
And for <unk>, one the ropes at somewhat smaller for the time being.
Can I just add.
The other thing to remember is remember when ECM spun out.
From element Okay. So if you go back to that time, we came out we were about a billion dollars 1 billion in one market cap at the time.
You remember the businesses we were in rail we were in <unk>.
<unk> equipment or equipment finance aviation and a bit of CMV and we were in direct competition with Wells Fargo with Huntington Bank with guys that were funding. These things on balance sheet with deposits you had a business that was rapidly moving towards a single digit Roe and.
To a mid single digit Roe.
We were lucky because those were attractive assets to the banks, who had been buying these things using their deposit. So we are able to sell.
Equipment business for sort of one six times book give or take we were able to sell the balance of the portfolio somewhat somewhere close to book give or take and then we had a workout portfolio that we had to work out which no doubt we've taken some losses to get there but to put that into context, we took that capital. We turned around we bought service finance we bought.
Triad, we bought but the Kessler group and as a result of that we've returned over $2 $5 billion to shareholders through buybacks through dividends and through the special dividend and we remain at a market cap that's about $1 for $1 five today. So in my opinion just looking at.
Yes.
The transition over the last several years the losses that we've taken in the legacy portfolio and clearly you could argue maybe we should've just blown them out two years ago and whatnot.
Thought we could work for not for better results at this point, it's clear to us that taking that capital back redeploying it into our core strategy will yield far better returns then we will work in these things out for the next two five to three years and merit the risk of running out I just want to I highlighted the sale of our.
U S equipment financing business. The P&C. If you look at rail we converted we completed a very large rail sale substantially all of the portfolio in essence at book value.
So if you look at this $11 million loss. It represents I think three quarters of one half of 1% so.
Let me do the math for you, but I think youll find that its.
So it's a push over the entire business that we've been able to anywhere.
Those are all great points, and I understand them and I certainly understand the market value argument.
I just think that in times like this when you're kind of at the end of <unk>.
Particular point in your history, it's worthwhile asking.
What did you like it's worthwhile looking at the bad stuff as well not just all the great stuff and that's why I want to really satisfy myself that it was worth it and it certainly seems that certainly to shareholders, but that's the nature of the question I want to re re satisfied at this.
Yes, we can do a recap for you.
Of the of the pluses and minuses on the legacy, but there's no doubt in my mind Merial that the businesses, we have because of the strength of the origination platforms in the most built around them have significant value to U S. Investors.
Yes.
We want to continue to grow triad and source more than Kessler, but I have no I have no doubt.
Based upon conversations I have what those assets are worth.
Thank you.
As there are no further questions registered this concludes today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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Uh huh.
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