BMO Transportation Finance - ACT Research · • BMO Transportation Finance is a brand name used by...
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BMO Transportation Finance Transportation Financing John Conkin 9/22/2016
Transcript of BMO Transportation Finance - ACT Research · • BMO Transportation Finance is a brand name used by...
BMO
Transportation
Finance
Transportation
Financing
John Conkin
9/22/2016
Disclosure
• THE CREDIT INFORMATION CONTAINED IN THIS DOCUMENT IS NOT A COMMITMENT TO LEND. THE INFORMATION PRESENTED IS FOR
DISCUSSION PURPOSES ONLY. ANY COMMITMENT TO LEND IS SUBJECT TO FORMAL APPROVAL BY THE BANK AND COMPLETION OF
ALL DUE DILIGENCE ITEMS.
• Banking products and services are subject to banking and credit approval. BMO Harris Bank N. A. Member FDIC.
• BMO Transportation Finance is a brand name used by BMO Harris Bank N.A.
• INVESTMENTS
Trust and certain investment products and services are offered by BMO Harris Bank N.A. Assets held under these products are segregated by law
and are not subject to FDIC coverage.
Securities distribution, products and services are offered through BMO Investment Distributors, LLC. Member FINRA /SIPC. Securities, investment
advisory and insurance products and services are offered by BMO Harris Financial Advisors, Inc. SEC-Registered Investment Adviser. Member
FINRA /SIPC.
Investment advisory services are offered through BMO Asset Management Corp., Taplin, Canida & Habacht LLC, Monegy, Inc., Stoker Ostler
Wealth Advisors, Inc., Sullivan, Bruyette, Speros & Blayney, Inc., Monegy, Inc., and CTC myCFO, LLC.
• This information is not intended to be tax or legal advice. This information cannot be used by any taxpayer for the purpose of avoiding tax penalties
that may be imposed on the taxpayer. BMO Harris Bank N.A. and its affiliates do not provide legal or tax advice to clients. You should review your
particular circumstances with your independent legal and tax advisors.
• The opinions, estimates and projections contained in this report are those of BMO Capital Markets, BMO Transportation Finance, and other identified
sources as of the date of this report and are subject to change without notice. BMO Transportation Finance endeavours to ensure that the contents
have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete.
However, BMO Transportation Finance makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any
errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its
contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not
intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice
designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the
solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in
this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the
securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that
BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell
securities of issuers discussed herein.
• © 2016 BMO Financial Group
2 NMLS 401052
Informal discussion on…
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• BMO
• What we are watching
• The lending environment in trucking
• Trucking industry trends
• Forecast
• Potential risks
Different name, same trusted team
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• Financially strong, well capitalized, and
positioned to lead
• Cross-border capabilities provide meaningful
efficiency and scale to our clients
• Deeply rooted culture of building strong, long-
term relationships
• Relentless focus on meeting client needs and
building value in our client’s businesses
• Expert bankers delivering creative solutions
with a focus on flawless execution
Why BMO?
To be the bank
that defines
great
customer
experience
Building on our 40+ year heritage
‘74
‘01 ‘05 ‘15
OEM Dealer Fleets
An industry leader with an expanded suite of banking products
5
We offer innovative
structures for secured loans
and operating and finance
leases for heavy duty
commercial trucks.
Van and Specialty
Trailers
Heavy Duty
Tractors
We offer tailored financial
solutions for semi and
specialty trailers to help you
lower the total cost of
ownership.
With in-depth knowledge of
the refuse market, we can
provide our customers with
innovative financing
solutions for their non-
hazardous waste collection,
processing and disposal
equipment.
Refuse
We've geared up to make a
huge difference for our
medium duty customers,
offering versatility and
customization, along with
quick credit decision.
Medium Duty
Retail Financing Programs
Inventory Financing
Asset financing (loans/leases), rolling stock, A/R, parts & inventory revolvers, WCL, treasury & payment svcs
130+ reps across NA, averaging 15 years industry experience
Keeping a watchful eye on key indicators…
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• Freight demand & rates
• Fuel
• Used equipment values
• Driver recruitment / retention
Trucking Fundamentals Freight Drivers
Business Fundamentals
• Small ticket flow
• Delinquency / fleet failures
• Pipeline
Freight Drivers
General Economy
• Housing starts
• Unemployment
• Healthcare
Trucking Regulations
• Hours of Service - EOBR
• CSA
• CARB
• ELDs
Capital Expenditures
• Aging of fleet
• Trade cycles
• Fundamentals
• GDP / Industrial Production
• Consumer confidence
• PMI
• Capacity utilization
• U.S. Manufacturing
The lending
environment in
trucking
9/22/2016
Financing Landscape For The Trucking Industry
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Coming out of the recession…
• Lenders were looking for new opportunities to deploy capital… trucking an
attractive alternative
• Steady market growth
• Covenant-light lending environment
• Liquidity steadily building back
US medium & heavy duty truck sales
Source: Bureau of Economic Analysis
Mill
ions o
f units
What borrowers are facing in today’s financial markets…
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Financing Landscape For The Trucking Industry
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Recent trends…
• Deposits are up, and banks have $s to lend
• Market has slowed, and delinquencies ticking up
• While demand for financing remains healthy, covenants are starting to tighten
• Lenders showing some signs of becoming more cautious
What we’ve seen…
Despite more difficult conditions, overall availability of capital still plentiful for good credits
Supply of Credit
Approval
ratios
Demand For Credit
# of Credit Applications
Peaked July
2015,
Currently tracking
to ‘14 levels
Keeping an
eye on
delinquency
Loan growth has been on a multi-year upward trend
September 16 11
Source: FDIC
Quarterly Change in Domestic Loans vs Domestic Deposits
Change In Domestic Loans
(Line)
Change In Domestic Deposits
(Bar)
• Quarterly changes in loan volume have been consistently positive since 2013
• Deposit growth has also been consistently positive despite low rates
• Low net interest margin and improved capital ratios gives banks incentives to lend
Bank lending has outpaced general economic growth
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Source: FDIC Each Year Through June
Small Business Lending (Original Loan Amounts < $1 million)
Medium/Large Business Lending (Original Loan Amounts > $1 million)
4% CAGR
$ Billions $ Billions 9.7% CAGR
• Growth in bank lending has easily outpaced overall economic growth
• Lending to small business has been healthy despite lagging the medium/large market
• The rate of growth in lending to small businesses has consistently accelerated
+2.5% +3.5%
+4.7%
+5.1%
+7.5% +12.1%
+10.3% +9.0%
Demand for C&I credit increasing, but still lower than last year
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Increasing
Demand
Source: Federal Reserve
Senior loan officer opinion survey Commercial and Industrial loan environment
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Source: Federal Reserve
Tightening
Standards
Increasing
Spreads
Conditions have tightened over the past couple of years but overall credit availability is still plentiful
Trucking industry
trends
9/22/2016
Signs of financial stress for smaller transportation operators
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Source: Paynet
The Industry’s lending activity for smaller transportation companies has trended lower since late last year, while delinquencies for credit
outstanding less than $1 Million have been trending higher
Lending Volume Index (Left)
Delinquency % (Right)
Defaults have increased, but still below historical averages
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Source: Paynet
2006 Low
Fleet Failures uptick over 2015, but still relatively low
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Source: Avondale Partners
Rate pressure largely induced by excess capacity Tractor revenue has decoupled from load growth
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Source: ACT Publically Traded TL Database
Load Growth
Y/Y % Change
Tractor Revenue Per Week
Y/Y % Change
September 16
Spot Rates bounce off bottom but still down from a year ago
Source: DAT.com through week of 9/10/16 20
Equipment cost trends influencing buying & selling decisions
Source: Rush Enterprises 21 September 16
Ave
rage
Use
d T
ruck
Pri
ce
Ave
rage
New
HD
Pri
ce
Good news - growth in operating costs has slowed…
Rent & Purchased Transportation Operations & Maintenance
Salaries, Wages & Benefits
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Summary 2Q16
• Total fuel expense decreased -22.8% YoY
• Total operating costs increased ex-fuel
+0.4% YoY
• Total number of trucks increased +1.0% YoY
2Q16
-1.5% Y/Y 2Q16
-5.6% Y/Y
2Q16
+2.6% Y/Y
Source: ACT Publically Traded TL Database
Public TL Carrier Composite – weakest 2nd Qtr. since 2013
Source: ACT Research, Company Reports
Summary 2Q16
Total Revenue -3.4% YoY
Total Operating Revenue +0.2% YoY
Total Fuel Surcharge Revenue -33.5% YoY
Total Net Income -20.4% YoY
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Forecast
9/22/2016
BMO Economic Outlook as of 9/9/16 Gradual Improvement Through 2017
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WTI Spot (US$/bbl)
Yield Spreads
Henry Hub NG Spot (US$/mmbtu)
Source: BMO Capital Markets as of 9/9/16
10-Year
T-Bond
Fed Funds Rate
3-mo T-Bill
Yield
Curve To
Remain
Positive
FOMC announcement on 9/21
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9/21 decision: No rate change
Fed division continues on whether the economy is
ready for higher borrowing costs.
Watch Dec. 14th… if conditions hold, indications are that
we are on track for a rate hike this year.
Shorter-term economic outlook isn’t changing much.
Fed did lower longer-term forecast to 1.8% from 2.0%
Fed also trimmed longer-term interest rate forecast in
the 2.9% from June’s 3.0%
Potential risks
9/22/2016
Regulations…
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Inbound logistics, September 2012
US Election 2016: Wildcard
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Latest poll of polls:
Popular Vote (%) Electoral Vote (270 needed to win)
Clinton 45.3 200
Trump 44.0 164
…Toss up 10.7 174
Senate (100 seats)
House (535 seats)
Democrat 47 189
Republican 47 231
…Toss up 6 15
Source: RealClearPolitics (Sep. 20, 2016)
In summary
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Despite a more challenging
environment, credit remains readily
available:
• Banks have $ to lend
• Transportation is still an attractive
industry, but being tracked closely
• Watching delinquencies
Low but stable economic growth
through ‘17
Potential risks:
• Regulations
• Political outcome
John Conkin SVP Sales – East Region
[email protected] 469-586-2222
Alan Sloan SVP Sales – West Region
469-586-2200
Heather Wilson BMOTF Chief Marketing Officer
469-586-2431
John Dietze Dealer Sales Leader
469-586-2144
Talk to your BMOTF rep or contact
one of the following for more details
