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Inside LEAF And The Evergreen Clause/Resource America

The recent press release from Resource America, Inc, Philadelphia, Pennsylvania does not relate to the complaints Leasing News has received over the years regarding the abuse of Evergreen Clauses, nor informing the lessee regarding the end of the initial term of the contract and continuing to bill them; one complaint on an Equipment Finance Agreement with no residual or balloon payment.

There also have been complaints about the return of security deposits from lessees and since resolved, they do not make the Complaint Bulletin Board.

During the closing of LEAF Specialty Finance in Columbia, South Carolina, the real estate agent had difficulty as LEAF did not have the cash, they told him, according to conversations with Leasing News by telephone and email, this may or may not have been part of the negotiating. Yet, they also did not pay a prominent attorney until threatened to take them to court, according to a very highly reliable source.

The following was received and has not been published while waiting for substantiation from another source; now confirmed from two highly reliable East Coast sources, as well as confirmation from a highly reliable East Coast insider:

"I have been with the company for a few years now...Leaf has been intentionally involved in unethical business practices for years. We have many lessees that we are withholding refunds from.

"If a lessee has overpaid, we aren't returning their overpayments and have are strictly prohibited from letting lessees know they've overpaid. In addition, lessees set up to have their payments automatically deducted from their accounts will continue to have those payments pulled after the end of the lease until the lessee requests that it stop. This can take quite a while in some situations. When this happens, the lessee is back in a position of having overpaid but not being given a refund.

"We have clients who have been trying to get their refunds for 2 years, doing everything we've been told to have them do, and they're not getting refunded. We aren't paying dealers as we should and employees are always getting calls about past due payments on different bills that we have to turn over to the staff accountant.

"Employee of Leaf"

The equipment leasing division was "deconsolidated" by Resource America, Philadelphia, Pennsylvania. In the latest SEC filing, Resource America has decreased $300,000 million in assets from $.08 billion to $0.5 billion in the three months ending December 31, 2011 as commercial finance revenues increased (in thousands) from $1,476 to $3,419 compared to 2010 ---commercial finance costs and expenses decreased (in thousands)$1,963 the last quarter compared to $4,273 on December31, 2010.
(page 6 & page 12, SEC filings)

The SEC filings states: "LEAF continued to grow its lease origination and servicing operations during the first fiscal quarter ended December 31, 2011.

- LEAF's Dealer Solutions unit based in Moberly, MO added 94 new dealers as active users of its leasing programs.

- Since LEAF's January 2011 capital raise, lease originations continue to trend upward and subsequently grew to $48.2 million during the first fiscal quarter ended December 31, 2011 as compared to $40.0 million (21% increase) and $13.5 million (256% increase) during the fourth fiscal quarter ended September 30, 2011 and the first fiscal quarter ended December 31, 2010, respectively.

  • LEAF's commercial finance assets at December 31, 2011 increased to $224.5 million, an increase of $32 5 million, or 17%, from September 30, 2011.

    (Page 14, SEC filing)

The report notes that Guggenheim Securities, LLC, acted as a broker in securitizing $105 million, receiving a fee for this and further participation. The loans and leases were originated by LEAF and are backed by various equipment including office equipment such as copiers, as well as, technology, telecommunications and industrial equipment, and franchises, mostly from the LEAF Specialty Division, closed down and headed by Dwight Galloway, now in charge of the broker division for Navitas Leasing, and from the former Dolphin Capital division in Moberly, Missouri, who specialize in copier leases (Ironically, the latest named employee is director of inside sales in Moberly. Editor).
(Page 5, Press Release)

These were also arranged for a fee as reported in both the SEC filing and press release: LEAF received a $50 0 million equity investment from Eos Partners, L.P. and its affiliates ("Eos"), a New York based private investment firm. Concurrent with the Eos investment, LEAF also expanded its warehouse credit facility with an additional $75.0 million through Versailles Assets, LLC, an asset-backed commercial paper conduit administered by Natixis. As a result of this new investment, the Company no longer controls LEAF and deconsolidated it as of November 16, 2011. With the deconsolidation of LEAF, the Company recorded an $8.7 million gain during the first fiscal quarter ended December 31, 2011. The deconsolidation reduced the Company's total assets by $228 million and its debt by $185.0 million as compared to September 30, 2011. The Company retained a 15.7% investment in LEAF and, after deconsolidation, has accounted for its investment on the equity method.
(Page 4, Press Release)

The cost of money means profits precludes bidding for "A" and even "B" credits, leaving the "C" market place for leases or having the profits for "A" and "B" credits to come from balloon payments and evergreen clauses.

An amendment was filed by Resource America noting Donald A. Yacktman, owning 100% share of Yacktman Asset, as it appears the company is changing direction. The filing noted his shareholding percent and voting position of 1,582,434. (2)

It should be noted that the consolidated balance sheet or Resource American showed some major changes in total assets from September 30, 2011 (in thousands) $422,502 to $178,335 December 31, 2011. The liabilities dropped (in thousands) from $264,778 September 30, 2011 to $58,073 December 31, 2011 resulting in total equity of $130,262 compared to September 20, 2011: $422,506. There also was a negative (in thousands) $123,523 in principal payments on borrowings December 31, 2011.
(Page 11, SEC filing)

"These are transformative times at Resource America. During our first quarter, we completed the recapitalization of LEAF Commercial Capital, Inc.," Jonathan Cohen, CEO and President stated in the company press release.

(1) Resource America "deconsolidates" LEAF Financial
http://leasingnews.org/archives/Dec2011/12_16.htm#deconsolidates

(2) SEC Amendment:
http://leasingnews.org/PDF/Resource_America_amendment.pdf

Resource America SEC Filing:
http://leasingnews.org/PDF/ResourceAmerica_8K_20120203.pdf

Resource America Press Release:
http://leasingnews.org/PDF/Resource_America_Press_Release.pdf

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