Keystone Equipment Finance

Company overview

Keystone Equipment Finance is a privately owned, non-bank lender that originates small-ticket equipment loans and leases (average balance about $85,000) to U.S. small businesses in construction, transportation, medical and light manufacturing. Loans are fixed-rate, fully amortizing over 24–72 months and secured by the financed equipment; about 62% of the portfolio is titled equipment such as trucks and trailers. Keystone services its own loans.

Growth has been fast: originations rose from $410M in FY2023 to $650M in the last twelve months, and the managed portfolio from $780M to $1.21bn. Credit has weakened at the same time. Thirty-day-plus delinquencies rose from 2.1% to 3.9% and annualized net charge-offs from 1.4% to 2.9%, while portfolio yield has edged down. Because the portfolio is growing, recent vintages are a large share of the book and have not yet reached their peak-loss months.

Keystone funds itself through two bank warehouse facilities ($200M and $350M commitments, each in its own SPV, priced at SOFR + 275 and SOFR + 300 with 80–85% advance rates) and $150M of unsecured corporate notes due 2028 at the parent. It wants a $300M private warehouse to refinance the $200M bank facility, which steps down its advance rate in December 2026, and to fund growth. The proposed facility advances 85% against eligible receivables in a new bankruptcy-remote SPV, with the parent's equity in the remaining 15% as first loss. There is no backup servicer at closing.

The IC question: is a 15% first-loss position plus excess spread enough protection against a loss trend that is still rising, and do the triggers turn the facility off before losses reach the lender?

Your memo should answer

1. 01Would you provide this facility on these terms? State your recommendation, and the conditions or changes you would require.
2. 02Delinquencies and charge-offs have risen every year while the portfolio grew. How much of today's loss rate is understated by growth, and what do you expect losses on recent vintages to peak at?
3. 03Size the protection: how much can annualized losses rise before the 15% first-loss position and excess spread are used up, and which trigger fires first?
4. 04Walk the borrowing base. Which eligibility and concentration limits matter most, and is an 85% advance rate right for this collateral?
5. 05What happens to collections and the lender's recovery if Keystone stops servicing, and what would you require before closing?
6. 06Is SOFR + 325 enough for this risk, and how do the parent covenants and the 2028 corporate notes affect the SPV lender?

Financials ($M)

Term sheet

Facility

$300M senior secured revolving warehouse to Keystone Funding SPV III (bankruptcy-remote); 3-year revolving period, then 12-month amortization

Use of proceeds

Refinance the $200M bank warehouse (advance rate steps down from 85% to 80% in Dec-2026) and fund portfolio growth

Advance rate

85% of Net Eligible Receivables; parent retains the 15% first-loss equity in the SPV

Pricing

Term SOFR + 325 bp; 0.50% unused fee; 1.00% upfront fee

Initial draw

$240M at closing against the June-2026 borrowing base (see exhibit)

Amortization events (pool triggers)

3-month average annualized net loss > 4.0%; 3-month average 60+ day delinquency > 5.0%; 3-month average excess spread < 3.0%

Parent covenants

Minimum tangible net worth $200M; minimum unrestricted liquidity $25M; maximum recourse debt / tangible net worth 4.0x

Servicing

Keystone services; servicing fee 1.50% of pool balance; servicer termination on parent covenant breach or trigger event; no backup servicer at closing

Other terms

Monthly loan-level tape and borrowing base certificate; annual field exam; eligibility and concentration limits per exhibit; cross-default to parent debt over $10M

Borrowing base at closing ($M, as of June 30, 2026)

Gross receivables pledged

402.0

Less: 60+ days delinquent or defaulted

(14.0)

Less: ineligible (term over 72 months, non-U.S., modified loans)

(9.5)

Less: single-obligor excess over 2.0%

(6.5)

Eligible receivables

372.0

Less: construction industry excess over 30% limit

(11.0)

Net Eligible Receivables

361.0

Borrowing base at 85% advance rate

306.9 (capped at the $300.0 commitment)

Initial draw

240.0

Draw as % of Net Eligible Receivables

66.5%

Pool stratification (pledged pool, June 30, 2026)

Industry mix

Construction 33% (limit 30%); transportation 23%; medical 14%; manufacturing 12%; other 18%

Obligor concentration

Largest obligor 1.9%; top 10 obligors 6.8%

Collateral

Titled equipment (trucks, trailers, yellow iron) 62%; non-titled equipment 38%

Term

Weighted average original term 54 months; weighted average remaining term 38 months

Vintage mix

Loans originated in the last 12 months are 46% of the pool

Historical recovery on defaulted equipment

About 40% of defaulted balance, received over 6–12 months

Excess spread at closing (annualized, % of pool balance)

Portfolio yield

13.7%

Facility interest (SOFR 4.0% + 325 bp on the 85% advanced)

(6.2%)

Servicing fee

(1.5%)

Net charge-offs (LTM)

(2.9%)

Excess spread

3.1% versus the 3.0% trigger