What is ETC Financing?

ETC Financing, standing for Equipment Trust Certificate Financing, refers to asset-based loans used to fund expensive and durable equipment such as airplanes, trains, or boats. In such financing, investors buy the certificates sold by the trust, which then buys the equipment with the funds raised from the sale and leases it to the firm, which makes periodic payments until the loan is fully paid off.

In ETC financing, firms can access the equipment they need without having to pay for it in full.

How Does ETC Financing Work?

ETC financing involves a set of systematic steps taking into account the needs of the investor and the financing company.

• A trust is created to hold title to the high-value asset.
• Investors buy the certificates issued by the trust and provide money for purchasing the equipment.
• The trust buys the equipment and leases it to the operating company.
• Payments made by the company are distributed to the investors in the form of returns on their investment.
• After all payments have been made, title to the equipment is transferred to the operating company.

Features of ETC Financing

• Asset-backed: The certificates have a direct link to the underlying asset and allow the certificate holders to make a direct claim on the asset in case of default by the borrowing firm
• Pass-through: Payments by the company under the terms of the lease or debt service obligations will pass directly to the certificate holders
• Fixed payment terms: A lot of ETC structures feature fixed cost payments throughout the course of the financing
• Can be off-balance sheet: Depending on how the deal has been structured, ETC financing can be off the balance sheet for the firm

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