Financing the Fixed Price Sale

Director of Taxis Chris Hayashi held a Town Hall Meeting on financing Friday before a group that included two bankers, an economist, Cindy Ward of Desoto Cab, Nate Dwiri of Yellow and maybe a dozen drivers.

The purpose of the meeting was to find out what kind of financing was available and under what conditions. Beyond that, it was hoped that the information could be used to determine what the fixed price should actually be. One of the conditions of the Consensus Plan is that the drivers who buy the right to hold the medallions should be able to afford the payments.

The meeting turned out to be more preliminary than had been hoped. Neither of the bankers were up to speed on the taxi business and only the banker from Bank of the West seemed really interested in pursuing the matter.

This gave Joe Mirabile and Mark Gruberg of the UTW the chance to make their usual contributions to the process.

• Mirabile loudly demanded that Director Hayashi tell him in exact detail what would happen if a driver defaulted on a loan.
• She replied that that was what she was holding the meeting to discover.
• Mirabile then loudly demanded that Director Hayashi tell him in exact detail what would happen if a driver defaulted on a loan.
• A bit later, Gruberg broke into his usual "I've been cheated, been mistreated" speech, accusing Hayashi of having promised to have financial details available by now.
• As usual, this was a gross distortion of the truth but, having gotten his sound bite for the next MTA board meeting, Mark left - before the financial details were actually discussed.

In order to decide whether or not to offer a loan and at what interest rate, the banker said that he needed to know:

• The cash flow of the business.
• How stable the business was.
• What kind of collateral was available to back up the loan.
• The debt to earning ratio.

I offered the opinion that financing a medallion offered less risk than financing, say, a car or a home.

• If a driver defaulted, the bank wouldn't have to worry about spending money to recover damaged property like they often do with cars.
• With the gate system, the value of a medallion is pretty much recession proof.
• The only thing that could really drive down the value would be deregulation - and I thought this was highly unlikely.

The banker, however, was not comfortable with my arguments and remained worried about deregulation and the stability of the business.

Cindy Ward gave an example of the worst case scenario: After 9/11, she said that the combination of the recession and the addition of 300 new cabs to the fleet almost bankrupted Desoto. They couldn't fill their shifts and they couldn't afford to buy cars.

Chris Hayashi said that she was setting procedures in place to insure that that wouldn't happen again. In the future a "rational process" would be used to decide whether or not to put cabs on the street; and any taxis that might be added would be added gradually so that they could be comfortably absorbed by the business.

The banker said that the loan would have to be guaranteed by either the city or a company. Otherwise, the individual drivers would be judged by the usual credit ratings.

Hayashi said that, if a driver defaulted, the companies could continue to work the medallion until the medallion was sold and use the driver's medallion payment to cover the loan.

Joe Mirabile said that if the companies guaranteed the loans and worked the cabs after a default that this, in effect, would create corporate medallions.

Chris Hayashi said that this would not be the case because the companies would only operate the medallion transitionally until it was re-sold.

Another concern was that cab companies or loan sharks would control the medallions with back door deals.

Hayashi said this wouldn't happen under her watch.

In end, the meeting provided a good introduction to Taxicab Financing 101.

Chris says that she has five other finance companies and banks interested. We'll be getting a lot more information on the subject in the near future.