ECN Capital Corp
TSX:ECN
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ECN Capital Corp
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Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Fourth Quarter 2017 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.
Thank you, Kyle. Good afternoon, everyone. Thank you for participating in our conference call to discuss ECN Capital's 2017 fourth quarter results for the 3-month period and fiscal year ended December 31, 2017. Joining us today to discuss these results are Steven Hudson, Chief Executive Officer; Jim Nikopoulos, President; and Grier Colter, Chief Financial Officer. A news release summarizing the fourth quarter results was issued this afternoon and the financial statements and MD&A for the 3-month period and fiscal year ended December 31, 2017, have been filed with SEDAR. This information is also available on our website, ecncapitalcorp.com. Presentation slides to be referenced during the briefing will be accessible during the webcast as well as in PDF format under the Presentations section of the company's website.Before I begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. I'll refer you to the Cautionary Statements section of the MD&A for a description of such risks, uncertainties and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct.You should also note that the company's earnings release, financial statements, MD&A and today's call include references to a number of non-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A.With these introductory remarks complete, I'll now turn the call over to Steven Hudson, Chief Executive Officer.
Thanks, John, and good evening. Let's turn to Page 6 of the deck. 2017 was an exceptional year of executing on our strategic plan. We completed 5 sales transactions, resulting in an aggregate premium of 2% on book assets and a 10% premium on equity. We also closed 2 acquisitions consistent with our 7 strategic hurdles of criteria. Most of you have seen those. We've included those as an appendix to the deck on Page 35.We are pursuing a handful of on-target M&A transactions, which are consistent with these 7 hurdles. And we have a high degree of confidence on this process based upon the pipeline, our track record and our very disciplined approach. I would note that this transition of acquisition phase will wind down in the third quarter. We made a commitment 18 months ago and we intend to honor it. As extensive due diligence process ends, management is committed to rightsizing capital and corporate expenses.I would take a moment to pause and to note for everyone in the call, with or without other acquisitions, which we're confident about, but even without acquisitions, ECN has 2 high-growth businesses with tuck-in acquisition opportunities we'll talk about today, investment-grade ratings, and a rightsized capital structure. Management is standing behind our commitment to the strategic plan by adding to our personal shareholdings, indicating our high degree in confidence in executing on this plan. Turning to Page 7. I mentioned a second ago that we are executing in our target acquisitions. We are also opportunistically funding growth initiatives, such as the floor planning activities at Triad that Jim will speak to in a second, or creating additional business lines at service finance, like the bank solar fund or our new retail initiative. We are actively utilizing our current NCIB, and we've repurchased 27.6 million shares to date. And we're announcing this evening our intention to commence a CAD 115 million SIB.Turning to Slide 8, a high-level update on Service Finance and Triad. Service Finance is trading better than our projections in January and February. We've launched our dedicated solar fund, the discrete bank fund. And we've launched a nationwide retail initiative with Abbey Carpet. Triad acquisition closed on December 29, a little earlier than we planned, which is good news, and kudos to Loreto and the team, and Triad is performing to plan. Corporate expenses remain elevated, as we noted in our December call. However, these corporate expenses will be reduced after the M&A phase is completed. Turning to other developments on Page 9. We've taken a $25 million pretax noncash asset valuation reserve against the Airbus helicopters. We commented on these in the prior year. This is referred to as the H225 and the L2 helicopters, which have a latent defect. It is the subject of litigation by us and other aircraft helicopter -- lessors. It now appears that because of the service bulletins, that the return to service of these helicopters will take up to 2 years. We decided to look at that 2-year period more prudently. We value these assets on a part-out basis, being a conservative valuation basis. We continue to aggressively pursue our litigation claims against Airbus, and I remain confident on our recovery.And as we mentioned on the December call, the recent change in U.S. tax laws has created a reduction in our deferred tax liability, which is principally due to that tax reform of $20 million. Grier Colter will speak to that in a moment. Turning to Page 10, a slide that you've seen in the past. It just outlines the 5 sales and 2 acquisitions, a track record that we're quite proud of, with more to come. Turning to Page 11. We have the near-term acquisition opportunities growth as well as inorganic growth opportunities. We have equity firepower of $575 million after using $80 million for NCIB. And we have at least $50 million-plus in additional capital being returned this year to the simple repayment of the rail and aviation. Those are scheduled repayments. On the acquisition front, I've spoken about our handful of on-target opportunities. Again, any acquisition must meet the strict hurdles and the satisfactory due diligence as both Service Finance and Triad did. The key message here is that we're looking for the right deal at the right time and at the right price. We remain confident on our M&A pipeline. Our investment-grade rating has been maintained, and it's extremely important to our partners because that investment-grade rating allows them to launch new origination relationships. As we move to more earnings based upon EBITDA, which is driven by origination and management fees, we'll be able to reduce our on-balance sheet assets. We're committed to the return of capital. We've actually accelerated the NCIB this past quarter through the ASPP. And we've announced this SIB on this call. The NCIB will remain open and to be used opportunistically for the remaining 10.3 million shares available to us under that program. On Page 12, we've given a summary of what's been purchased to date, the total number of shares, the cash consideration and the average price. We believe the intrinsic value to be substantially higher than the current market price. We consider this to be a good investment in our use of capital. Turning to Page 13 on the SIB that we've announced this evening. The $115 million will begin later this week. We're -- we'll speak to that in a moment. With a full take-up of the SIB, there'll be a 5.5% accretion to earnings per share. And when the NCIB and the SIB are completed, ECN will repurchase 17.5% of outstanding shares, at a cost of approximately $250 million. In terms of alignment on Page 14, the management team and directors remain extremely committed to the company, as evidenced by our continuing purchase of shares. Between the shares we own and long-term -- LTIP and other options, we now own approximately 11% of the company, and we will be consistently adding to that position. Turning to operating highlights on Page 16 on the Service Finance update. Our business partners, headquartered in Florida, are off to a great start. In January of this year, total originations were at $78.5 million, which is a 78% increase year-over-year. The core originations, what we call at the kitchen table, are $62.5 million, which is 42% higher than that of the prior year. And our discrete bank solar fund is off to a roaring start with $16 million of originations. I would note that February is about to close off, that origination strength has continued. We gave guidance in December of originations of $1.365 billion. We feel very confident in this guidance.With respect to the new channels launched, discrete solar fund is up and running. As well, we had Mark Berch and his team had their national launch of Abbey Carpet this past week, and that's now live in 800 nationwide stores in the U.S. We've also seen dealer growth -- participation, grow. We have been adding 5 -- 150 new dealers per month. That is now up 12% to 170 per month. Page 17 provides month-by-month originations. You can note the significant increase in January. I mentioned that February is strong as well.On Page 18, the highlights for the quarter. The core originations -- before I get to the core, to the core originations ended the year at $818 million, which is 10% higher than our original projection of $740 million when we purchased the company, invested in the company, and are in line with the updated forecast of $800 million in Q4 this year. Originations in the fourth quarter were $213 million, which is in line with the guidance we gave you, and the income as well. And as I mentioned earlier, dealer participation continues to grow at a clip now of 170 new dealers per month. Jim?
Thank you, Steve. Slides 19 and 20 provide a brief update on Triad Financial Services. We closed this transaction on December 29, 2017. Our origination projections in January are in line with guidance. The core origination numbers that Triad delivered in January 2018 were up 7% versus the same period in 2017, something we were very happy about. We've also successfully launched the on-balance sheet floor plan program that we previously disclosed in mid-January and have been very pleased with the take-up to date, having signed 19 manufacturers and dealers to date. We've also actively been pursuing various growth initiatives since the acquisition, including growing Triad's service penetration and as mentioned earlier, looking for various tuck-in portfolio-building opportunities, with the first such opportunity to be closed in the next few weeks.If I turn to Slide 21, I just wanted to provide a summary of our rail results. Although there's been a challenging operating conditions in North American railcar market industry, ECN's rail portfolio continues to perform well. Leasing fundamentals have trended positively over the last year, and a slow improvement is expected to continue in 2018. This can be evidenced by rising carloads, declining railroad velocity, and a reduction in the OEM backlog. The decline in portfolio income and operating expenses were anticipated and principally related to our third quarter railcar dispositions, which allowed us to derisk our rail portfolio and rightsize the business to our equity base. The dispositions also shifted the balance of our portfolio from higher-risk, higher-yielding tank cars to lower-yielding freight cars. We continue to remain disciplined and focused in the operation of our business, with originations of $46 million in the quarter, which are comprised entirely of freight cars. We also opportunistically sold 300 rail cars in the secondary market, which produced an approximate 8% gain to our net book value in the fourth quarter. We will continue to be opportunistic with syndications in 2018 to optimize the portfolio, like we've done in the past. Slide 22 provides a brief snapshot and summary of our rail portfolio compared to year-end 2016 versus year-end 2017. In sum as you look at this chart, we have a well-diversified rail portfolio, with an average age of 6 years and a weighted average remaining lease term of approximately 4 years. Expirations within the lease fee for 2018 are within a manageable range. And the percentage of leased railcars that are coming up for renewal is being consistent with prior quarters. Lease renewal rates and terms have improved from recent levels. Overall, the rail book did benefit from being one of the youngest railcar fleets in North America, with a well-diversified portfolio across car type industry and lessee.If I turn to Slide 23, we'd like to provide just a few highlights on our aviation book. Consistent with prior quarters, there were no originations in the quarter as we continued to wind down the book. We are very pleased with the orderly wind-down of the aviation portfolio, achieving our 2017 year-end target. Total assets were reduced by approximately $350 million. This was accomplished through a combination of transaction syndications and normal runoff. We expect this book to continue to run off at the pace we previously announced in 2018. As we discussed on our Q3 earnings call, one of our corporate jet clients filed for a reorganization. Well, I'm pleased to report that since that announcement, we've repossessed the 3 corporate aircraft from such client that were previously leased to this client and have entered into new arrangements to sell one of those aircraft for cash and lease the other 2. With that, I'll turn the call over to Grier.
Thank you, Jim. So starting with Page 25, Consolidated Highlights. Total originations for the quarter were $317 million compared to $228 million in the prior quarter, including C&V Canada, and $113 million, not including C&V Canada. Adjusted earnings per common share of $0.03 compares to $0.04 in the prior quarter. Our leverage ratio of 1.05:1 at year-end is up slightly compared to prior quarters, due to the closing of the Triad transaction on December 29. This ratio declines to 0.6:1 pro forma for the sale of our Canadian C&V business and the associated reduction of debt. Book value per share of $4.47 compares to $4.51 in the prior quarter. Pro forma for NCIB purchases made in the first quarter, book value increases to $4.50 per share.Moving to the balance sheet, Page 27. Total assets were consistent quarter-over-quarter at approximately $3.5 billion. Pro forma for C&V, this declines to $2.7 billion. Total managed assets increased as a result of the Triad acquisition and originations in our home improvement segment. Turning to Page 28, consolidated income statement, which is presented on a continuing operations basis. Interest income and rental revenue net, less interest expense, declined quarter-over-quarter as a result of our rail divestitures. Syndication and other income was up significantly, due to a full quarter of revenue from our Home Improvement Finance segment. And operating expenses were also up as a result of the full quarter at Service Finance.Turning to Page 30, we have prepared a breakdown of our operating costs by segment. Our corporate costs remain elevated due to M&A activity as previously discussed, and we expect this to continue as we diligence and complete further acquisitions.Finally, on Page 31, we booked a $14 million gain resulting from the revaluation of our deferred tax liabilities. This was driven by the reduction in U.S. tax rates from 37% to 21%. The introduction of this tax legislation will also provide a benefit to the company looking forward for our businesses, which are heavily weighted to the United States.And with that, I will turn the call to the operator for questions.
[Operator Instructions] Our first question comes from Nick Stogdill of Credit Suisse.
My first question, just on the substantial issuer bid, CAD 115 million. Could you just give us a sense on how you arrived at that number? Was it more driven on how much capital you think you need to do additional acquisitions? Or was it determined by the rating agencies and what you're able to do, while maintaining your investment-grade rating? Any color you can add there on, I guess, how you got to the CAD 115 million?
Nick, it's Steve. The CAD 115 million was including the CAD 35 million roughly that's available on the SIB was CAD 150 million. I think the dialogue with the rating agencies that Grier can speak to was more than satisfactory. But that's how the number was arrived at.
Yes. I mean, all I can add, really, is that this amount put no additional pressure on the ratings. We had the dialogue, obviously, in advance. And because of the level of leverage, it's not an issue.
We're also expecting -- we are focused on our acquisition pipeline, and we want to keep enough dry powder to see us through that. So we thought this was a prudent and appropriate number.
Okay. So you could have taken it higher based on the rating agency dialogue, but you need the dry powder for the deals? Okay. My second question, just a numbers one for Grier. On the expense slide, I think it was Slide 30, can you -- you're targeting, I guess, USD 27 million of corporate expenses for 2018. Should we be comparing that to the $52 million of operating expenses for the full year, as shown in the MD&A? Like, what are we moving from and to, just trying to clarifying these numbers here?
Yes. Sure, Nick. So I mean, the way that I would look at it is, the top chart is really the operating costs from all the businesses. The bottom chart is what I would call corporate operating expenses. That $27 million that we gave as guidance is the corporate operating expenses. So as long as we're elevated, the elevated cost level, which we will be until we complete the M&A cycle, you're really looking at that Q4 [ 9 4 4 3 ] number, which is going to, obviously, move around a little bit. But that's, really, if you run rate that, that's comparable to the 27. Now that said, as we wind the M&A process down, these will come off. So they are a little bit front-end weighted in our forecast for our budget that we've provided.
And do you anticipate any more restructuring charges beyond the $6.5 million you announced this quarter? Or...
We do not.
Our next question comes from Vincent Caintic from Stephens.
Just maybe a follow-up on the buyback. Does -- maybe just another way to ask the question. So the buyback size that you've given, I think it's a great use of capital and illustrates where you see the value is. Does that rightsize the balance sheet from -- for where you want to be? And then, also, when I think about, in terms of asset size, the leverage-ability of the $150 million, it's about a $600 million buying power. Are you about where you want to be on the asset size front? Or how do we think about the on-balance sheet assets going from here?
I think, Nick, maybe the last question first. Vincent, the on-balance sheet assets from rail and aviation we'll continue to pay back as contractually committed. We -- neither Service Finance or Triad require a lot of on-balance sheet capacity. They go for things like floor plan assets, but those will be relatively modest compared to what we have invested in rail and aviation. The restricting factor on the decline of both rail and aviation is building enough EBITDA, which is driven by management fees and origination fees in Service Finance and Triad. As those grow, you can bring down on-balance sheet assets. So they will decline as I mentioned earlier, but it will be -- they'll be in step with the EBITDA driven by Service Finance and Triad. And the first part, can you repeat the first part of that question?
Just if the buyback numbers that you've illustrated rightsizes equity for where you need to be?
Yes. What we -- we still have an M&A pipeline in front of us. So I don't want to comment any more than say that we're in -- we are looking at a handful of transactions, where we will need equity. But I think that this is a prudent use of capital right now that doesn't preempt any M&A deal getting done.
Got it. Makes sense. And just a separate topic on rising interest rates. So I've been getting that feedback a lot from investors. I'm just wondering your thoughts on how it impacts the business, and particularly home improvement and manufacturing, and maybe what's built into the guidance for MD&A and account wins.
Well, I can say our partner, Mark and his senior team, have been very proactive on this topic. They've been able to go back and -- it's not our risk, but it is because we are here to protect our bank partners' margins. So that proactive role has been to increase rates on the non-promotional period to review a series initiative. So we are in front of it, the bank partners have commented to Mark that that is what they expect from a partnership. So we've been able to adjust pricing. An interesting point into this, and maybe you'll think about this, but our principal competitor to installment-based credit on -- at the kitchen table or in the showroom at Abbey are credit cards. So as credit cards are increasing in interest rates, promotional financing actually outperforms because the vendors will buy us down to 0 interests, no payments for 6 months, whatever the promotional loan looks like. So it's something I didn't observe in our initial discussion, but volumes are up. Because most dealers are relying more heavily upon promotional financing i.e. our product in place of credit cards. So proactive increase in interest rates, which has got us positive feedback from our bank partners, and you'll see promotional financing grow as interest rates go up, but we'll take share from credit card.
Our next question comes from Tom MacKinnon from BMO Capital.
I know this is in the MD&A. Just correct me if I'm wrong, but it looks like you stand by the guidance for each one of the -- for rail and aviation, and for Triad and Service Finance, for revenue and for adjusted operating income before tax. You stand by the same guidance you gave as of December 14, 2017. Is that correct?
Yes. Tom, it's Jim. Yes. Yes, we do, and we decided, coming off the December call, to have those published in the MD&A. Just so everyone can see that.
And then, the -- do you stand -- I didn't see a table that was similar to Slide 22 you put in that December 14 business update, where you had a consolidated forecast. Do you stand by that consolidated forecast that you gave? Or assuming then, we add the 5.5% accretion that you note as a result of the SIB?
That's a -- I think that's a right way to think about it. We're not changing guidance, Tom. So the consolidated guidance that we provided, notwithstanding the SIB, would remain intact, yes.
Okay. So would it be safe to say, we take the previous guidance given and the accretion from the SIB, and that seems to be somewhere around what the new guidance would be for 2018?
That's a fair assumption.
Okay. And then, the final thing is, on the operating expenses, just back to that Slide 30. This -- in the MD&A, I think you just talk about taking a charge as a result of plan to reduce your corporate office as you transform your business this year. Is there a move here to reduce the base corporate expenses in that operating expense line? Like as this business gets more and more transitioned into a series of operating divisions, do you still carry the same kind of -- how should we be looking at the level of base corporate expenses over the next couple of years?
Yes. What we try to do with that schedule is we show kind of the elevated costs they were incurring as a result of going through M&A. So that base corporate is plus or minus supposed to be the run rate. The corporate costs that are associated with the restructuring, those were actually in rail and aviation. So those aren't in that line. But the way to think about that, I think is more the base corporate, that's what we believe would be the ongoing rate, plus or minus.
And the reason it went up from 5.5 in the third quarter to 6.243 in the fourth quarter. What was that? Would that just be other M&A-related costs? Or what's driving that increase?
No, those are dedicated corporate resources that are required to work with Service Finance on growth initiatives, and we'll see the results out of those initiatives from Service Finance.
Okay, so that's -- that's trying to extract more to Service Finance, and those expenses are expected to continue in that base corporate at that level?
That's correct.
Okay. So I mean, just the run rate on -- oh, those are in C dollars, okay. So that's the difference in that then. All right. Okay.
Our next question comes from Mario Mendonca from TD Securities.
Can we just go back to the corporate expenses? When you offered that guidance back in December, I think it was December 14, the strategic update, the number I recall was USD 39 million. That was what was consistent with the outlook you offered in -- for 2018. First, Grier, do I have that right? Was it about $39 million? And if so, can you help me reconcile what's the difference between the $27 million you're referring to and the $39 million today -- or $39 million then?
Sure, Mario. So the $40 million-- I think it's actually $41 million, but the $41 million is a combination of $27 million, which we talked about, plus the cost of our credit facility. So it's standby cost, interest -- and interest cost, and then, the upfronts that are being amortized. And that total plus the $27 million gets you to $41 million.
Okay. So the $41 million still is an appropriate number to focus on, then, when you add in the cost of credits? Okay. That totally explains it to me. One other quick thing, the capital supporting the rail and aviation business, has that changed much since the last time we spoke? I think it was $350 million and $250 million, respectively, for aviation and rail.
Yes. Just ballpark numbers, Mario. It hasn't changed much. I would say maybe the aviation has come down a touch, but they're still pretty close.
And corporate allocation, I think you'd also talked about $50 million assigned to the corporate business?
Yes, that's consistent.
Probably still appropriate? Okay. So it's when you piece that all together, that's how you get to your $579 million -- $575 million of what you call your equity firepower?
That's right.
And then, one final, just quick point of clarification. There was a $13.9 million tax recovery. I just want to make sure that's not included in the $0.03 EPS to common shareholders this quarter. Is that fair?
Yes. That is fair. It sits in the -- we've adjusted it out.
Our next question comes from Brenna Phelan of Raymond James.
So $575 million of equity firepower. Once you take off the $115 million for the substantial issuer bid, $460 million. Can you talk about what you'd expect your leverage ratio to look like then?
Brenna, you're assuming that if we took the remaining -- that we did the SIB, what the leverage would look like?
Yes.
I don't know. I can get back to you. I mean, it's going to be -- I'm not even going to guess, actually, but it will go up marginally. But it's not going to be -- it's not going to be material.
And does that change the estimate for the cost of the credit facility, the roughly USD 14 million?
No. There'd be no -- well, there'll be no impact on that, except for the interest draw on it. I'm just going to say, if you take --it's $115 million, but those funds, as you know, will be drawn from the credit facility. Any excess funds from transactions or divestitures we've used to pay down the facility.
Okay. And then, the 3 -- roughly $3 million impairment and amortization of intangibles, that's related to Service Finance. Is that all amortization? Is that expected to continue on a go-forward basis?
Yes, it will.
So roughly $3 million a quarter?
Yes. It should be consistent.
And anything coming from Triad amortization of intangibles?
Yes, there will be. It will be a much smaller number than that though.
Okay. And just the share-based comp in the quarter. Can you speak to some of the drivers of how that number came about? And what your outlook is for that line going into 2018?
Yes. We launched a PSU program for the employees at Service Finance. 155 employees participated in the 3-year program. That's based on performance matrix for those employees. We can follow up. So it's 155 employees over a 3-year period, driven by EBITDA and funded volumes. We've also -- you'll note that the people started to buy stock, there was $1.6 million of stock purchased by the Service Finance senior team. They were also implementing a payroll plan to allow for those same employees to purchase stock. I think you'll see more employment -- more employee purchase of stock.
Okay. So some of that was just expensed upfront as the plan was established?
Correct. It's earned and are based upon '17, '18 and '19 results.
Okay. And then, just to go back, to make sure I understand Vincent's question on the interest rates. So you're increasing rates on a non-promotional period. So that's strictly -- like, how much does that really relatively increase your yield for your bank partners though, if generally most of the loans are repaid before the non-promotional periods?
Yes. Well not -- about 60% are repaid, 40% don't. Approximately 40 basis points of increase for that. We've also focused on programs with shorter duration, which helps our banks, a little shorter duration. The mix of all of that produces about 70 basis points of improvement for our bank. I would note that our banks do not fund themselves off of 2-year treasuries. They fund themselves off of deposits, which haven't increased as much as treasuries, but we are very focused on it.
Our next question comes from Jaeme Gloyn of National Bank Financial.
First question is related to the substantial issuer bid, looking to get $115 million done or a maximum of $115 million done. What's the plan if, let's say, 0 shares tender to the SIB at this point? Is it to increase that bid price a little bit? Or is it just to continue moving forward?
We'll just -- we're going to -- we'll assess it as we go. We'll see what happens with this and we'll look at it and see what comes from it and assess from there. We're not going to make any plans.
Yes, Jaeme, it's Jim here. Also keep in mind, our NCIB continues to be open. There's about 10 million shares worth left on the existing NCIB that can be utilized with a renewal option to do another NCIB, come early July as well. So there's a few options available to us under the buyback scenarios.
Right. And that NCIB though, you'll be paused until the end of mid-April, for the SIB? Or will you actually hit the NCIB during that process?
No we'll pause on the NCIB, and then, we'll restart it after the SIB is complete.
Okay. Great. And if we can, can we just delve into the base corporate and what the breakdown is there? Can you just break down maybe of how much of that is premises? How much of that is salaries and benefits? And how much of that is, I guess, would be other?
Yes, I don't have an exact breakdown in front of me. I mean, a majority of it is going to be salaries and professional fees and that kind of thing, but I don't have the detail in front of me. So I'm not going to get that granular.
Okay. And then, related to Service Finance Co., it looks like Abbey Carpet is rolling out nationwide. I recall that Sam's Club was in a test phase as well. Can you talk about some of the success around adding other retailers and other channels outside of Abbey and the solar program that were discussed on the call?
Yes. No, that's a good question. Abbey is our first-to-market retail program, so we're spending a lot of time getting that right. There was a 20-store test, which has now resulted in the national rollout. Sam's is still in the test phase. Most of these retailers -- abbey is our first retail venture, so we definitely want to get it right. And Abbey could be very significant. we have -- there isn't a lot of Abbey provided for in the forecast that we gave near December. So it would be upside. So we're going to focus on Abbey first, continue to test the other ones, Jaeme, and then, we'll address it. But it's a very important rollout for us.
Okay. So maybe some further retail upside from other channels in the back half then, is the best way to think about that?
Yes. We've gotten -- we've got people in the field rolling out 800 stores as we speak. That's the first priority.
Okay. And then, just the last one. Still in Service Finance, related to the increase in the number of dealers being signed up on a monthly basis from 150 to 170. Has there been an increase in the penetration of dealers submitting, and also, in the -- an increase in the dealers getting approved applications or fundings? Can you talk about those 2 measures?
Yes. We certainly have got a matching increase in dealers who are submitting. The approvals haven't moved a lot because of the tight credit box that we have that the banks provided for us. The approvals rate hasn't moved a lot. We're not degradating on credit standards, but we have more dealers submitting as they get more comfortable with the mobile apps and other forms where you can submit.
Okay. And so, how do you improve that? Is that really just educating the dealers at this point? And getting them up to speed on what the credit box is? Or are dealers just, they're signed up and they're just trying to see if they can -- see what hits, essentially right now? Like, what's the process?
Yes. It's when one dealer who uses the program has got an increase in average check-in as a result. His or her total revenue is up. They're making more money. When they go to the dealer conferences, like the Abbey one we just went to, they are our best salespeople, because they tell the other dealers who aren't using it how much their average ticket has gone up. So at Abbey, the 20 test stores we have, the average ticket went from 3,000 to 6,200. That's our best salesperson. So that's what drives -- that word of mouth and dealer endorsement is what drives other dealers to sign up. It takes time. But these numbers are very strong.
Our next question comes from Mario Mendonca of TD Securities.
Real quickly here. The reference to a fixed shareholders' equity covenant of $1.3 billion, I'm not sure I really understand that. Can you just take me through what that means? And where the metric would stand today?
Yes. Sure, this one. When we re-syndicated our credit facility last fall, we replaced the tangible covenant -- tangible leverage covenant with a simple shareholders' equity. So it's as easy as just taking the shareholders' equity off our financial statements and measure that relative to $1.3 billion. So you can see there's quite a lot of room there.
So not tangible -- not tangible?
That's correct?
But the GAAP book value?
Just the GAAP shareholders' equity. So $1.8 billion or whatever the number is, it's -- there's quite a lot of room there.
Does that include preferred shares, the $1.8 billion?
It does.
Sorry, it does?
It does. Yes.
Our next question comes from Tom MacKinnon from BMO Capital. [Operator Instructions]
Just a question, really, with respect to standby fees on this credit facility. Maybe you can -- why do you have this big credit facility, when you have all this equity firepower, and then you have to pay this drag of, I don't know, maybe $15 million a year after tax in supporting this thing? Help us understand that.
Yes, Tom. It's Steve. There's no doubt that our credit facility is too big, and we are going to rightsize it as part of that reduction in expenses, both corporate and [ that ], but we're not going to do it until we finish the M&A process. So we are into it, and we'll keep it. To your point, we don't need this much. And we'll rightsize it here at the end of Q3.
Okay. So if you're thinking about really looking at 2019 and 2020, do you think you'd have these standby fees at the same kind of level you're getting right now?
No. It'd be much lower.
There are no questions registered at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.