Schuylkill Navigation collected tolls for use by boat captains of the Schuylkill River and canal. SNC could not transport, only provide a navigation for transporters. An 1845 flood destroyed its navigation and essentially all boats. Captains could not afford to build boats. SNC had inadequate funds for rebuilding the navigation or building boats and rail cars. To finance boat replacements and rebuilding of the navigation, SNC created the "boat loan" equipment finance structure. SNC borrowed money. A trust used the money to acquire (and own) boats and cars and lease them to SNC. SNC subleased the boats to boat captains.
In 1847, Frederick Fraley became SNC president, remaining so until 1888. Extraordinary innovation characterized his tenure. By 1863, SNC issued five boat loans. The trust was transformed from a holder of collateral into an independent business unit. It borrowed and lent money, owned boats, cars and, eventually, financial assets, leased boats to captains, provided collateral for, and paid, other SNC debt, and engaged in mergers, among other activities. SNC went into receivership in 1852 under a Pennsylvania law that, for the first time, defined equipment finance and its limited recourse features. From desperation, debt, and default, equipment finance was born.
In 1868 and 1869, Lehigh Coal & Navigation transformed the boat loan into the car and equipment trust, incorporating the lease-to-purchase structure it used since the 1832 cholera pandemic. The trust and its documents became the Philadelphia Plan of equipment finance. The plan, and the documents, survive to the present.
In 1871, the Central Railroad of New Jersey leased LC&N, taking control of the LC&N car and equipment trusts. The CNJ soon copied the LC&N trusts, issuing four new car and equipment trusts and acquiring thousands of rail cars as they became a leading transporter of Pennsylvania coal to New York. The Philadelphia Plan became one of the two dominant equipment financing structures.
These are stories told in this volume.
About the Author :
Michael J.T. McMillen is a partner in the international law firm of Curtis, Mallet-Prevost, Colt & Mosle LLP, an Adjunct Professor in the University of Pennsylvania Carey Law School, and a Lecturer in Law at the Columbia Law School. His international legal practice focuses on project, infrastructure, and equipment finance (since 1983) and Islamic finance (since 1996). Michael was awarded a Doctor of Medicine (M.D.) from the Albert Einstein College of Medicine, a Juris Doctor (J.D.) from the University of Wisconsin Law School, and a Bachelor of Business Administration (B.B.A.) from the University of Wisconsin School of Business.
