FINOVA and the Loan Write$-$Off Case $4\mathrm{.}11$

What would you have done to get the FINOVA perks?Tring at that time and other spin$-$offs included the Dial Corporation.

FINOVA, headquartered in Phoenix, Arizona, quickly became a Wall Street darling. Its growth was ferocious. By $1993,$ its loan portfolio was over $$1$ billion both through its own loans as well as the acquisition of U$.$S$.$ Bancorp Financial, Ambassador Factors, and TriCon Capital. In $1994,$ FINOVA had a successful $$226$ million stock offering. By $1995,$ its loan portfolio was $$4\mathrm{.}3$ billion. Standard & Poor$$s rated the company$$s senior debt as A$,$ and Duff & Phelps upgraded its rating to A in $1995$ when FINOVA issued $$115$ million in convertible preferred shares and its portfolio reached $$6$ billion. FINOVA$$s income went from $$30\mathrm{.}3$ million in $1991$ to $$117$ million by $1996$ to $$13\mathrm{.}12$ billion in $1999.$ Forbes named FINOVA to its Platinum $400$ list of the fastest$-$growing and most profitable companies in January $2000.$

FINOVA was consistently named as one of the top companies to work for in the United States $($it debuted as number $12$ on the list published by Fortune magazine in $1998$ and subsequent years$).$ Its benefits included an on$-$site gym for employee workouts and tuition for the children of FINOVA employees $($up to $$3,000$ per child$)$ who attended any one of the three Arizona state universities under what FINOVA called the $$Future Leaders Grant Program.$$ FINOVA also had generous bonus and incentive plans tied to the stock price of the company. Fortune magazine described the $500$ stock options each employee is given when hired, the free on$-$site massages every Friday, concierge services, and unlimited time off with pay for volunteer work as a $$breathtaking array of benefits.$$

The name FINOVA was chosen as a combination of $$financial$$ and $$innovators$.$ However, some with language training pointed out that FINOVA is a Celtic term that means $$pig with lipstick.$$ FINOVA took pride in its strategic distinction from other finance companies. It was able to borrow cheaply and then make loans to businesses at a premium. Its borrowers were those who were too small, too new, or too much in debt to qualify at banks. Its $1997$ annual report included the following language from FINOVA$$s CEO and chairman of the board, Sam Eichenfield:

FINOVA is$,$ today, one of America$$s largest independent commercial finance companies. We concentrate on serving midsize business$$companies with annual sales of $$10$ million to $$300$ million$$with arguably the industry$$s broadest array of financing products and services. The goals we set forth in our first Annual Report were to:

grow our income by no less than $10$ percent per year;

provide our shareholders with an overall return greater than that of the S&P $500$;

preserve and enhance the quality of our loan portfolios;

continue enjoying improved credit ratings

We have met those goals and, because they remain equally valid today, we intend to continue meeting or surpassing them in the future. Many observers comment on FINOVA$$s thoughtfulness and discipline and, indeed, FINOVA prides itself on its focus.

FINOVA also had a reputation for its generous giving in the community. Again, from its $1997$ annual report:

FINOVA believes that it has a responsibility to support the communities in which its people live and work. Only by doing so can we help guarantee the future health and vitality of our clients and prospects, and only by doing so can we assure ourselves of our continuing ability to attract the best people.

Over the years, not only have FINOVA and its people contributed monetarily to a broad range of charitable, educational and cultural causes, but FINOVA people have contributed their time and energy to a variety of volunteer efforts.

In $1996,$ FINOVA contributed more than $$1\mathrm{.}5$ million and thousands of volunteer hours to educate and develop youth, house the homeless, feed the hungry, elevate the arts, and support many other deserving causes around the country.

FINOVA$$s ascent continued in the years following the $1997$ report. Its stock price climbed above $$50$ per share, and management continued to emphasize reaching the income goals and the goals for portfolio growth. Throughout the company, many spoke of the unwritten goal of reaching a stock price of $$60$ per share. That climb in stock price was rewarded. The stock traded in the $$50$ range for most of $1998$ and $1999,$ reaching a high of $$54\mathrm{.}50$ in July $1999.$

At the end of $1998,$ FINOVA reported that Mr$.$ Eichenfield$$s compensation for the year was $$6\mathrm{.}5$ million, the highest for any CEO of firms headquartered in Phoenix. More than half of the compensation consisted of bonuses. Mr$.$ Eichenfield and his wife purchased a $$3$ million home nearby Paradise Valley shortly after the year$-$end announcement in $1998$ of his compensation. Mr$.$ Eichenfi