Thank you for standing by. This is the conference operator. Welcome to the Element Fleet Management second quarter 2020 financial results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the prepared remarks, there will be an opportunity for analysts to ask questions. In order to afford all analysts the opportunity to ask questions, Element kindly requests that analysts limit themselves to two questions in live dialogue with management. Should any analyst have additional questions after her or his first two have been answered, please rejoin the question queue. To rejoin or rejoin the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. Element wishes to remind listeners that some of the information in today's call includes forward-looking statements.
These statements are based on assumptions that are subject to significant risks and uncertainties, and the company refers you to the cautionary statements and risk factors in its year-end and most recent MD&A, as well as its most recent AIF, for a description of these risks, uncertainties, and assumptions. Although management believes that the expectations reflected in these statements are reasonable, it can give no assurance that the expectations reflected in any forward-looking statements will prove to be correct. Element's earnings press release, financial statements, MD&A, supplementary information document, quarterly investor presentation, and today's call include references to non-IFRS measures, which management believes are helpful 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 the MD&A.
I would now like to turn the call over to Jay Forbes, President and Chief Executive Officer. Please go ahead.
Thank you, operator, and thanks to all of you joining me and Vito this evening to discuss Element's second quarter results, the milestones we've reached in advancing our strategic priorities this quarter, even in these challenging times, and our latest views on the near and midterm future for Element. Before I begin with our results, I want to express immense gratitude again this quarter on behalf of everyone at Element Fleet Management to the healthcare professionals and so many other essential workers on the front lines of the COVID-19 pandemic. The coronavirus persists despite virtually all of our best efforts, and my thoughts are with everyone affected. Thankfully, everyone here at Element is doing well.
While most aspects of our business have been affected by the economic consequences of COVID-19, the resilience of the business model and our people have allowed us to minimize the impacts and deliver another solid quarter of operating and financial performance. Our adjusted operating income decreased less than 10% year-over-year and less than 9% quarter-over-quarter. We generated CAD 0.19 of adjusted EPS in Q2, only CAD 0.02 less than Q2 last year and CAD 0.03 less than our prior quarter. We also produced CAD 0.25 of free cash flow per share this quarter, which was flat year-over-year despite the CAD 0.02 decline in adjusted EPS.
Vito will walk you through the details behind these results. Overall, our diversified client base of quality credits and the fundamental attributes of our business model resulted in a quarter that predominantly met or exceeded our team's expectations. As I've shared in the past, it's terribly gratifying to see employees embrace in action an ambitious change agenda like the one that has underpinned our transformative strategy for Element. It's all the more impressive when the degree of difficulty gets ratcheted up by an unforeseen event like the pandemic. I couldn't be prouder of how our people have adapted to the impositions and inconveniences that COVID-19 has brought, all the while staying true to the advancement of our strategic priorities. It's through their considerable efforts that we have been able to deliver a consistent, superior client experience in trying circumstances over the last five months.
It's through these same efforts that we've been able to overachieve against the three strategic goals we set back in October 2018. First, we've actually accelerated the transformation of our business during COVID-19. The client-centric overhaul of Element's operating platform hasn't slowed down one bit despite being five months away from its completion. We've redeployed the operational capacity created by some lull in client activities, vehicle titling and registration, for example, while many DMVs were closed during the quarter, and we used that capacity to action CAD 20 million of pre-tax annual run rate profit improvement. This is over six CAD million more than what we had been targeting for Q2. We also delivered over CAD 30 million of enhancements to our operating income in the quarter, which is CAD 6 million more than our delivery forecast from last quarter.
Having attained this level of performance, and with the tireless energies of the organization focused on finishing 2020 strong, we don't see anything that would prevent us from achieving our transformation goals of delivering a consistent, superior client experience and actioning the full CAD 180 million of pre-tax annual run rate profit improvement before year-end. We expect to deliver approximately CAD 120 million of that enhancement to our operating income over the course of 2020. The second goal, set back in 2018, was to strengthen Element's financial position, achieving a true investment-grade balance sheet. Having made significant progress to date, the second quarter saw us successfully execute the crowning achievement, the issuance of our inaugural $400 million U.S. dollar senior unsecured investment-grade bond. This successful debut issuance represents the first step towards Element becoming a programmatic issuer in the U.S. debt capital markets, diversifying our access to cost-efficient capital.
Over time, we believe U.S. investment-grade debt will play a key role in further lowering Element's cost of capital. Proceeds of this first bond were used as planned to retire $567 million of convertible debentures before the end of the quarter. As a result, our balance sheet as at June 30th, showcases a nicely maturing capital structure and a concrete example of the benefits of our ongoing deleveraging efforts. We continue to target tangible leverage below 6x by the end of this year. Our balance sheet looks even better as of last week. We closed the issuance of $750 million of ABS term debt under the Chesapeake facility and used the proceeds to pay down an equal amount of variable funding notes outstanding under that same facility. This transaction demonstrates the strength of Element's access to the U.S.
Fleet ABS market. We were the first fleet manager to issue in that market since February of this year. As a result, Element today has some CAD 5.7 billion of contractually committed, undrawn financial capacity to support our and our clients' business objectives. Transforming our operations and strengthening Element's balance sheet were two of the three goals that we set for ourselves back in 2018, and success is assured on both these fronts. The third goal was put the distraction of 19th Capital behind Element. As you already know, we've achieved that goal in the second quarter as well. This was an important accomplishment. By extricating Element from all of its non-core assets and investments over the last two years, we've created the largest pure-play fleet management company in the world, free from unnecessary and unproductive distractions.
While we were reluctant to discuss growth at the time, given the considerable remedial work that lay ahead of us for the next nine quarters, the strategic goals that we set in 2018 are always envisioned as a means to that end. A transformed operating platform delivering a consistent, superior client experience, a strengthened balance sheet providing ready access to cost-efficient capital, and a narrowed strategic focus free of non-core distractions, were all prerequisites for Element to pursue the strong organic growth prospects that we saw across all five of our geographies. Originally, we thought Element might be ready to start that pursuit in late 2020. However, the early successes we enjoyed on all three strategic fronts encouraged us to advance that thinking.
Beginning this time last year, we undertook in-depth studies of the North American and ANZ commercial vehicle markets, the first-ever market sizing and mapping of its kind to our knowledge. The learnings from that work shaped an enhanced organic growth strategy for Element, the five planks of which are holding market share through best-in-class client retention, improving our sales force effectiveness, and batting average on competitive bids, better managing client profitability, converting self-managed fleets and targeted market segments into Element clients, and leveraging our hard-earned leadership in Mexico and the ANZ markets. We believe solid execution on this strategy can improve Element's net revenue by 4%-6% annually in normal market conditions. We will also pursue so-called mega fleets. These opportunities will form part of our growth strategy. This would see us supporting the development of a deep commercial vehicle capacity by one or more individual clients.
We have incomparable experience building such capacity by virtue of our ongoing strategic relationship with Armada. I'm pleased to say that we have accelerated our pivot to growth in the first half of this year. We appointed our chief commercial officer, David Madrigal. We consolidated and reorganized our commercial groups. We established new compensation structures designed to incent profitable revenue growth and invested in strengthening our marketing function. Having met the necessary preconditions to go to market by virtue of our hard work in the first half, Element's commercial teams have begun to execute on this enhanced growth strategy in earnest, and will continue this pivot in the second half of 2020. That means we are aggressively pursuing new business in all of our geographies and all of our targeted market segments today.
Let me pause here and turn the floor over to Vito to give you his insights on our second quarter performance. Vito?
Thank you, Jay. Good evening, everyone. It's great to be with you this evening to talk through our solid Q2 results, Element's first full quarter operating through COVID-19. Overall, we are quite pleased as to how the business has performed. Before I get into a discussion of our results, I want to draw two important points about our Q2 disclosures. The first thing you may have noticed about our disclosures as a whole this quarter is that there's no longer a breakout of core and non-core operating segments. Of course, this stems from the sale of 19th Capital on May 1st, making a non-core operating segment unnecessary on a go-forward basis. Our results will be presented as a single business now, and importantly, comparative historical periods will reflect the same, i.e., both segments on a combined basis.
The second important point I want to make about our disclosures is that we have responded with transparency to the understandably high levels of interest shown by analysts and investors in how different aspects of our business have and will be impacted by the pandemic. To this end, we have added Chapter D to our supplementary information document, which provides details, data, and insights related to our working capital release, our client vehicle usage, service transaction volumes, remarketing performance, payment deferrals and delinquency, impaired receivables, and earning asset exposures to various industries, and the weighted average credit ratings of our clients in those industries. You will hear me refer to several sections of our supplementary in my remarks here this evening. Before I jump into the detail of our operating results, please let me share with you what we are seeing in respect of the all-important credit and collections functions.
Simply said, we are extremely pleased with how our business is holding up in these respects. In terms of requests for payment deferrals, I refer you to section 9.1 of our supplementary for detail. Client requests for Element's accommodations amid COVID-19 have been limited, with just over 4% of our clients requesting payment deferral arrangement of any kind. Over the last several weeks, these requests have essentially entirely abated. Only 1% of our clients have been granted payment deferrals to any extent, and deferrals amounted to approximately CAD 23 million of finance receivables, or just 20 basis points as a percentage of total finance receivables. As of June 30th, approximately 6.5 million of the deferred receivables had been collected, with not a single departure from agreed-to payment plans.
Our aggregate reported delinquencies at quarter end decreased by CAD 12.5 million or 26% quarter-over-quarter, from CAD 47.8 million to CAD 35.3 million. We expect improvements to continue as we manage delinquencies back to pre-COVID-19 levels. As we noted last quarter, the delinquency values reported in our disclosure documents are Element's aggregate net investments in finance receivables attributable to delinquent client accounts. Importantly, these are not the actual amounts that clients are delinquent on. The actual net finance receivable amounts in respect of which clients were delinquent at June 30th totaled just CAD 2.9 million, which is in line with pre-COVID-19 levels. I refer you to section 9.2 of our supplementary for more information and historical context. Let's look at credit, which remains solid for us thanks to our predominantly high-grade client base and our credit practices.
We are adept at picking up on early warning signs of credit deterioration, and we proactively manage client accounts accordingly. We are unlikely to find ourselves in a position of being materially surprised by a client development. To this point, while total impaired receivables were CAD 112 million at quarter end, a CAD 15.2 million or 16% increase from March 31 levels, as we communicated last quarter, we expected three clients on our watch list to enter bankruptcy in the second quarter. They did. They account for more than three times the net increase in impaired receivables quarter-over-quarter. In other words, we reduced our impaired receivables materially quarter-over-quarter, excluding these three clients. Having worked closely with two of the three clients leading up to and throughout their ongoing restructuring proceedings, we do not expect to incur any credit losses on these accounts.
These two clients comprise CAD 42 million of the CAD 47 million in new impaired receivables identified in Q2. If you refer to section 10 of our supplementary, you can see that we reduced impaired receivables by CAD 32 million over the course of the second quarter through repayments from clients and asset sales, and we expect negligible credit losses in total from all these currently impaired accounts. As a result of the business's performance on the credit front, we had no need to change our balance sheet allowance for credit losses from the CAD 20 million where it was last quarter and where it remains today. We had no material write-offs to speak of in Q2, and our expected credit loss model suggests that our position has improved overall since the end of Q1.
Given the uncertainties of the pandemic and maintaining conservative expectations, we left the allowance for credit losses at CAD 20 million this quarter. This is an impressive accomplishment in the midst of a global pandemic. What does it speak to? It speaks to our blue-chip client base of investment-grade clients. It speaks to the wide distribution and diversity of that client base across geographies and hundreds of industries. It speaks to the essential nature of our assets in our clients' hands. It speaks to the effective protections against defaults and credit losses built into our processes and contracts, such as cross-default provisions, no force majeure clauses, and the cross-collateralization of our leases.
June 30th was a point in time. Today is a point in time, and nothing has changed of any consequence since June 30th, by the way. We're tremendously encouraged by this quarter's performance in these regards, collections and credit. Many thanks to our clients for their continued loyalty and adherence to their employer obligations in these challenging times. Of course, kudos to our internal hardworking teams in these functional areas across our business. Okay, let's deep dive into a little bit of our quarterly results.
The net operating result is, as Jay mentioned, CAD 111.1 million of adjusted operating income for Q2, which is equivalent to CAD 0.19 on a per-share basis, just CAD 0.02 below Q2 of last year, and CAD 0.03 down from prior quarter. free cash flow per share was CAD 0.25, which is flat year-over-year despite this CAD 0.02 decline in adjusted EPS on the same comparator. Taking a closer look at originations and assets under management. Originations are the engine of future revenues. Assets under management captures the value of the vehicles we've financed minus amortization and dispositions, whether those vehicles remain on our balance sheet as earning assets or have been syndicated.
We break down the quarter-over-quarter changes to our assets under management in Section 4.5 of our supplementary information document, which is available on our website of course. As we anticipated and forecast in our Q1 disclosures, Q2 originations were lower than normal this year. We originated CAD 1.3 billion of assets in the quarter, CAD 500 million less than Q2 of 2019, over CAD 700 million less than last quarter. This moderation was expected given that OEM production facilities and dealerships were closed for most of the quarter, and many clients chose to postpone replacing their fleet vehicles while they focused on other aspects of their business impacted by COVID-19.
We provide a breakdown of originations by region in our MD&A, so the U.S.A. plus Canada, Mexico on its own, and of course, Australia and New Zealand grouped together. It's interesting to note that the local volumes largely correlated with COVID-19's presence in our different operating geographies, and we discuss this in the commentary in our MD&A. Jay will speak shortly on our views of second half activity when it comes to vehicle orders and originations. In terms of our assets under management, we grew CAD 1.5 billion or 10% year-over-year, approximately CAD 1.2 billion when you factor in FX. On a quarter-over-quarter basis, given the originations decrease, assets under management contracted by approximately CAD 300 million or 2% on a constant currency basis. Net financing revenue decreased CAD 2.9 million year-over-year and increased CAD 5.4 million quarter-over-quarter.
The year-over-year decrease actually represents relatively strong performance for two reasons. Firstly, net earning assets decreased by 13% over the same period, largely, of course, due to our syndication strategy. Secondly, Q2 2019 financing revenue included a CAD 10.1 million contribution from 19th Capital, whereas Q2 2020 only included a CAD 2.8 million net financing revenue contribution from 19th Capital. Excluding 19th Capital from the comparative results, our net financing revenue increase was in the makeup of our net financing revenue that resulted in the CAD 5.4 million increase. Our Q1 net financing revenue contained CAD 5.6 million of contribution from 19th Capital, whereas Q2 net financing revenue contained CAD 2.8 million from 19th Capital. Excluding these contributions, the quarter-over-quarter increase in net financing revenue was CAD 8.2 million.
Our Q1 net financing revenue reflected a CAD 12 million provision for credit losses in order to increase our balance sheet allowance for credit losses to CAD 20 million as at the end of Q1. Given, of course, that we maintained our allowance for credit losses unchanged at CAD 20 million as at the end of Q2, there's no comparative impact to net financing revenue in the second quarter. Partly offsetting the substantial improvement in our provision for credit losses quarter-over-quarter were the expected reductions in gain on sale revenue from ANZ, a 22% decrease, and originations in the quarter, a 36% decrease. It's important to note that the quarter-over-quarter reduction in gain on sale revenue was volume-based, and that volume has now returned to pre-COVID levels by and large.
Overall, used vehicle pricing remains quite strong, and we see continued strength in the secondary markets across our geographies today. We provide additional data points in Section 8.3 of our supplementary. Net interest and rental revenue margin, or NIM, improved 29 basis points year-over-year and 26 basis points quarter-over-quarter. This improvement is driven by optimization of Element's balance sheet, which results in decreased debt costs, instances of improved client profitability across our portfolio, and incremental changes in the geographic mix of our net earning assets. Let's move on to servicing income now, which of course has been a major area of focus and understandably so in this environment. Our revenue from services was resilient in Q2.
It decreased 8% year-over-year and 9% quarter-over-quarter. U.S. and Canadian servicing income decreased 10% year-over-year and 6% quarter-over-quarter, whereas both ANZ and Mexico's servicing income were effectively flat on both accounts. We discuss four major reasons for its Q2 durability, beginning on page 13 of the MD&A. It's encouraging to see gradual reversion towards 2019 levels across most of our servicing income drivers, and that began as early as halfway through Q2, depending on the geography. Section 8.2 of our supplementary provides data points. Notwithstanding the encouraging data, and Jay will say more about this shortly, we're still carefully managing the business one week at a time. The trends are in the right direction, and while some are steep, others are less so.
Our third and final revenue stream is, of course, from syndication. We syndicated CAD 759 million of assets in Q2, including CAD 73 million to new investors, which means we've sold CAD 143 million of syndicated assets to new investors in the first half of 2020. The strong Q2 volume generated only CAD 10.3 million of revenue. That quarter-over-quarter decrease in syndication revenue is a function of, one, the 9% decrease in volume of assets syndicated. Two, the significant tightening of pricing on our assets through the quarter, notwithstanding the persistent demand. This was true for all leases, including those with high-grade credit counterparties, such as Armada, whose assets, of course, we need to syndicate. Thirdly, one-time costs incurred to support the re-amortization of a large client's previously syndicated assets, partially offset by the resulting benefits to net financing revenue. Lastly, the particular mix of assets syndicated in the quarter.
We've invested in our syndication capabilities, as discussed in our disclosures, and we're successfully growing demand in the market for our product, which is already robust. We're having new conversations every week with investors that are interested in high-grade commercial fleet paper. Syndication is a strategic driver for us. It's a value driver. It's a management tool. For all these reasons, we remain committed to the market. Jay will say more in his closing remarks shortly regarding syndication. In terms of impact, our Q2 syndications helped deleverage our balance sheet from 7.4x tangible leverage at the end of March to 6.8x at the end of June, and it would've been 6.49x excluding the Armada non-recourse facility. Our adjusted operating expenses in Q2 were down CAD 9.2 million year-over-year and CAD 3.6 million quarter-over-quarter. This is primarily driven by our transformation efforts.
I also want to point out the working capital release we experienced in the quarter from lower service volumes. This is an innate defensive mechanism built into our business model. When client demand slows, so does our use of cash, and you can see this in detail in Section seven of our supplementary. Jay spoken briefly to our financing progress in Q2 and Q3. Our inaugural U.S. bond offering that drew a lot of interest and investor support in June, and more recently, of course, our ABS term note issuance last week, which was 11x oversubscribed and allocated to 129% more unique investors than our last ABS term note last year. I'll also mention our renewed AUD 1 billion securitization facility, ensuring Custom Fleet has continued ready access to cost-efficient capital in support of our growth strategy in that region.
These successful debt financings are a very important measure of our strength in these otherwise difficult times, speaking to the resilience of our business model and debt investors' understanding and appreciation of our ability to generate consistent free cash flow. We have CAD 5.7 billion of contractually committed undrawn liquidity available to us today. We're here for our clients, both existing clients and prospective clients. With that, I will turn the call back to Jay.
Thanks, Vito. Before we open the call to Q&A this evening, let me offer a few thoughts regarding the near and midterm prospects for Element. The midterm is comparatively easy. Beginning in 2021, atop a fully transformed operating platform with our investment-grade balance sheet and ready access to billions of dollars of capital, Element will shift focus and resources to the pursuit of organic, profitable revenue growth. Over the last two years, you've seen the exponential outcomes this organization can achieve by focusing the entirety of its resources on the few things that matter most. In 2021, the single thing that will matter most to Element is growth. While the 2021 that we are heading towards is far less certain than any of us would wish for, we believe the economic consequences of COVID-19 make Element's value proposition even more compelling to both existing and prospective clients.
There was ample evidence of this likelihood in the second quarter. As we shared with you in our written disclosures this evening, Element earned new clients and deepened existing client relationships in all of our geographies in Q2. This includes the conversion of self-managed fleets to Element clients in each of our markets, a sale-leaseback transaction, the retention and renewal of some of our largest accounts, the increase of Element services provided to existing clients, including the largest hospice care provider in the U.S. With gratitude to our colleagues at Custom Fleet in ANZ, winning the business of two of the largest supermarket chains in Australia and New Zealand. It's not hard to imagine why all of these clients chose Element.
Ready access to cost-efficient capital, which diversifies their sources of financing, the ability to reduce fleet ownership and operating costs by approximately 20%, and the ability to further reduce those ownership and operating costs over time, as evidenced by the CAD 1 billion of fleet cost-saving opportunities our strategic consultants have identified for our clients in the first six months of 2020. As I mentioned, envisioning the opportunities for Element to create meaningful value in 2021 and beyond is the easy part. Understanding how CV-19 will shape our world in the short term is less obvious. Here's what we can share at this juncture regarding the second half. Strategically, we expect to complete our transformation by year-end, actioning the CAD 180 million of pre-tax annual run rate profitability improvements, and delivering approximately CAD 120 million of in-year profit improvement.
We also expect to achieve the sub six times tangible leverage ratio and successfully pivot to growth in the U.S., Canada, Australia, and New Zealand. As you may recall, we're already very much in growth mode in Mexico. Operationally, with the arrival of COVID-19 in the U.S. and Canada in mid-March, we experienced an immediate, and in certain areas, significant fall-off in client activities of all kinds. That quickly found its floor, and since then, we've seen gradual recoveries begin at varying paces, depending on what we're measuring and where we're measuring it. Fortunately, the trajectory is almost universally in the right direction. The month of May was better for Element than the month of April. June was better than May, and July looks like it will be even better than June.
While we're pleased to see this positive progression, and our confidence in the fundamental resilience of our business is very high right now, what we know about the future amid COVID-19 is outweighed by what we don't know. With this as a backdrop, let us share our current views for the second half on several key aspects of the business. Firstly, orders, originations, and assets under management. Vehicle orders become lease originations, and originations sustain and grow Element's assets under management. Many vehicle orders placed for Q2 origination were delayed by OEM facility closures. With the resumption of production and the reopening of dealerships, we would expect these originations to take place in Q3.
Many vehicle orders that would normally have been placed in Q2 were postponed by our clients due to a number of factors, including OEM facility closures, a decrease in miles driven, the shelter in place directives that decreased the utilization of certain of our fleets would have delayed the need to order replacement vehicles for those clients who renew their fleet based on mileage. Lastly, a lack of business confidence. Understandably, some of our clients are still working through the current economic downturn and what that means for their business. While they do so, renewing fleet vehicles is often simply deprioritized. We view these orders as postponed for a matter of time without knowing the duration. Fortunately, other than isolated instances in specific industries, we are not seeing any meaningful de-fleeting of our client base.
We are carefully tracking all the leading indicators, not the least of which is regular direct dialogue with our clients. We believe these variables could amount to as much as 20% fewer originations in 2020 than in 2019. Again, we view the vast majority of this volume as postponed rather than lost, so the originations would instead occur in 2021. For the sake of clarity, all new client wins that result in originations in 2020 would serve to offset this potential headwind. Secondly, our net financing revenue. In simple terms, net financing revenue continues to be earned so long as our clients are leasing Element vehicles. Newly leased vehicles generate more net financing revenue for our business than vehicles towards the end of the lease term.
As a result, a deferral of origination volumes can change the average age of our lease book and affect net financing revenue. This change is quite gradual, as you can imagine. Even if we originated zero new leases in a quarter, the lease book would only age three months, and in fact, less than that because every quarter, a certain volume of older vehicles come off lease entirely, taking them out of the equation. Keeping it simple, think of the origination headwinds potentially pushing some new lease volume from this year out into 2021, thereby aging our lease book incrementally and having a small potential impact on net financing revenue in the second half.
The other salient input to net financing revenue in any given quarter is gain on sale contribution from ANZ. While gains on sale were soft in Q2, used vehicle market pricing has shown a V-shaped recovery in ANZ and has remained strong in Mexico. Accordingly, we would expect to realize much of the delayed gains in the second half. Thirdly, servicing income, the majority of which, as you know, is a function of transaction volumes and miles driven. You have nearly as much information as we do regarding this income stream since March, based on our detailed disclosures in the MD&A and supplementary this quarter. We don't anticipate any major surprises one way or the other in the second half pertaining to servicing income. We continue to see transaction volumes and value trending upwards towards historical norms week-over-week and month-over-month.
Fourth, and finally, our outlook for syndication revenue remains strong, though tempered by the elevated returns required by investors in these unprecedented times. Regarding second half demand, we expect that the syndication market will continue to be both robust and growing. We've been able to onboard and transact with new syndication investors in the first half, and that was in advance of our syndication team build-out, which is just nearing completion now. Regarding yield, the percentage we achieve is a function of the assets that we syndicate, which in turn is a function of the client credit, contract terms, age of fleet, et cetera. These haven't materially changed over the last 18 months of syndication, and we expect to remain status quo in the second half. It's also a function of hurdle rates that our investors have, which in turn have, for some, increased materially.
To the extent that these thresholds continue to remain high in the second half, we think that they can be partially offset by transacting with new investors with lower return expectations. Thirdly, syndication revenue is affected by one-time adjustments. In the second quarter, these arose from the re-amortizations and other client initiatives that we undertook that ultimately increased net financing revenue. They're nonetheless a drag on syndication revenue and yield. We're likely to see some more of these in the second half, though not to the same extent as the second quarter. We remain fully committed to a significant presence in the syndication market, given the strategic merits of the practice, its fundamental basis for value creation, which extend beyond the integral role of de-leveraging and de-risking our balance sheet.
When we step back and we look at weekly metrics since mid-March across our geographies and their economies and throughout our diversified client base, we're optimistic the many positive trends we're seeing will continue. In some cases like remarketing, the changes will be rapid and very likely absolute. In others, progress will be more gradual. Importantly, we've not encountered a single data point that suggests the absence of a full and complete recovery in due course. Looking at the next two quarters from a narrative perspective, Element's story is going to be in transition. We're moving from a state of especially rapid and frequent internal change to one of a more predictable pace and focus. Again, that immediate focus will be on organic, profitable revenue growth.
We expect to generate excess free cash flow from that growth, and we expect to be able to share more with you in the second half of this year about our board's thinking on allocating that capital. We look forward to updating you on that front and all others. For now, it's my pleasure to open the floor to your questions. Operator?
Thank you. We will now begin the analyst question- and- answer session. As a reminder, in order to afford all analysts the opportunity to ask questions, Element kindly requests that analysts limit themselves to two questions in live dialogue with management. Should an analyst have additional questions after her or his first two have been answered, please rejoin the question queue. To join or rejoin the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.
Hi. Good evening. You gave some great insight, I guess, on some of the new client wins. I was just wondering if there is anything that you can give in terms of insights, in terms of the progress on some of the governments that you are targeting, and anything on the mega fleets, recognizing obviously the sales cycles can take longer than for other clients.
Good evening, Geoff. In terms of new client wins, as we mentioned, we are fast pivoting to growth in all five of our country operations and have posted some nice early successes as those teams complete their restructuring, the introduction of the new incentive plans, and target more of the self-managed market, which includes government. I would say to you, the early reception from government has been warm. We're finding governments at the municipal, county, provincial, and even federal level very receptive to our advances, and have a particular interest in a sale-leaseback type of transaction as a means of obtaining that initial cash infusion. With that kind of introductory conversation, we hope to lever that into a more fulsome discussion of how we might be able to reduce the administrative burden and the associated cost of servicing those government fleets. Very early days.
As we mentioned, and as you can all appreciate, their focus wasn't much on fleets, but instead the healthcare and the wellbeing of their citizens. As things have come under a degree of control here in recent weeks, we've found those parties to be much more available and much more interested in having this conversation. Remains early days. In terms of mega-fleets, we continue to do well with Armada in terms of advancing their needs and continuing to power forward on their aggressive growth aspirations. That in turn, is giving us great IP that we hope to make available to other organizations that are contemplating a similar type of investment.
Okay. On the syndication rates, you talked about the various drivers that explained the decline quarter-over-quarter. Can you talk about, I guess, just kind of the rough ballpark in terms of how much came from each of those buckets, and also specifically on that re-amortization transaction, why that happened? What exactly happened with that?
Yeah. Again, delightfully, and you might remember when we began this conversation in, I think it was Q1 2019, and the expansion of the syndication program. While we were comfortable with the profitability dynamics of moving these assets off our books and onto the books of others, the real question we had was how might this market stress through a business cycle? Delightfully, it has stressed incredibly well for us through one of the tougher cycles we could ever imagine. We've been actually able to attract additional investors and transact with those additional investors to expand the syndication market for these fleet assets. Remain rather bullish in terms of our outlook for demand.
That said, the market that has developed, think largely comprised of regional banks on the left coast, have a high degree of sensitivity around interest rates for rates of return and preservation of capital. What we saw in second quarter, and as we hinted at in part of our Q1 disclosures, was a increase in the hurdle rate and a decrease in the yields that we were seeing. As we look at the quarter-over-quarter decline, and let's call it roughly CAD 16 million, think about it as three buckets maybe. A third of that would've been the result of a decline in quarter-over-quarter volume, plus a softening of yield on the core assets that we syndicate, i.e., the non-Armada assets that we syndicate.
A third would've been Armada, and would've been constituted by both rate and mix, how much Armada we did vis-a-vis Q1, as well as the rate that we were offered in the marketplace for those assets. Lastly, a third would've been the result of these one-timers, the largest being this re-amortization. In this particular situation, we had a client who a portion of their holding was syndicated. We worked with them to re-amortize the entire portfolio of assets, and that part that was syndicated, we had to have a one-time make-whole payment to the investor as it related to that re-amortization. We benefit from that in terms of net financing revenue gained over time, as well as smallish transaction fees. The counterpoint of that is a one-time immediate hit in terms of syndication revenue.
As it relates to the second quarter, or excuse me, the second half, we would expect the expansion of the market and the interaction of investors with different thresholds to give us some relief in terms of the overall yield on both core and Armada assets. We expect less in the way of one-time adjustments. We should be back to a more typical mix in terms of Armada and core. Again, feeling very good about the demand in the marketplace. This is a segment of our business that it too has been exposed to COVID-19 by way of greater conservation of investment capital, and a higher expectation of return when that is made available to us.
If I can ask just one really quick last question. The 4%-6% revenue guidance during normal times, how do you think of what the OpEx growth would look like in that environment?
Yeah. We think that we have built, by virtue of the transformation investment that we've made, a very scalable platform. Certain aspects of the services that we provide don't scale naturally. They require more human intervention. For instance, the ordering platform that we have put in place is scalable beyond any growth aspiration that we would have. Thus, each additional vehicle that we would administer through that system would result in no incremental cost. We would expect a disproportionate amount of the rate of growth to translate into a meaningful growth of operating income for the business.
Okay. Thank you.
The next question comes from Paul Holden with CIBC. Please go ahead.
Morning. Again, very much appreciate all the additional details you've given us this quarter. Very helpful. One I wanted to focus on a little bit for a second is 8.3, the remarketing performance for the quarter. You talked about the ANZ business and the Mexico business and the gain on sale there, and I think I understand that. I want to better understand if those remarketing trends in any way impact servicing income or otherwise in the core U.S. and Canadian businesses. Are there some fees associated with the volume of remarketing transactions that get done?
Yes. Good evening, Paul. Yes, there is. To your point, remarketing. We largely talk about remarketing in the context of gain on sale in ANZ, and to a lesser extent, Mexico. To your point, the remarketing activity is a value-added service that we provide our clients in Canada and the U.S. for a fee. In fact, we have developed an expertise and a reputation that we're actually remarket on behalf of a variety of other institutions as well. The closure of these auction facilities and the pullback in demand that we saw in Q2 not only impacted the gain on sale realization in ANZ and Mexico, but it actually forestalled our ability to transact on behalf of our clients and on behalf of those institutions that we serve.
Service income would have been impacted in the second quarter as a consequence of the closure of those auction facilities.
Yeah. You obviously did a big drill down on the way your company or Element earns servicing income during the quarter, and maybe better understanding the profile of your customers as well. You provided a nice split between sales oriented versus servicing. Was there anything that you discovered, Jay, during that process that was a surprise to you? What were the one or two things that really stood out to you that you learned about your business going through that process?
Yeah. As a relative newbie to the industry, I'm still stumbling over things from time to time as new learnings for me that are old hat for some of my colleagues. One of the ahas for me was the disproportionate consumption of maintenance, fuel, accident, et cetera, by the service versus sales fleets. The size of the differential there was a surprise to me. The fact that we skew 80% to service versus sales speaks to my predecessors and the wisdom that they had to identify these opportunities that generate far more revenue-generating opportunities for our business than if we had skewed to sales fleets. That's probably one of the biggest learnings.
The second was, again, I think our commercial and credit teams have worked hand in glove with one another very effectively over the years to ensure that even in some of the categories that we have highlighted here, there's a few that, frankly, I cocked an eyebrow at when I looked at the category and thought, "Geez, we have exposure to that?" Then as you delve into who we have as a client in that particular area, you quickly gain a great deal of satisfaction by virtue of, more often than not, it's the leader in that segment. More often than not, it has a superior credit rating. More often than not, it is someone that we have transacted with for decades and have a long-established relationship with.
Even when you look at some of the hot spots in the portfolio, those industries that are perhaps more susceptible to the impact of COVID-19, it was reassuring that the team has done a great job in identifying those clients in those segments that would truly be the crème de la crème.
The next question comes from Mario Mendonca with TD Securities. Please go ahead.
Good afternoon. Can you guys hear me okay?
We can. How are you, Mario?
I'm very good. Thanks for asking. If we could go back to the re-amortization for a moment. I was always under the impression that syndication was an actual sale, with limited or no recourse to the seller being EFN. When the assets were taken back, why was that? Was that something that EFN was legally required to do? Or did EFN do that more to be a good corporate citizen? I ask it that way because we saw something like this many years ago in the banking sector, in the asset-backed commercial paper market, where the banks weren't being legally required to take it back, but they thought it was the right thing to do. Can you help me think through what happened in this case? Was it a legal requirement or just the right thing to do?
Oh, neither. I believe there's a misconception here. We did not take these assets back. Think about this as a large client relationship that we've had for many years. Great credits, long history, great ability to pay and a demonstrated willingness to pay. They came to us. I think we actually came to them, and proposed a re-amortization of their fleet, recognizing the quality of the counterparty, the quality of the assets. Some of that fleet is on our books. Some of that fleet has been sold through the syndication process. The client wants to reduce by extending the amortization period of that agreement, the whole fleet. For those assets on our books, easy.
For those assets that are in the hands of a third party, we have to enter into an agreement with them because we're altering that contract that we sold to them through the syndication process. These assets do not come back on our books. For all intents and purposes, we could have said to the client, "No, actually, we're only going to re-amortize that which still is on our books as a part of our portfolio." As you can appreciate, if we did that, then it's a lesser benefit to the client and might set up a degree of resistance to syndicating their assets in the future. Economically, Mario, think about this as we have the true-up that we need to make with our syndicated investor, but that is going to be offset handsomely by the net financing revenue gains that we'll get through this re-amortization.
We'll see that trickle through as net financing revenue over the course of the lease in terms of the uptick that we got. We had to take the one-time hit in terms of the syndication revenue in the quarter. I want to make sure that we're not missing one another in terms of this. There was no buyback of those assets. To your point, once we sell them, they're sold on a non-recourse basis.
That does clarify it a lot for me. It does sound to me like this is an unusual situation where a client would come to you and say they wanted to extend the amortization. You said that you felt this could continue to be an issue in subsequent quarters, you could see more of this. What is the underlying trend or theme that makes you believe we could see more of this? It does sound really unusual. What you've described sounds like something we should not see regularly from EFN.
Yeah. I think, again, I'm going to give you horseshoes and a hand grenade type of representations here, but I think I can only remember one of these of size in 2018 in the second half, one or two maybe last year. I say maybe. I would expect no more than a half a dozen this year. What this does, again, this is working with our client to create value. We have a great counterparty credit. We have a great asset base that we know well. We have great cross-collateralization and acceptable collateral gap if we don't even have a surplus. Hey, why wouldn't we help provide the client with some immediate relief in terms of the cash flow obligations that they would have in terms of a very sizable lease fleet? To your point, these are rare. They are a value add.
They are a tremendous amount of work. Oh my gosh, they're a lot of work. Hence the few numbers that we ultimately do. For our special clients that we can help out, we do. As you can appreciate, the economics of doing so are very favorable to us.
Okay. Thank you, and thank you for all the enhanced disclosure this quarter.
No, not at all.
The next question comes from Jaeme Gloyn with National Bank Financial. Please go ahead.
Good, thanks. I'm good, thank you.
Are you okay? Perfect. Thank you.
The next question comes from Tom MacKinnon with BMO. Please go ahead.
Yeah, thanks. Good afternoon. Jay, in the disclosure, you mentioned a bunch of wins that you had, and I think later on you talked about how you get orders and then how you get originations. It seems like orders come in first, and then they work their way into the originations line. Were all these wins that you mentioned here, would they have been originations in the quarter, or would some of them be orders and expected to be originations in the second quarter? Were they all businesses where you put them on your own books or on your balance sheet as well? How does that work its way into your comment about originations in 2020 expected to be 20% below 2019?
Tom, I think we'd have quite a few different outcomes/impacts as a result of these wins. When we do a sale-leaseback, absolutely that's an immediate increase in the assets under management, the net earning assets of the business. Any type of sales leaseback transaction we do, that's an immediate accretion, if you will, of volume. When we transact with a self-managed fleet, that typically would result in a sales leaseback, so we'd buy out the existing fleet. In some situations, they may decide just to continue owning that and instead initiate new orders with us. That will result in originations in future months. Obviously, in terms of the retained book, we would continue to work with that segment of our client base, to facilitate their ongoing replacement strategy for their particular fleets.
Again, it depends, and even when a client comes on, it depends on where they are in the ordering cycle. They may have just ordered for the year. They may have a large pending order. They may be on a two-year cycle. It is quite unique, and I'd love to give you some rules of thumb, but truly it's quite unique as it relates to the vehicle lease part of it. In terms of services, when we acquire a new client, services are usually ported on within a quarter and certainly within two quarters. The ramp-up on services happens very quickly.
Okay. As a follow-up, as you seem to be able to convert more and more self-managed fleets than expected into Element clients, and that pace is moving along nicely. That has an impact on leverage. The movement to the six times leverage was helped by a move more to syndication. If you do more conversion of self-managed fleets and bring them on balance sheet, you may not hit the six times leverage by the end of the year, but you're certainly in a good position with free cash flow. How should we be thinking about 2021 with a transition to giving investors some of that free cash flow, and how does that marry into the six times tangible leverage target that you have for the end of the year?
How does that all fit in if you keep bringing on balance sheet more and more fleets and less through syndication?
Yeah. Well, I think you said the word that is the swing factor here, and that's syndication. When you think about taking on a fleet, and let's call it a CAD 150 million book of assets that they would have. Depending on their credit rating, and given their newness as a client, we may only be able to take on that exposure by virtue of being able to syndicate a part or indeed the entire part of that portfolio. Syndication is one of the reasons why we augmented our modest syndication, was to create that vehicle for de-leveraging. Also we knew in time as we pivoted to growth, we would have a ready market that would allow us to fund these new clients that we're bringing on and not take an overly aggressive stance in terms of credit risk.
Syndication is a very important funding vehicle, especially in the context of self-managed fleets and sale-leaseback opportunities that we see. As a consequence of that, coupled with an operating income that won't be burdened with one-time costs in 2021 and beyond, the combination of those two factors, we think, is going to continue the descent in terms of tangible leverage create that excess capital position, that we will need to opine on in terms of the share buyback strategy for investors.
It seems like syndication is still going to be a really big integral part of this. Are you still standing by CAD 2.4 billion, I think was the previous guidance for syndication volumes for 2020? I think that was split 50/50 with Armada and non-Armada, or is that looking like it could be higher?
We're not refreshing our guidance, but to your point, we had counseled that the CAD 2.4 billion felt like a good number for 2020. Again, I think we'll be in a position as part of our Q3 disclosures just to offer a little bit more insight around that.
Okay. Thanks very much.
Thank you, Tom.
At this time, Element would like to invite any analyst that hasn't already had the opportunity to pose a question to join the queue. Once again, if you have a question, please press star then one. There are no questioners in queue. This concludes the question- and- answer session. I would like to turn the call back over to Mr. Forbes for any closing remarks.
Thank you, operator. Just want to close by saying thank you for making the time this afternoon, and to wish everyone good health as you go forward. Thanks again.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant evening.