|
Power Tools for Successful Leasing |
Page |
|
Chapter 1 |
|
|
A Leasing Primer |
1 |
|
A Leasing Primer |
2 |
|
Tax Considerations |
5 |
|
Accounting Purposes |
7 |
|
Legal Criteria |
8 |
|
Contrasting True Leases and Secured Loans |
11 |
|
Tax |
11 |
|
Legal |
12 |
|
Accounting |
12 |
|
Interest |
12 |
|
Credit issues |
12 |
|
Collateral |
12 |
|
Liability |
13 |
|
Uniform Commercial Code |
13 |
|
Chapter 2 |
|
|
Leasing Law |
15 |
|
What is "The Law?" |
15 |
|
Case Law |
15 |
|
Regulatory Law |
16 |
|
Federal Law |
16 |
|
State Law |
16 |
|
Conflict of Law |
16 |
|
Qualification to do Business |
17 |
|
The Law |
18 |
|
Basic Rules |
18 |
|
Capacity |
19 |
|
Legality |
19 |
|
Writing |
19 |
|
Contract Law |
19 |
|
What is the Uniform Commercial Code? |
20 |
|
Article 2 |
20 |
|
Article 9 |
20 |
|
The UCC Article 9 |
23 |
|
Article 2A |
25 |
|
Types of Business Organizations |
25 |
|
Sole Proprietorship |
26 |
|
Limited Partnership |
28 |
|
Corporations |
30 |
|
Limited Liability Company |
32 |
|
Limited Liability Partnership |
32 |
|
Bankruptcy Law |
34 |
|
Liquidating Bankruptcy or Reorganization |
35 |
|
Voluntary and Involuntary Bankruptcy |
35 |
|
Preferences in Bankruptcy |
36 |
|
ECOA (Regulation B) |
37 |
|
Usury |
39 |
|
Litigation |
40 |
|
Types of Damages |
41 |
|
Judge and Jury |
41 |
|
Procedure |
42 |
|
Mediation and Arbitration |
43 |
|
Chapter 3 |
|
|
The Paper Trail |
45 |
|
Why the Documents and Lease Provisions are Necessary |
45 |
|
Protect the deal |
47 |
|
Protect lease revenue |
47 |
|
Protect residual value |
47 |
|
Protect the lessor from liability |
48 |
|
Protect enforceability |
48 |
|
When the Documents are Signed and What They Do |
48 |
|
Phase I - Invitation to the Dance |
49 |
|
Engagement Letter |
49 |
|
Lease Proposal/Commitment Letter |
49 |
|
Lease Summary Sheet |
50 |
|
Progress Payment Agreement |
50 |
|
Advance Lease Agreement |
51 |
|
Progress Payments/Pre-Funding |
51 |
|
Agency Agreement |
51 |
|
Vendor Agreement |
52 |
|
Phase II - Striking the Deal |
52 |
|
Master Lease |
52 |
|
Lease Schedule |
53 |
|
Guaranty |
53 |
|
Purchase Order |
53 |
|
Purchase Order Assignment |
54 |
|
Pay Proceeds Letter |
54 |
|
Phase III - Funding |
54 |
|
Delivery Certificate |
55 |
|
Acceptance Certificate |
55 |
|
Vendor Invoice |
55 |
|
Other Documents |
56 |
|
Lessee Certificates |
56 |
|
Good Standing Certificate |
56 |
|
Attorney Opinion |
56 |
|
Insurance Certificate |
57 |
|
Landlord/Mortgagee Waiver |
57 |
|
UCC Financing Statements |
57 |
|
Telephone Audit Notes |
57 |
|
Site Inspections |
58 |
|
Appraisals |
58 |
|
TRAC Documents |
58 |
|
Chapter 4 |
|
|
Lease Documents Provisions |
59 |
|
What is In Your Lease? |
60 |
|
Provisions Which Protect the Deal |
60 |
|
Lease Obligation |
60 |
|
Description of Schedules |
60 |
|
UCC Waivers and Acknowledgements |
60 |
|
Delivery and Acceptance |
61 |
|
Term |
61 |
|
Lessee Representations, Covenants and Financial Statements |
61 |
|
Provisions that Protect Lease Revenues |
62 |
|
Rent |
62 |
|
Net Lease/Hell or High Water/Warranty Disclaimer |
62 |
|
Provisions that Protect Residual Value |
63 |
|
Use; Maintenance |
63 |
|
Return Provisions |
65 |
|
Loss |
66 |
|
Property Insurance |
66 |
|
Provisions that Protect the Lessor From Liability |
67 |
|
Liability Insurance |
67 |
|
General Indemnity |
67 |
|
Taxes |
67 |
|
Income Tax Indemnity |
68 |
|
Other Lease Language |
68 |
|
Events of Default |
68 |
|
Remedies |
69 |
|
Miscellaneous Provisions |
69 |
|
Chapter 5 |
|
|
Why Lessees Lease |
73 |
|
Economic Motives to Lease |
74 |
|
Net Operating Loss Carry-Forwards (NOLs) |
75 |
|
Lease Term vs. Depreciable Tax Life |
76 |
|
Length of NOL Period |
77 |
|
NOL Restrictions |
78 |
|
NOL Expirations |
79 |
|
NOL Entity |
81 |
|
NOL Recapitulation |
82 |
|
Alternative Minimum Tax (AMT) |
82 |
|
Foreign NOL Carry-Forwards |
86 |
|
U.S. Tax Credits |
86 |
|
Foreign Tax Credits |
88 |
|
The Forty Percent Rule |
89 |
|
Industrial Revenue Bond Facilities |
92 |
|
Low Lease Rate |
92 |
|
Non-Economic Motives to Lease |
93 |
|
Asset Phobia |
93 |
|
Cash Flow |
96 |
|
Off-Balance Sheet Financing |
97 |
|
Convenience |
98 |
|
Necessity |
100 |
|
Controlling Technology |
101 |
|
Summary |
102 |
|
Chapter 6 |
|
|
Leasing Products |
103 |
|
Tax-Oriented Leases |
104 |
|
Single Investor Lease |
105 |
|
TRAC Lease |
105 |
|
Leveraged Lease |
109 |
|
Non Tax-Oriented Leases |
110 |
|
Conditional Sales Contract |
111 |
|
Synthetic Lease |
111 |
|
Other Lease Products |
113 |
|
Financing (Triple Net) vs. Full Service Leases |
113 |
|
Operating Vs. Capital Lease |
114 |
|
Summary of Tax and Accounting Products |
115 |
|
When to Use Each Lease Product |
117 |
|
Triple Net Lease |
117 |
|
Full Service Lease |
117 |
|
Leveraged Lease |
117 |
|
TRAC Lease |
118 |
|
Conditional Sale Lease |
118 |
|
Synthetic Lease |
118 |
|
Single Investor Lease |
118 |
|
Summary |
119 |
|
Chapter 7 |
|
|
Shaping Lease Payment Streams |
121 |
|
Why Shape Payments? |
122 |
|
Base Case Example |
123 |
|
Tools to Lower Lease Payments--"Free" to the Customer |
125 |
|
Stretch the Lease Term |
125 |
|
Interim Rent |
128 |
|
Shop the Equipment Cost |
129 |
|
Shop for A Hungry Funding Source |
129 |
|
Shop for A Hungry Vendor |
129 |
|
Purchase Residual Value Insurance |
133 |
|
Tools to Lower Lease Payments--Customer Pays Up-Front |
135 |
|
Up-Front Fees |
136 |
|
Security Deposit |
138 |
|
Advance Payments |
141 |
|
Tools to Lower Lease Payments--Customer Pays at Lease End |
145 |
|
Balloon Payment |
145 |
|
Back-End Fees |
147 |
|
Tools to Match Lease Payments to Lessee's Cash Flow |
148 |
|
Step-Up Structures |
148 |
|
Step-Down Payments |
153 |
|
Skip Payment Structures--Regular Skips |
156 |
|
Skip Payment Structures--Irregular Skips |
161 |
|
Deferred Payments |
163 |
|
Seasonal Lease Payments |
165 |
|
Summary |
172 |
|
Chapter 8 |
|
|
Lease Accounting |
175 |
|
Why Lease Accounting is a Big Deal |
175 |
|
Budgeting |
176 |
|
Debt Agreements |
176 |
|
Employee Compensation |
177 |
|
Financial Window Dressing |
179 |
|
The Numbers Behind Operating and Capital Leases |
179 |
|
An Example Transaction |
180 |
|
How Accountants Account for Leases--The Four Tests |
182 |
|
The Four Accounting Tests |
182 |
|
Explanation and Interpretation of the Four Accounting Tests |
183 |
|
Lease Transfers Ownership to the Lessee |
183 |
|
Lease Contains a Bargain Purchase Option |
184 |
|
Lease Term is at Least 75 Percent of Economic Life |
185 |
|
Present Value of Payments Equal to at Least 90 Percent of Equipment Cost |
186 |
|
Accounting Structuring Tools |
188 |
|
A Base Case Example |
189 |
|
Operating Lease Structuring Strategies |
189 |
|
Deferred Payments |
189 |
|
Security Deposit |
193 |
|
Contingent Payments |
195 |
|
Delay Payment to the Equipment Vendor |
199 |
|
First Amendment Lease |
201 |
|
Interim Rent |
203 |
|
Closing Costs |
207 |
|
Executory Costs |
207 |
|
Early Termination |
208 |
|
Technology Leasing: Converting a 103% Lease to 89% |
212 |
|
The Future of Lease Accounting--Looking Through a Glass Darkly? |
219 |
|
Summary |
220 |
|
Chapter 9 |
|
|
Structuring a Tax Lease |
223 |
|
What is Tax Leasing Anyway? |
224 |
|
Setting the Target Return on a Tax Lease |
224 |
|
Types of Yield Targets |
225 |
|
The Target Return on Investment--An Example |
226 |
|
Determining the Lease Payment--An Example |
229 |
|
Residual Value |
230 |
|
Value of Depreciation |
231 |
|
Lease Payment Required |
234 |
|
Cash Flow and Yield Reconciliation |
236 |
|
Yield Proof |
237 |
|
Adding Leverage and Revenue Enhancements |
240 |
|
Summary of Yield Measures for ABC Leasing |
246 |
|
Termination and Casualty Values |
250 |
|
Termination Values |
251 |
|
Why the Table 6 Termination Values are "Low" |
256 |
|
Why the Table 6 Termination Values are "High" |
256 |
|
Casualty Values |
257 |
|
Summary |
259 |
|
Chapter 10 |
|
|
Lease Troubleshooting |
261 |
|
Risk |
261 |
|
Lessee Credit |
261 |
|
Low Residual Value Equipment |
262 |
|
Dangerous Equipment |
263 |
|
Foreign Use |
264 |
|
Tax Ownership |
264 |
|
Lessee Does Not Want to Be Tax Owner |
264 |
|
Lessee Wants to be Tax Owner |
266 |
|
Lease Payments |
266 |
|
Lessee Liquidity Problems |
266 |
|
Lessee in Highly Seasonal Business |
267 |
|
Lessee Requires Long Term Lease |
267 |
|
Technology Equipment |
268 |
|
Subject to Rapid Obsolescence |
268 |
|
Software Components |
268 |
|
Accounting Ownership |
269 |
|
Lessee Wants Accounting Ownership |
269 |
|
Lessee Does Not Want Accounting Ownership |
270 |
|
Documentation |
270 |
|
Lessee Wants to Control Drafting |
270 |
|
Sale/Leaseback |
272 |
|
When to Use |
272 |
|
When not to Use |
272 |
|
Initial Public Offering |
273 |
|
Lessee Preparing to Go Public |
273 |
|
Taxes |
273 |
|
Lessee Has Low Tax Rate |
273 |
|
Lessee Has Significant Net Operating Loss Carryforwards |
274 |
|
Lessor Has Significant Net Operating Loss Carryforwards |
276 |
|
Law |
276 |
|
Lessee Not in Good Standing |
276 |
|
Usury Issue |
277 |
|
No Purchase Money Security Interest |
277 |
|
Equipment May be a "Fixture" |
277 |
|
Lessee Cannot Provide Director Resolutions |
278 |
|
Equipment |
279 |
|
Pre-Funding of Equipment |
279 |
|
End-of-Lease--Return Obligations |
279 |
|
Interim Rent |
280 |
|
Acceptance Certificate |
281 |
|
Lessee Refuses to Sign Acceptance Certificate |
281 |
|
UCC Filings |
281 |
|
Where to File |
281 |
|
Priority of Other Claims |
282 |
|
Bankruptcy |
282 |
|
Automatic Stay |
282 |
|
Vendor in Bankruptcy |
283 |
|
Business Organizations |
283 |
|
Partnership |
283 |
|
Limited Liability Company |
284 |
|
Multiple Entities |
284 |
|
Lessee is an Individual |
287 |
|
End-of-Lease--Lessee Purchase Option |
285 |
|
Equipment--Lessee Wants Rights to Alter/Modify Equipment |
286 |
|
Chapter 11 |
|
|
Equipment Leasing and Finance 2000: E Pluribus Unum |
289 |
|
Introduction |
289 |
|
Diversity Without Disunity |
289 |
|
The Future |
292 |
|
Opportunities |
292 |
|
Risk Management |
292 |
|
Profitability |
292 |
|
Funding |
293 |
|
Application of Technology |
293 |
|
The Marketplace |
293 |
|
Summary |
294 |
|
Chapter 12 |
|
|
Safeguards Against Leasing Fraud |
297 |
|
"Red Flags" for Detecting Fraud |
297 |
|
Restricted Communications |
297 |
|
Restricted Access to Equipment |
298 |
|
Unusual Time Pressures |
298 |
|
Third-Party Payments |
298 |
|
Unknown Vendors |
298 |
|
Bogus and Inconsistent Financial Information |
299 |
|
Inappropriate Equipment |
299 |
|
Preventing Fraud |
299 |
|
Physical Closings |
299 |
|
Know Your Vendor and Lessee |
300 |
|
Verify, Verify, Verify |
300 |
|
Know Your Equipment |
300 |
|
Verify Financial Data |
301 |
|
Government Searches |
301 |
|
Haste Makes Waste |
301 |
|
Further Safeguards |
301 |
|
Summary |
302 |
|
Chapter 13 |
|
|
Broker Funder Relations |
303 |
|
Chapter 14 |
|
|
The Value of Membership |
307 |