1. As $155B Tax Bill Passes House, Leasing Tapped to Cover Its Costs Spurred on by retaliatory sanctions from the European Union, the House of Representatives approved the $155 billion American Jobs Creation Act of 2004 (H.R. 4520) last month by a vote of 251 to 178 (House Jobs Act). This major tax bill appears headed for conference and possible enactment, dragging with it a series of measures that could cost the leasing industry an estimated $40.6 billion over the next ten years. Broad Conceptual Framework of House Jobs Act As a conceptual framework, the House Jobs Act would modernize and supposedly simplify the Internal Revenue Code of 1986 (Code). It would make manufacturing, service and high-technology businesses and workers more competitive and productive both in the U.S. and abroad. Making numerous changes in the Code, the House Jobs Act would in general: · Repeal an export tax subsidy granted by the Extraterritorial Income Exclusions Act (ETI). The repeal would end the current 9 percent tariffs (increasing to 17 percent) that the WTO has imposed on U.S. goods followings its ruling that the ETI violated the General Agreement on Tariffs and Trade (GATT). · Reduce the top corporate tax rate from 35 percent to 32 percent for domestic manufacturers and small corporations and provide other tax relief targeted at manufacturers and small business. · Reform the U.S. taxation of foreign source income and thereby reduce some of the double taxation of foreign income. · Moderate the draconian approach to tax-exempt entity leasing included in the Senate’s Jump-Start Our Business Strength (JOBS) Act. Passed May 11, 2004, the Senate Jobs Bill (S. 1637), could curtail virtually all leasing arrangements with governmental, foreign and other tax-exempt entities. It would also repeal the ETI export tax subsidy, reform the U.S. taxation of foreign source income, and make numerous unrelated changes. The House leasing provisions (sections 647 through 649 of the House Jobs Act) would be effective for leases entered into after March 12, 2004. *Warning: Although the final legislation may not be retroactive to March 12, 2004, lessors should consider complying with these requirements if they are seeking to claim net losses from their leases to tax-exempt entities. The House Ways and Means Committee Report on the leasing provisions states that no inference is intended regarding the appropriate treatment of transactions entered into before the effective date. A "no inference" statement usually means that the taxpayer cannot argue that Congress, by adopting reforms effective on a particular date, accepted the conduct that occurred before the date. The "no inference" language gives the IRS the freedom to argue that some of the provisions for testing leases that are adopted by statute were also reasonable tests to apply to leases entered into before the effective date. Four Provisions Affecting Leasing If enacted, the provisions of the House Jobs Act would significantly reduce the tax benefits arising from certain types of international and domestic leasing transactions. The provisions would: · Apply passive loss rules to leases entered into with tax-exempt entities. Deductions from a lease to a tax-exempt entity would be limited to the gross income from the lease for the taxable year. Excess deductions would be carried forward and used in future years to the extent that gross income from the lease exceeded deductions from the lease. The lessor could claim unused deductions when it disposes of the property. The passive loss rules would not apply, with exceptions, to a lease, if the following three tests are satisfied: Test 1: A lessee does not "monetize" its lease obligation in excess of 20 percent of the lessor’s adjusted basis in the property at the time the lease was entered into (or, if less, 50 percent of any fixed purchase option price). The test continues through the lease term and includes in the amount monetized undistributed investment earnings on the amount set aside. *Technical Point: Monetization includes setasides, defeasance arrangements, loans by the lessee to the lessor or any lender, deposit arrangements, letters of credit collateralized with cash or cash equivalents, payment undertaking arrangements, prepaid rent, sinking funds, guaranteed investment contracts, financial guarantee insurance and any similar arrangements. The legislation gives the U.S. Treasury Department the authority by regulation to allow monetization of up to 50 percent of the lessor’s adjusted basis in the property to address creditworthiness issues with the lessee. Test 2: Lessor has a 20 percent unconditional at risk equity investment at all times and the fair market value of the leased property at the end of the lease is expected to be at least 20 percent of its basis. However, this test does not need to be satisfied if the lease term is five years or less. *Technical Point: For purposes of this test, the expected fair market value at the end of the lease is reduced to the extent that a person other than the lessor bears the risk of loss. Thus, if the lessee and the lessor split the risk of loss, the expected fair market value at the end of the lease would have to be 40 percent of the original basis (20 percent risk for each of lessee and lessor). Test 3: The lessee does not bear more than a minimal risk of loss. This test does not need to be satisfied if the lease term is five years or less. *Technical Point: A lessee would bear more than a minimal risk of loss if the lessee protects the lessor from certain losses. This requirement would be violated if the lessor is protected from either (i) any portion of the loss that would occur if the fair market value of the leased property were 25 percent less than the reasonably expected fair market value at the end of the lease term, or (ii) an aggregate loss greater than half of the loss that would occur if the leased property had no value at the end of the lease. · Modify the cost recovery period for qualified technological equipment (QTE) and computer software leased to a tax-exempt entity to be the longer of (i) the property’s assigned class life (or useful life in the case of computer software) or (ii) 125 percent of the lease term (the Pickle Rules). *Tip: The House Jobs Act contains a positive provision for QTE deals. It would exempt from the Pickle Rules any QTE deal with a term of five years or less. It would also permit up to a twenty-four month lease extension where the lessee is not compelled by the lease to renew the lease term. For technology equipment such as MRIs, CT scanners and the like, this provision enables lessors to realize favorable tax-based lease pricing. For example, a five year lease of qualified technological equipment with two one year fair market value renewal options would not be considered tax-exempt use property subject to special cost recovery rules. · Amend the definition of lease term to include service contracts and other similar arrangements that follow a lease and are part of the same transactions as the lease. This provision would increase the cost recovery period for leases that include a service contract arrangement at the end of the lease term. · Extend first-year 50 percent extra depreciation by a year for selected assets. For example, a new business aircraft with a purchase price in excess of $200,000, a non-refundable deposit of $100,000 and an estimated production period of at least four months, could qualify for the special depreciation for an extra year over current laws, until December 31, 2005. The Senate Jobs Bill has a similar provision. See: NBAA on Bonus Depreciation. With substantial differences between the House Jobs Act and the Senate Jobs Bill, the two sides will have a difficult task this summer reconciling the bills and producing a final bill that both the Senate and House will pass. Leasing seems to remain a point of contention, but if the House model prevails a modicum of relief from the burden placed on the leasing industry may come with it. I would like to thank George Schutzer, one of Patton Boggs’ tax partners, for contributing this article to BLN. 2. FASB Issues Guidance on Fair Value, But Exempts Aspects of Leasing The Financial Accounting Standards Board (FASB) set out to replace an array of inconsistent fair value rules dispersed throughout its pronouncements. It made a huge step forward in accomplishing that goal on June 23, 2004, when it issued a new, 109-page fair value proposal titled: Proposed Statement of Accounting Standards, Fair Value Measurements (Proposal). The Proposal provides guidance on how (rather than when) to use fair value measurements. Few, if any, investors, companies or auditors would dispute the need for improved standards to determine fair value of financial and non-financial assets and liabilities. See: Accounting Board Proposes Rule For Measuring Fair-Market Value, The Wall Street Journal (S.W. Ed.), June 24, 2004; Section C:3, Col. 1. *Term to Know: Paragraph 4 of the Proposal defines "fair value" as "the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, unrelated willing parties." This term sounds similar to the typical "fair market value" definitions used in purchase option provisions of many leases. However, as a lessor or lessee, you should carefully consider the difference between FASB’s use of the term fair value and the general transaction usage of the term fair market value. You should also consider the impact of the Proposal on drafting and/or interpreting fair market value definitions and valuation methodologies in current and future lease transactions. By taking this extra step, you may derive a more accurate and useful value/residual value of leased property, including software, for economic, pricing and accounting purposes. Leasing Generally Outside of Scope of Proposal For now, FASB Statement No. 13, Accounting for Leases and FASB Statement No. 98, Accounting For Leases and other leasing guidance, remain outside the scope of the Proposal. See: Par. 2 b. However, FIN 45 and FIN 46R specifically fit within the stated scope of the Proposal. See: Para. 2 and Appendix E. at p. 99. FIN 45, formally known as "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others…", uses fair value concepts to determine the amount of liability that a lessee must disclose on its financial statements as the guarantor of residual value in its synthetic leases. See: Synthetic Leases Are Down, But Not Out, Under New FASB Guidelines, Business Leasing News (Feb. 2003). FIN 46R is formally known as "Consolidation of Variable Interest Entities, an Interpretation of ARB 51 (revised December 2003)". Under Paragraph 18 of FIN 46R, the initial measurement of assets, liabilities and non-controlling interests of a consolidated variable interest entity (VIE) must be made at the fair value at the date the consolidating enterprise becomes the primary beneficiary (the entity that consolidates a VIE). See: FIN 46R Clarifies Off-Balance Sheet Issues, Business Leasing News (Feb. 2004). Leasing transactions often require an analysis of a VIE under FIN 46R, but the leasing market has adjusted to the "variable interest model". See: Large Ticket Leasing: Responding to Accounting Challenges, by Mindy Berman, Monitor at page 12-13 (June 2004). Objective of Proposal According to FASB: "The objective of a fair value measurement is to estimate an exchange price for an asset or liability being measured in the absence of an actual transaction for that asset or liability." See: Para. 5. The point of FASB’s effort, in essence, is to replace current guidance existing throughout its literature with this new set of standards, unless exempted from the Proposal’s scope. FASB’s aim is to provide consistent, understandable and useful rules for measuring fair value by companies, preparers, auditors and valuation professionals. See: FASB Press Release. *Tip: As discussed in BLN last month, appraisers can and do add value to leasing transactions. The Proposal will provide another reason to use valuation professionals to meet FASB’s fair value requirements. See: Appraisers Add Value From Boom to Bust, Business Leasing News (June 2004). A Break From the Past The most fundamental changes in the Proposal from current FASB rules include expanded disclosure requirements and improved methods of measuring fair value. For example, the Proposal requires disclosure of recurring and non-recurring changes in the fair value of assets and liabilities in each reporting period, including the amounts of fair value, the methods of determining fair value and the effect on the earnings in the relevant reporting period of changes in fair value. See: Para. 25. In taking the measurements of fair value, the Proposal requires that valuations consider the market approach, income approach and cost approach in a consistent manner. See: Para. 7-8. Considering each of these approaches, "valuers" will use multiple valuation techniques to establish fair value of machinery and software, as illustrated in Examples 6, 7 and 8 of the Proposal. Effective Date and Comment Period The Proposal would be effective for financial statements issued for fiscal years beginning after June 15, 2005. It would cover each interim period within those fiscal years. For calendar year companies the Proposal would be effective on January 1, 2006. *Action Item: If you want to comment on the Proposal, you must submit comments by September 7, 2004. A public roundtable will be held September 21, 2004. For more information, see FASB’s web site. 3. Environmental Due Diligence Cleans Up Texas Wind Energy Projects As wind power becomes an increasingly common form of renewable energy, environmental due diligence has gained importance in developing financially sound and regulatory compliant projects. See: Wind Energy and the Environment, American Wind Energy Association (AWEA). California and Texas, along with Minnesota, Iowa, Wyoming and New York, lead in the commercial development of wind farms in the United States. See: Wind Project Data Base, AWEA (Jan. 2004). Other states continue to promote wind energy production. For example, the Pennsylvania legislature passed a bill on June 21, 2004, that would make electricity generated by a Pennsylvania facility from alternative energy sources, such as wind, exempt from sales and use tax. See: Pennsylvania House Bill No. 121. Texas has been particularly active and provides some unique environmental challenges to developers and project financing sources due to its rich culture of developing oil and gas resources. But Texas is not alone. All energy projects require close environmental scrutiny. Consequently, developers, lenders and their environmental counsel should undertake the appropriate environmental due diligence in developing wind power projects. *Tip: Wind project developers should identify existing environmental impacts on a project site as soon as possible. By doing so, the developer may avoid potential liabilities and pitfalls that may prevent a lender from financing a wind project. Aside from critical financial considerations, developers should undertake at least five tasks involving environmental issues to assure a successful development and financing of wind energy projects. 1. Retain Environmental Consultants. The developer and its environmental counsel should choose a reputable environmental consultant to begin the process of conducting environmental due diligence on the project site and surrounding area. *Technical Point: Environmental consultants typically perform a Phase I Environmental Site Assessment (ESA) of the property in accordance with the American Society for Testing and Materials (ASTM) Standard E 1527-00. The ESA expresses the consultant’s conclusions as to any recognized environmental conditions observed by such consultant during the site visit and inspection. When a project entails significant federal government involvement, the consultant may be required to conduct an Environmental Assessment (EA) pursuant to the National Environmental Protection Act (NEPA) to evaluate all potential environmental impacts associated with the project. · The Phase I ESA. A Phase I ESA is intended to define good commercial and customary practice. It reflects a level of appropriate and reasonable inquiry that satisfies one or more of the qualification requirements for the innocent landowner defense under the federal Superfund statute, called the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The Phase I ESA report generally includes a description of the project site, a review of the current and historical uses of the project site and adjacent properties, and a summary of certain regulatory records. · The NEPA EA. The NEPA EA is mandated by the lead federal agency with decision-making authority. It takes a "hard look" at the potential environmental impacts associated with the wind project. The EA may be used for regulatory approval or in support of a "Finding of No Significant Impact" as defined by NEPA. The EA provides a detailed analysis of, among other topics, socioeconomic aspects of the project, its geology, soils, land use, surface water, groundwater, vegetation, wildlife, threatened and endangered species, cultural resources, hazardous materials and air quality. 2. Order Avian Studies, Archeological Surveys and Other Reports. Developers face concerns for the safety of birds and other fowl approaching wind turbine blades and associated electrical lines of the wind energy project. Avian studies provide an important part of the environmental due diligence in assessing these concerns. The studies can identify and quantify the impacts on various avian species, enabling the developer to plan strategies to minimize such avian impacts. To comply with Section 106 of the National Historic Preservation Act, the Antiquities Code of Texas and regulations of the Texas Historical Commission, developers should usually obtain a separate archeological survey of the property reviewing any cultural resources that may be subject to regulation or oversight by appropriate governmental entities. The environmental consultant and counsel for the developer should discuss the unique nature of each project and obtain appropriate reports, such as flood plain analysis, that inform potential financing sources of the existence of any particular environmental burdens on the project site. 3. Obtain Environmental Permits. The developer and its environmental counsel must assemble and carefully review a wide array of permits and reporting requirements from all levels of governmental regulatory authorities—federal, state and local—to confirm that the proper permits are in place. *Technical Point: The scope of permits involved in a Texas wind energy project includes permits relating to The Clean Water Act (including Section 404 Corps of Engineers Dredge and Fill permits and Texas Commission on Environmental Quality storm water general permits), Federal Aviation Administration Determination of No Hazard to Air Navigation, Texas Department of Transportation (including utility line notices and permits to construct access driveways), local government approvals (including Floodplain Development Permit), county transmission line approvals, water well and water rights, air emissions, underground storage tanks, hazardous waste, Emergency Planning and Community Right-To-Know Act reporting, Spill Prevention Control and Countermeasure Plans, and Texas General Land Office easements. 4. Synthesize Information. Environmental consultants and lawyers review and analyze environmental reports and permits and any other relevant documents relating to the environmental condition of the property. For example, environmental counsel generally evaluates whether any recognized environmental conditions or impacts may materially affect the financing of the transaction or may cause future liabilities to the project developer or lender. Depending on these conclusions, counsel will either sign off on the project from an environmental perspective or advise further investigation. The process of gathering and analyzing this data may prove to be crucial in the developer’s ability to attract project financing. *Warning: Given the undeveloped and remote nature of the typical wind energy property in Texas, the land in question may appear "clean." However, in Texas, with its abundance of oil and gas wells, the project site may have contamination from petroleum releases. Depending upon the findings of the Phase I, the environmental consultant may recommend conducting a Phase II ESA, which involves more in-depth environmental assessment through actual sampling and laboratory analysis of environmental media. 5. Meet Financing Demands. As project financing becomes the key focus of developers, lenders will usually engage their own consultants to review environmental condition, studies and reports relating to the project site. Lenders will often ask the developer’s counsel to prepare an opinion letter setting forth the material permits, authorizations, consents, notices, and approvals obtained from or submitted to governmental authorities that are necessary to construct, operate and maintain the project. Lenders’ environmental counsel will also review the financing agreements and related transactional documents to ensure that the lenders receive appropriate environmental indemnities and other protections. Recent legislative delays in reauthorizing the production tax credit (PTC) have taken the energy out of many wind projects. Wind Power Imperiled as Production Tax Credit Expires, Business Leasing News (March 2003) AWEA projects that 2004 will be a slow year for the development of wind projects due to the absence of the PTC. Slow Pace of Congressional Action on Tax Credit Idles U.S. Wind Energy Industry, AWEA (May 12, 2004). However, for current and future wind projects, environmental due diligence will continue to provide critical information to support the development of any proposed wind energy project. If done thoroughly on the right site, environmental due diligence can enhance the viability of the project and advance the production and financing of an inexhaustible source of renewable energy in Texas and other states in the U.S. I would like to thank Carolyn McIntosh, an environmental partner, and Lorrie Bade, an environmental associate, at Patton Boggs LLP, for contributing this article. 4. BLN Case & Comment: Hell or High Water Clause Rises Again One of the most important provisions in a lease, the "hell-or-high water" clause, stood up boldly in a recent case despite the lessee’s challenge. The court in Rhythm & Hues, Inc. v. The Terminal Marketing Company, Inc. et al, 2004 WL 941908 (S.D.N.Y.), May 4, 2004, used the hell-or-high water clause to protect the right to payment in favor of a lessor’s assignee and to expose the lessee to significant risk of payment for a lease not funded by the lessor. ISSUES: The case addressed several complex issues: (1) the validity of lease assignments, (2) the validity of lessee’s waiver of defenses, and (3) the lessee’s unconditional obligation to make payments (the "hell or high water" clause) in two leases. BLN focuses primarily on the last issue. FACTS: Rhythm & Hues, Inc. (lessee) entered into two leases with The Terminal Marketing Company, Inc. (lessor) covering technical equipment the lessee used to create special effects in film production. The lessor assigned the leases to Wells Fargo Bank Minnesota, National Association (Wells Fargo) in a securitization transaction in which Wells Fargo acted as the indenture trustee for noteholders. Leases and other contracts secured the notes issued to the noteholders. One lease, referred to as Lease No. 3855, required the lessee to pay $57,066.47 to the lessor for 30 months. The lease contained a "hell or high water" clause stating, in part, that lessee’s "obligation to pay all amounts due is absolute and unconditional" and the lessee "shall not be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to" any rent. Allegedly just a $1.5 million line of credit rather than a lease, the lessee never used this lease line to acquire any equipment. Despite arranging for funding under the second (related) lease transaction, the lessor did not pay the equipment vendors, which caused the lessee to sue for breach of contract and to stop payments to the lessor’s assignee, Wells Fargo. Wells Fargo disagreed and demanded that the lessee continue to make payments. OUTCOME: Considering whether the lessee could stop payments to Wells Fargo, the court decided that, even though the lessee did not "take-down" or lease any equipment under Lease 3855, genuine issues of fact still existed about the lessee’s obligation to make rent payments. The court denied the lessee’s motion for summary judgment, which, if granted, would have ended the payment obligation issue for the parties. The court said that Lease 3855 and the related delivery certificate contained hell or high water language that was "simply inconsistent with …(lessee’s) contention that it has no obligation to make payments under the lease" (p. 16). *Comment: The court exhaustively analyzed the facts and law of this case, including the customary manner in which the lessor and the lessee closed and funded previous lease transactions. It found that the hell or high water clause meant what it says. It creates an absolute and unconditional obligation binding on the lessee. Initially, this case seems hard to understand. How can the lessee be obligated to make payments under Lease 3855 where the lessor never purchased or financed any equipment under that lease? Note that the court did not go so far as to direct the lessee to make payments under Lease 3855. Instead, it simply said that factual questions existed about the nature of lessee’s obligations to pay rent, requiring the case to continue on that issue. In reaching that conclusion, the court validated the enforceability of provisions stating that a "lease of equipment" can be "non-cancelable" with an "absolute and unconditional" obligation to pay rent. It gave a win to lessors and supported the transfer of leases to third parties (assignees), free of lessee claims against the assignee (Wells Fargo in this case). 5. Leasing 101: What is "EBITDA"? EBITDA typically refers to earnings before interest, taxes, depreciation and amortization. However, many definitions and applications exist for this term. Depreciation and amortization reduce the value of assets on the balance sheet of a company and create an equivalent deduction from the income and loss account as a balance sheet expense (that is, despite reducing income, the expense involves no outflow of cash). Therefore, EBITDA can provide useful information because it excludes transactions not relating to the core cash generating activities of an operating business. EBITDA is often used in financial covenants in loan or lease agreements (though leases tend to use far fewer covenants than loans). For example, EBITDA may be used in leverage or debt covenants to measure a company’s total debt or leverage against EBITDA or just to test earnings performance. EBITDA ignores the non-cash entries of depreciation and amortization. EBITDA has value in assessing the financial condition or operations of a company. For example, the covenants in which EBITDA can be used may: (1) provide an early warning of declining cash earned from operations, (2) impose financial discipline on a borrower or lessee to maintain EBITDA at prescribed levels, or (3) force the borrower or lessee to operate its business in a certain manner that better assures the performance of its obligations to lenders or lessors. Because EBITDA analyzes cash flow, a company may have positive EBITDA while it has losses under generally accepted accounting principles (GAAP). 6. BLN Briefs: Money Laundering at Risk; Bankruptcy Low; New York Terrorism Act OCC Checks Banks for Money Laundering Risks. Daniel P. Stipano, Deputy Chief Counsel for the Office of the Comptroller of the Currency (OCC), put banks on notice that they must develop a culture of knowing what’s normal for customers and recognizing suspicious customer activity. See the OCC press release: OCC Combating Money Laundering, and Release 2004-42 (June 2, 2004). *Warning: The OCC is cracking down on banks to push them to identify and report suspicious activity by their customers. Banks and bank leasing companies should also expect regulators to examine them for compliance with the USA Patriot Act. See: Banks Get Regulations under the USA Patriot Act, But Leasing Companies Still Wait, Business Leasing News (May 2003). The highest risk and largest banks will face examination first, but all other banks and small lending institutions should also beware of regulatory scrutiny. Bankruptcies Drop, Hit Six-Year Low. PriceWaterhouseCoopers predicts that public company bankruptcies will drop sharply in 2004 to 110 filings as compared with 133 in 2003, 189 in 2002 and 257 in 2001. The trend bodes well for the credit market and leasing transactions when considering the reasons for decline: lower borrowing costs as evidenced by shrinking risk premiums on AAA corporate bonds, reduced inventory levels, dropping amounts of high-yield debt and continued low interest rates. See: PwC Predicts Steep Drop in Bankruptcies, CFO.com (June 15, 2004). Leasing companies also generally report lower delinquency rates and defaults. New York Terrorism Law Would Impact Business Aviation. New York legislation titled A10543, the "Terrorism Prevention, Preparedness and Enforcement Act", increases penalties for many terrorism-related acts, including money laundering. The Act also upgrades general aviation security, including mandatory compliance with the Transportation Security Administration (TSA) "Security Guidelines for General Aviation Airports", for verification of passengers and cargo, and development of emergency maps and contacts. *Tip: Business aviation interests should follow this bill and, if enacted, lessors and lenders should consider incorporating its relevant requirements as best practices in loan and lease agreements. The National Business Aviation Association opposes this legislation. 7. Training Offered; Web Seminar: True Leases Under Attack - Do You Know Why? Training - Substance the Easy Way! To help improve your business operations, deal processing and risk management, I offer private training seminars tailored to your specific needs at your designated location. My interactive and informative training includes topics I cover in BLN. I customize the format and content for your specific training needs—no canned programs. After one of my private training sessions, here’s what one of the company’s senior managers said: "David, thanks again for an excellent presentation. You helped us tackle a complex, but important topic. Your expertise is first rate and you are an excellent teacher to boot—that’s a rare combination." Feel free to call me at (214) 758-1545 to discuss the possibilities. Web Seminar: True Leases Under Attack - Do You Know Why? On July 14, 2004, from 1:30 p.m. to 3:30 p.m. (Eastern Time), the Equipment Leasing Association will sponsor a web seminar titled: "True Leases Under Attack: Structuring a True Lease in the Face of New Challenges." I will lead a panel of speakers with business, corporate and legal backgrounds who will present this program in "webinar" format, with slides and substantial back up material. The panel will clarify terminology of true leases, using a "cheat sheet" of terms, and discuss how you can meet today’s challenges to true leases as disguised financing arrangements. We will discuss how Financial Accounting Standards No. 13 interacts with true tax leasing concepts. We will provide guidance for structuring, pricing, negotiating and closing lease transactions in the current market. Marketing, executive, pricing, accounting, legal, administrative and tax participants in leasing can benefit from this program. Please join us. For registration, click here: True Lease Webinar. 8. Feedback; About Patton Boggs LLP and My Practice Feedback I receive comments from readers of Business Leasing News. Here are two from last month: One reader e-mailed: " David - I have been reading your newsletters for months now and am always impressed by the knowledge and the clarity you provide. Add us to your long list of fans. Hope to do business with you some day…. " Another reader left me this voice mail: "Your newsletter, by the way, is just excellent and … gives me great hope that the leasing business is … filled with …smart guys." Thanks for your feedback. As always, I encourage you to e-mail me or call me and think of Patton Boggs LLP as a broad-based legal resource available to you in a broad range of disciplines. About Patton Boggs LLP and My Law Practice As you may be aware, I am a part of the Patton Boggs LLP Business Transactions Group in our Dallas office. Patton Boggs LLP is a law firm of about 400 lawyers located globally in multiple locations. The firm has extensive capabilities in over 50 areas of legal practice that include leasing, secured transactions, personal property financing, securitizations, syndications, power project and mezzanine financing, bankruptcy, real estate, public policy, litigation, intellectual property and technology law, and much more. The leasing and secured transactions practices regularly involve the buying, selling, financing and leasing of real and personal property of all kinds, including business aircraft, energy, facility, production, power plant, technology and health care assets. We also structure, negotiate and close secured transactions of all kinds, tax-exempt, state and federal leasing arrangements and corporate and portfolio acquisitions, among a full range of financing and acquisition transactions. Despite the improving economy, we continue to assist our clients with troubled deals and bankruptcies, including repossessions, lift stay actions, true lease contests, deficiency litigation, workouts and forbearance arrangements. Please feel free to call me at (214) 758-1545 or e-mail me at for information about any of these areas or the many others available at Patton Boggs LLP, or to discuss anything I have written in Business Leasing News. I welcome the opportunity to build a relationship with you! A Message From the Founder, David G. Mayer Here’s Hoping! Low interest rates have not been a friend to leasing. In fact, the low rates have made leasing less attractive than buying for many businesses because the cost of borrowing competed well with lease pricing, including tax leasing. In one of the worst kept secrets in recent memory, the Federal Reserve raised rates on June 30, 2004, by one-quarter percent for the first time in four years from the rock bottom short-term rate of one percent, the lowest rate since 1958. See: Fed Increases a Key Rate by 1/4 Point; First Rise in 4 Years, New York Times online (June 30, 2004). While all of us who borrow personally like the resulting low consumer rates, the prospect of increasing rates could be good for leasing. See: Rising Interest Rates: What to Expect & Why It’s Good for Leasing, by Paul A. Larkins, Monitor at page 7-8 (June 2004). The question now is not whether the Federal Reserve will raise rates again; rather, the question is how high will they go? See: Up, Yes. But How Much, How Fast? by Edmund L. Andrews, New York Times online (June 27, 2004). I would not even hazard a guess on this point though some experts think the rate could rise up to 375 basis points by then end of 2005. While those rates would still be very low relative to many periods in the last three decades, they may increase interest in leasing as a way to expand capital investment. Here’s hoping! Have a good month of July. |