MAY 2002
From: David G. Mayer, a partner at the law firm of Patton Boggs LLP, and author of the book, Business Leasing for Dummies (BLFD) ®, Hungry Minds, Inc. 2001 (Foreword by Joseph C. Lane, former President of IBM Credit Corporation and current Chairman of The Equipment Leasing Association).  Please "Buy it. Use it. Share it with others." If your bookstore is out of the book, ask for it; or buy it at BLFD.
To subscribe or unsubscribe to Business Leasing News, and for the disclaimer on its contents, please look at the end of this newsletter.

 

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WELCOME TO THE MAY 2002 EDITION OF "BUSINESS LEASING NEWS." Like my book, this e-newsletter will be informative, concise and helpful. It will generally be distributed on the second Wednesday of each month. Please contact Business Leasing News (BLN) to provide us with your feedback. Thanks for taking your valuable time to read this newsletter. You will find that BLN does more to help you than just report the news!

 
In this issue, you can read the following items:

 
 

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1. Synthetic and Other Leases Unaffected by FASB Accounting Changes

Over the last several months, proposed accounting changes arising from the Enron fiasco have unnecessarily disrupted synthetic lease transactions.   

The problem stems in part from the complex accounting changes proposed by the Financial Accounting Standards Board ("FASB") regarding special purpose entities (SPEs).  SPEs generally have limited purposes and no ability to operate independently of a parent company or other controlling entity.  They often consist of corporations, trusts or partnerships that exist solely to own and lease significant assets like a power plant.  Examples: SPE transactions include (1) the sale of an asset to an SPE with a lease back to the original owner, or (2) the sale of assets to an SPE which issues equity and debt secured by the transferred assets. 

Understandably, both lessors and lessees have used caution in closing synthetic leases this year. FASB's efforts have created some confusion and concern about synthetic leases even though investors and rating agencies consider the accounting issues in closing synthetic leases. See FitchRatings on Synthetic Leasing for a discussion by FitchRatings of the SPE structure and ratings of synthetic leases.
 
Warning:  FASB is also working on a second related project to require disclosure of guarantees, including residual guarantees, given by lessee's in operating leases.  This project appears to include synthetic leases.  For more details, see: FASB Guarantee Project.  Effect: A lessee may resist entering a synthetic lease where its guarantee to the lessor of the residual value may appear on its balance sheet.  This requirement will be effective for interim or annual periods ending after September 30, 2002.
 
The FASB intends to finalize new accounting rules for SPEs in a new "Interpretation" of FASB Statement No. 94 ("FAS 94"), Consolidation of All Majority-Owned Subsidiaries, around August 1, 2002. The Interpretation will be applied to those SPEs existing at the beginning of the first fiscal year beginning after December 15, 2002.  The Interpretation will be effective for all new SPEs formed after FASB issues the Interpretation.  See: FASB's Tentative Decision Affecting SPEs (April 12, 2002). For more on the history and illustrations of SPE transactions, see Jeffrey Taylor's SPE Guide.
 
So what do you do now?  Give up on synthetic leases?  Hold on!  As the saying goes: "Don't throw the baby out with the bath water!"  You have the opportunity to close synthetic leases if you do the following: First, know how to create a synthetic lease.  Second, gain a basic awareness of the proposed accounting changes.  Here's my input on both points:

*First, to create a synthetic lease for equipment, the transaction must fail the true lease tax requirements under the federal tax law.  Concurrently, the lease must qualify as an operating lease (that is, your lease must not meet the tests to be a capital lease) under Financial Accounting Standards No. 13 ("FAS 13").  To review the basic requirements for synthetic leases, see the March issue of BLN on Synthetic Leases. 

Correction:  Thanks to a good catch by a BLN reader, the previous paragraph clarifies/corrects a statement I made in the March issue of BLN describing how to create a synthetic lease in Item 9, "Leasing 101: How To Create A Synthetic Lease". BLN's March issue has been corrected on BLN's Home Page.
 
 *Second, the essence of the FASB Interpretation, as of April 12, 2002, is as follows:

             *Objective:  Require each "Primary Beneficiary" to consolidate non-substantive SPEs on such Primary Beneficiary's financial statements.  Effect: The disclosure shows complete results of the operations and financial position of the SPE and the Primary Beneficiary as one group. 

            *Explanation: The term "Primary Beneficiary" refers to the business that retains the principal economic benefits and accepts the risks that arise from the activities of the SPE.  The principal factor that determines whether or not a Primary Beneficiary should consolidate its SPE is whether the SPE has "sufficient independent economic substance."  In other words, the SPE must have the ability to stand on its own independent of other entities (that is, it can fund and finance its business without assistance from or reliance on the Primary Beneficiary).

             The Primary Beneficiary must consolidate the SPE unless the SPE's equity owner has:

            1.  A substantive equity investment at risk.  The equity investors, including lessors, bear unlimited exposure to the first dollars of loss and the potential rewards derived from the SPE's business.  The Interpretation presumes (that is, does not always require) that the independent, third party equity must have a minimum of 10 percent of the total capital of the SPE at risk; 

             2.  A substantive exposure to "variable returns."  The equity investor takes real risks and rewards arising from the SPE's leases, management contracts, options, guarantees and other financing or business arrangements; and  

            3.  The ability to manage the SPE's decisions.  The equity investor has real authority to control the SPE without a veto right from the Primary Beneficiary.

            *Examples: The lessee is the Primary Beneficiary where the lessee provides a non-substantive SPE-lessor with significant residual value guarantees and fixed price purchase options.  By contrast, a lender to a non-substantive SPE is the Primary Beneficiary in a transaction to buy assets where the lessee does not provide residual value guarantees and lessee does not have purchase options.  The assets involved in these leases can include real estate, aircraft, trucks and other equipment.

            *Effect: The consolidation of an SPE requires the disclosure of previously off-balance sheet obligations (including non-recourse debt) and assets on the financial statements of the Primary Beneficiary.  For synthetic or other "leases" affected by FAS 94, this disclosure would undermine a key purpose of the transaction for the Primary Beneficiary.

Tip:  The same effect would not occur under a synthetic lease properly structured without an SPE under FAS 13.  In other words, FAS 13 operating leases will largely be unaffected by the SPE accounting changes.  Avoid confusion with the 90 percent test under FAS 13 to achieve operating lease treatment (required for a synthetic lease) and the 10 percent-required equity for substantive SPE transactions.  These points may seem related, but they aren't; it's only a coincidence.  Keep them separate in structuring and analyzing your deals.  Specifically, the Interpretation of FAS 94 doesn't seem to affect the following lease structures:

            *Leveraged tax leases that use grantor trusts or other SPEs;

            *Single source, non-SPE synthetic leases of equipment having at least 10.1% real equity (that is, the at risk amount required to meet FAS 13's 90 percent test); or

            *A lease to a single lessee by a subsidiary of a substantive operating entity that functions as a lessor. Example: A lease to one lessee by lessor which is a subsidiary of a manufacturing company. 

Unfortunately, you still can't throw caution to the wind.  Find knowledgeable accounting and legal advisors to help you structure your deals.

Deal/Restructuring Opportunities:  Starting now consider restructuring your SPE transactions.  You should finalize and promptly implement your structural changes, if any, upon the issuance of the Interpretation.  Why?  Answer: The consolidation required by the Interpretation of FAS 94 is retroactive as of the fiscal years beginning after December 12, 2002  (that is, no "grandfathering" to protect existing deals)!  Consequently, the Interpretation may cause the Primary Beneficiary to breach debt and other loan covenants in its credit arrangements.  However, it does not appear that FASB will require financial statements to be restated for periods prior to the effective date of the Interpretation.  If the Primary Beneficiary has to consolidate an SPE that entered into a synthetic lease, consider alternative structures that include true leases, debt financings or other synthetic leases.  For example, Krispy Kreme Donuts abandoned a real estate synthetic lease in response to public pressure to disclose the deal on its balance sheet.  It recently closed on a traditional mortgage on the same real estate in place of the synthetic lease. See Krispy Kreme Restructure.

Remember: Even after the Interpretation of FAS 94 becomes effective, you will still be able to use synthetic leases in SPE structures with different (if not far less desirable) economic terms and structures than under the existing accounting rules.  However, the off-balance sheet accounting treatment of non-substantive SPE's will be eliminated in many situations.  SPE's still retain their value to limit personal liability, create a bankruptcy remote entity, hold specialized permits and approvals, enhance transferability of interests, improve financing costs, and allocate tax benefits. 

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2. ELA's "Capitol Hill Day" Addresses Important Issues For the Leasing Industry

This year I attended Capitol Hill Day (April 9-10) for the first time along with about 60 other members of the Equipment Leasing Association (ELA).  I had the opportunity to experience first-hand that each of us can make a difference in how our government makes decisions.  I urge you to find out for yourself next year as an ELA member.  It's a meaningful and productive effort.  It is also a tribute to our system of government that each of us can spend time personally with our members of Congress and their staff.  Here are a few of the issues that we discussed with members of Congress:

*Bankruptcy Reform - This legislation is pending in Conference Committee.  It clarifies Section 365(b)(2)(D) of Chapter 11 of the Bankruptcy Code.  The amended Section 365(b)(2)(D) would require lessees to perform all monetary and non-monetary obligations under a lease starting 60 days after a bankruptcy filing under the Federal Bankruptcy Code.  The "Claremont" cases made a real mess of this issue for lessors.  These cases allowed lessees to potentially waste the value of a leased asset during bankruptcy by not performing non-monetary obligations such as equipment maintenance.  See Item 7, "Leasing 101" below regarding assuming and rejecting a lease.  Legislation: H.R. 333 (Section 327) and S.420 (Section 327).

*Product Liability Protection - This legislation has been introduced in the House of Representatives.  It would protect lessors from liability for personal and property injury claims due to product defects.  Under Article 2A of the Uniform Commercial Code, "leases" that constitute "finance leases" should help provide this protection.  In finance leases, three parties play a role: lessors, lessees and "suppliers" (as defined in the UCC).  The lessee selects the equipment and the lessor simply provides the money to buy it from the supplier.  Lessors have nothing to do with equipment choices or performance.  Reality check: Lessors still get sued. See "Rules For Leasing: Article 2A" of the UCC in my book, Business Leasing for Dummies (BLFD) ®. Legislation: H.R. 1805 and S. 865 (enter legislation in "Bill Number" to find legislation).

*"Pickle Rule" Repeal.  This legislation has been introduced in the House of Representatives.  It would modify the so-called "Pickle Rule."  Adopted in 1985 (and named after its sponsor), the Pickle rule limits depreciation for leases of property to those persons who do not pay U.S. income taxes such as tax-exempt entities and foreign persons. Under the Pickle Rule, the depreciation is limited to the longer of the property's class life or 125 percent of the lease term.  Lessors have been disadvantaged in cross-border transactions compared to purchasers of the same type of property used in the U.S.  This problem has become worse since the World Trade Organization attacked the balancing effect in U.S. tax law of foreign sales corporations (FSCs) and extraterritorial income tax benefits (ETIs).  The proposed legislation would allow depreciation on a straight-line basis over the leased asset's class life for foreign leased property.  Legislation: H.R. 1492 and H.R. 1493.

*Elimination of Alternative Minimum Tax (AMT).  This legislation has been introduced in the House of Representatives.  It would avoid the penalty suffered by lessors who pay the minimum income tax resulting from the lessor's use of depreciation deductions arising from making investments in capital equipment.  These investments in effect reduce the lessor's income tax burden below a minimum level and trigger the AMT.  Congress originally created AMT to produce a more accurate measurement of economic income.  AMT no longer serves that purpose according to knowledgeable proponents of this legislation. Legislation: H.R. 437.

*Other Issues.  You should be aware of other issues in play.  These issues include proposals that the federal government: (1) provide terrorism insurance (See: H.R. 4016 and H.R. 3210 now stalled in Congress); (2) avoid excessive regulation of lease accounting; (3) limit controls on tax shelters to non-leasing transactions; and (4) repeal the 2 percent De Minimum Rule (limiting bank financing of tax-exempt municipal transactions).  For a detailed explanation of these and other issues see: ELA Legislative Actions.

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3. Increased Cost of Insurance Since September 11 Hurts Business

 "Six months after the terrorist attacks on the World Trade Center and the Pentagon on Sept. 11, premiums for all types of commercial insurance continue to increase, coverage limits are dropping, and troublesome trends are developing in such critical sections as construction, manufacturing and transportation."  These words appear in an April 16, 2002 press release subtitled "Market Distress Spreading to Critical Sectors of the Economy" by the "Council of Insurance Agents + Brokers."

According to the press release, first quarter 2002 premiums increased 10 percent to 30 percent for all sizes of accounts.  Some larger accounts experience 50 percent increases.  New Yorkers have experienced up to 200 percent rate increases.  See:  New York Insurance Rates.  Not only have rates increased but coverage has also diminished for businesses and individuals according to the "Council of Insurance Agents + Brokers."

The capital equipment, aviation and real estate markets have experienced particularly acute effects, illustrated as follows:

*Large lenders have either postponed or canceled more than $7 billion in commercial mortgage loans because they can't get or afford the lofty prices for terrorism insurance, according to a survey released recently by The Bond Market Association.  See: Mortgage Loan Cancellations.

*AIG, the leading business insurer in the United States, has been one of the biggest beneficiaries of sharply rising insurance rates since Sept. 11. This new direction ends a decade-long slump in rates.  See: AIG Rate Increases.

*Faced with these astronomical war risk prices, the International Air Transport Association plans this quarter to launch a new company called Equitime.  Equitime will reportedly cover U.S. airlines for passenger and third party war and terrorism risk in a pool of coverage at cheaper prices than the federal government or other private insurance companies.  See Airline Terrorism Insurance Company.  Legislative action in Washington may provide backup terrorism insurance to the airlines to mitigate the effect of drastic cutbacks in coverage since September 11, 2001.

Tip:  Watch out for dramatic increases in insurance costs that may detrimentally affect the creditworthiness or cash flow of a business or transaction.  Ask your risk managers or insurance agents to recheck the scope of coverage in each deal.  As a lessee, lessor or lender, know the scope of insurance coverage available in each transaction.  Expect cutbacks in the scope of coverage and continued increases in premiums, at least in the near term.  Do ask for lower terrorism insurance premiums as more insurance companies are reentering that market.  The companies include XL Capital Ltd. of Bermuda, Swiss Reinsurance Co., Zurich.  They have recently formed a new company called "Special Risk Insurance & Reinsurance Luxembourg SA" according to the Wall Street Journal in an Article entitled "Insurers Add Terrorism Coverage" on page PC 18.  The new firm expects to start operation this quarter.  Allianz AG appears to be part of this new venture too.

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4. Cape Town Convention: Changes in Aircraft Registration on the Horizon

As the slow process of adopting international treaties go, the Cape Town Convention is moving into high gear. 

You may know the "Cape Town Convention" as the "Unidroit Aviation Treaty."  This treaty derives its name from the French sponsoring organization, the International Institute for the Unification of Private Law (Unidroit).  The name, Cape Town, comes from the African city in which 58 "states" (countries in international parlance) adopted the treaty on November 16, 2001.  The Cape Town Convention has begun its ratification process.  When adopted by three countries, it will shortly thereafter be put into effect.
 
The full name of this Convention helps you understand its scope.  It is actually called the "Convention on International Interests in Mobile Equipment."  A "protocol" modifies the basic convention for specific equipment.  Today, the final protocol exists for aircraft.  The shortened name is the "Aircraft Equipment Protocol."   Draft protocols now also exist for rail assets called, in short, the "Rail Protocol," and space assets called, in short, the "Space Protocol."  The Cape Town Convention therefore covers aircraft (airframes, engines and helicopters), rail and space assets.
 
The most significant and immediate impact of the Cape Town Convention in the United States will be felt on aircraft transactions.  Here are the basics of the Cape Town Convention under the Aircraft Equipment Protocol:

*Objective.  To create an international registry for filing interests in certain airframes, aircraft engines, and helicopters.  The uniformity and availability of these filings will facilitate expanded business opportunities worldwide to purchase, sell, finance and lease aircraft assets.  The filings will enable countries without filing systems, and other countries with diverse filing systems, to participate in expanded aircraft commerce and obtain equal access to the registry.  The filings will uniformly disclose and protect security interests, leases, ownership and other rights in aircraft worldwide.

*Required Filings.  You will make filings with respect to aircraft that transport nine or more people (including crew), helicopters that transport five or more people (including crew), and aircraft engines with more than 550 horsepower. 

*Effect on FAA Filings:  The Cape Town Convention will supersede certain aspects of the Transportation Code (49 U.S.C. Sections 40102, 44101-44110).  All filings will be electronic and will not include any filing of transaction documents.  The FAA will likely continue to register aircraft under Sections 49 U.S.C. Sections 44101 through 44016, and Part 47 of the Federal Aviation Regulations.  The parties to each transaction will probably use the FAA as the place to make all electronic filings.  The Cape Town Convention home for such filings has yet to be determined.  Filings will not affect the nationality of aircraft.

Prediction:  Because of the alignment of interests, I would expect the Cape Town Convention to become effective in the United States by the end of 2003. 

The United States has not yet adopted the Cape Town Convention.  However, manufacturers such as Boeing, Pratt & Whitney and General Electric Aircraft Engines, who participate in the so-called "Aviation Working Group," support it.  They reportedly view the uniform filings as a way to facilitate increased sales and financing of aircraft, which creates more jobs worldwide.  The legal community in Oklahoma City also appears to support the Cape Town Convention.  Their support apparently hinges, understandably, on being able to: (1) maintain the integrity and accuracy of the U.S. lien recording system at the FAA, and (2) arrange the remaining FAA filings, as well as the electronic filings required by the Cape Town Convention.  According to Frank Polk of McAfee & Taft,  the White House and/or State Department will review the proposed convention starting this quarter.

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5. Offshore Tax Shelters Come Under Close Scrutiny

By incorporating or reallocating business operations off-shore, you can potentially cut significant income tax liability worldwide.  However, when it comes to this tax planning, go slow in using off-shore tax havens to reduce your tax bill.

U.S. Senators recently signaled that they will crack down on the practice of businesses relocating to countries such as Bermuda or the Virgin Islands to limit U.S. income taxation.  See: "Senators Plan to Curb Relocations to Bermuda, Other Tax Havens" in the Wall Street Journal on page A4, March 22, 2002.  The Treasury Department has also focused on the move of corporate headquarters off-shore without reallocating operations. See: "Treasury Study Firms Reallocating Bases Out of U.S." in the Wall Street Journal on page A4, March 1, 2002.  Not to be left out, the Organization for Economic Cooperation and Development (OECD) wants to promote reform that retains "tax competition" but forces nations to require more "transparent tax reporting" by the end of 2005.  See: "Tax-Haven Reform Gains Ground" in the Wall Street Journal on page A10, April 18, 2002 and Virgin Islands Tax Reporting.

Tip:  Consult your tax advisors before using tax advantaged foreign locations to incorporate your company or to reallocate minimal operations for tax purposes in tax-driven transactions.  Watch for an increase in reporting requirements in tax haven countries.  Consider if the increased reporting may adversely impact your tax planning.

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6. Andersen's Crisis Management Yields Lessons for Large and Small Businesses

If you think crisis management happens only to big firms like Arthur Andersen LLP, think again.  A corporate crisis can arise in your business as a result of less publicized or even unpublicized events.  Crises can occur when companies face a change in regulations, lose a large jury case, or become subject to investigations by government agencies like the Securities and Exchange Commission of the Department of Justice.  Indeed, crisis can arise when a company doesn't win a big contract or a customer bolts for the competition, insurance coverage is canceled or insurance rate increases create so much burden as to put an economic noose around your neck.  Negative press, a loss of public confidence, a terrorist strike or the departure of a key executive can all throw you into crisis mode.

Joseph Berardino lost his job as the CEO of Arthur Andersen LLP because, as one expert put it: "Every step along the way, they've [Berardino and team] made the wrong communications moves."  See: a Wall Street Journal article subtitled: "Andersen Offers a Superb Case of Image Goofs" on page C1, March 14, 2002.  In addition, Berardino apparently failed to communicate his vision of responsibility for and recovery from the Enron mess.  He did not rally his partners or manage internal communications among partners effectively to create a unified voice.  As one partner stated: "The strategy and public-relations response have been awful."  See:  "Berardino's Exit Leaves Andersen Drama Unresolved" in the Wall Street Journal on page C8, March 27, 2002.  In two appearances before Congress, he conceded that his firm made at least one error in auditing, but put much of the blame for Enron's collapse on U.S. accounting rules.  That strategy backfired as legislators slammed Andersen and Berardino's own credibility.

Tip:  Look for the common elements of a crisis: a surprise or calamitous event, a loss of control and real time communication, unusual or unexpected challenges to the survival of the enterprise, and negative media attention.

The consequences for Andersen have been dramatic.  As widely report, Andersen has had to fire over 7,000 employees, lost well over 100 clients, and failed to settle the criminal charges with the Department of Justice.

Crises happen every day; and every day you can prevent and manage them effectively.  Examples: Merrill Lynch (investigation of analysts who mislead investors); WorldCom (CEO quits as public learns of $366 million personal loan); Qwest Communications (probe by states of secret anti-competitive deals with phone carriers). You have the opportunity to gain some "sobering lessons" from these very public circumstances.  You can also take action to prevent crisis and manage crisis.  Consider four steps:

            *Form a crisis prevention and management team that can respond immediately to a crisis;

            *Assess the risks of your business and legal vulnerability with regard to your people, physical plant, operations and information management systems, including e-mail and voice (see: HP/Compaq voice mail disclosure of CEO Carly Fiorina);

            *Monitor and set high standards for corporate governance and honest business practices; and

            *Develop a plan for response to the crisis, with focus on reducing risks, taking responsibility where appropriate, and acting in an efficient and unified manner in operating your business during the crisis. 

Tip:  When a company, particularly a public company, faces a possible high profile legal crisis, or one that has already made the headlines, most senior company officials recognize that many professional disciplines will be needed to manage and mitigate the possible risks to the company. These disciplines include: 

*Lawyers to address legal risks and possible litigation or adverse action, including possible criminal, congressional, or regulatory agency investigations;

*Public relations advisors to deal with the media and help formulate effective press/communications strategies;

*Investor relations consultants, who communicate effectively with shareholders and market analysts and professionals; and

*Public policy and government relations experts, who might be needed to seek help (or head off negative reactions) from governmental and political officials. 

Companies facing crises necessarily turn to different professional organizations and individuals representing each one of these disciplines.  As a result, the first and often most difficult challenge is to organize an integrated team of all these professionals that can pursue a coherent and consistent strategy.

Patton Boggs has formed the Patton Boggs/Qorvis Legal Crisis Prevention and Management Team that provides resources in each of these areas.  It offers clients facing complex problems the opportunity to address these challenges with a fully integrated team approach.  The team consists of lawyers and professionals whose expertise includes all of the needed disciplines.  In addition, the members of this diverse team will help provide training in corporate governance issues that arise during these crises.  Also see: Patton Boggs/Qorvis Strategic Alliance.

For more information, feel free to call me direct at (214) 758-1545.  Alternatively, feel free to call my partner, Michael Nardotti,  who heads our Crisis Management and Prevention Team at (202) 457-6000.  He is a highly disciplined and trained professional, who has an extensive legal and crisis management background, not the least of which comes from his command responsibility as a Major General in the U.S Army.  A decorated combat veteran, General Nardotti (now retired) served over 28 years on active duty as a soldier and lawyer in the Army.  Most recently, he served as The Judge Advocate General from 1993 to 1997.

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7. Leasing 101: What Does it Mean to "Assume" or "Reject" a Lease in Bankruptcy?

To answer this question, you must start with a deceptively simple question:  Is your lease a "true lease" within the Bankruptcy laws as contrasted with a lease intended as security?  If you conclude that your lease constitutes a true lease, the debtor in possession has right to assume or reject an unexpired lease (that is, a lease with time left on it) with Bankruptcy Court approval. See Section 365(a) of the Federal Bankruptcy Code (BC).

Only the debtor in possession or its trustee can assume, reject, or assume and then assign the lease.  See BC 365. The non-debtor party (usually the lessor) remains bound by the terms of the lease.

Warning:  If the Bankruptcy Court treats your lease as a lease intended as security (in which a lessee grants a security interest to the lessor), then a lessee can't assume or reject a lease because no true lease exists.

*Assuming a Lease.  If a lease constitutes a true lease, a debtor/lessee can "assume" a lease and thereby continue to use the leased property. See BC 365.  Unless a lease is assumed in the Bankruptcy Court, your lease is automatically deemed rejected (as discussed in the next section). To assume a lease a lessee must cure all defaults (such as paying all prepetition rent) or provide adequate assurance to the lessor that the lessee will promptly cure defaults.  See BC 365(b)(1).

The lessee can provide adequate assurance if the lessee: (1) has sufficient unencumbered assets to pledge to a lessor; (2) posts a bond or letter of credit to cover that value; or (3) has sufficient assets to pay all amounts due under the lease.  Once a lessee's bankruptcy estate assumes a lease, the lessor's claim for rent constitutes an expense of administration.  This claim gives the lessor priority in the distribution of the lessee's assets over unsecured creditors if the lessee breaches the assumed lease. See BC 365(g)(2) and 503(b)(1).

*Rejecting a Lease.  If the lease constitutes a true lease, a debtor/lessee can also "reject" the lease.  When a lessee rejects the lease, the lessor officially terminates all of the lessee's lease obligations with the help of a Bankruptcy Court order, regardless of how long the lease term lasts or what it says.  The power to reject the lease comes from a trustee's power to abandon assets that, in his or her business judgment, places an unacceptable burden on the lessee's bankruptcy estate.

For more information on how bankruptcy works in leasing, see Chapter 18: "Bankruptcy Hits Leasing: Lessee Tools and Lessor Consequences" in my book, Business Leasing for Dummies ®.

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8. Training Available for Your Success

As many of you know, I offer private training seminars at your designated location tailored to your specific needs.  One reader said, correctly, that I "make house calls." 

My interactive and informative approach relies, in part, on my book.  You can propose a customized format for your training ranging from a three-hour course to a two-day course.

Thanks for your interest in my training seminars.  Your ideas have included the following:

            *Training bankers on leasing basics to increase originations of new deals;

            *Enhancing negotiation skills of a leasing company to help meet its 2002 budget;

            *Providing up to date instruction on leasing equipment and software to federal and state entities; and

            *Developing a strategic plan and setting goals for 2002. 

Contact me for more information at dmayer@pattonboggs.com or (214) 758-1545.

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9. Web Sites and Other Good Stuff

Here are some cool web sites that can help you write your next business proposal, keep up on the latest news or even write a compelling paper for your management:

            *Top 100 Sites in About 70 Subjects.  Visit http://www.100.com/ for a list of the best sites on the Internet in over 70 areas (total 7,000!) ranging from such topics as business, news and finance to maps, science fiction and movies.

            *Help With Proof Reading Your Documents.  Do you overlook typos or missing words in your documents?  If you need help, you can find proof readers on line.  Check out http://www.proofreadnow.com or http://www.editavenue.com with service fees from $2.95 to $20 per page for grammar and spell-checking.  The faster the turn around time, the more the proofing will cost you.

            *Business Leasing For Dummies ® Favorably Reviewed.  Executive Caliber reviewed my book at http://executivecaliber.ws/sys-tmpl/links/.  Jeffrey Taylor, a well-known figure in the leasing and lease training worlds, has good things to say.  Check it out!

            *Pop-Up Ad Killers.  If you really hate those Internet pop-up ads, you may want to eliminate them by popping in on Pop-Up Stoppers at http://www.PanicWare.com.  For $19.95, you can get the super popper stopper.  For free, you can get a stripped down version that reportedly works.  Mac users can try http://www.webwasher.com.

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10. A Message From the Publisher, David G. Mayer

Have you found this newsletter to be helpful?  I work hard to present an interesting and useful letter each month to help you stay current on important issues and business developments.  Thank you very much for being so responsive and interested.  Each month you comment more and seem to like what I am doing.  This effort helps me stay current in legal and business issues as well as to provide you, my clients, colleagues and friends, with insightful strategies to use in various business situations. Feel free to call me.  I value the opportunity to build relationships with you.

As you may be aware, I spend a substantial part of my legal practice in business transactions that include buying, selling, financing and leasing property of all kinds. The property includes aircraft, energy, facility and technology assets. We work with fractional shares of aircraft, close vendor programs and underlying transactions, negotiate tax-exempt and federal leasing deals, complete portfolio and asset acquisitions, as well as assist in a variety of syndications.  I also help work out troubled deals.  The troubled deals seem to be increasing, and I am glad to help, but it will be nice when the economy is humming again. 

As you may be aware,