BUSINESS LEASING NEWS
"Offering leasing and financing strategies for your success"

December 2003

Welcome to the December 2003 edition of "Business Leasing News." 

From: David G. Mayer, a business transactions partner of the law firm of Patton Boggs LLP and author of the book, Business Leasing for Dummies (BLFD)®. The supply of books is nearly gone, so if you want to find a copy, please search the web today! Thanks for buying my book for two great years. I appreciate all your kind and positive comments on BLFD. 

This e-newsletter will be timely, informative and concise with supporting research. 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 for you than just report the news. 

In this issue:

A Message From the Publisher, David G. Mayer

1. Tax-Exempt Entity Leasing Takes a Sudden Hit from Tax Shelter Legislation

An anonymous witness testified before Congress in mid-October. He appeared behind a screen and spoke through a voice scrambler for fear of reprisal. You may think this begins a story about a crime figure, but this witness spoke about leasing and financing transactions involving tax-exempt entities as lessees. The witness in effect said that billions of dollars of pending lease transactions in twenty states should not be closed because they constitute abusive tax shelters. See: Tax Shelter of ‘90s May Have Returned, The Wall Street Journal, (S.W. Ed.), October 21, 2003, Section A:2, Col. 3. The wide swath of the testimony hit lease in, lease outs (LILOs), “lease to service contracts” and other similar transactions, some of which are no longer done. See: Equipment Leasing Association Comments on Senate Finance Committee's October 21 Hearing on Tax Shelters (October 21, 2003) (members only). See also: Monitordaily (October 22, 2003).

Apparently fired up by this testimony, Senate Finance Committee Chairman Charles Grassley (R-Iowa) drove a stake in the heart of these deals affecting highways, subways, bridges, airports, waterlines and other infrastructure assets in the United States. He did so by stating that his tax shelter legislation, designed to stop these deals, would be effective November 18, 2003 rather than the enactment date. 

Labeling these sale leaseback transactions as “…good old-fashioned tax fraud” among other incendiary terms, Grassley expanded his inquiry into these lease transactions by asking Secretary of Transportation Norm Mineta in a letter dated November 17, 2003 to assist him in his “ongoing investigation of abusive tax shelters.” Senator Grassley published his letter as part of a press release issued November 18, 2003, which stated in part:

“I am certain that you share my concern that bridges, water lines, sports stadiums, and subway systems constructed with taxpayer dollars are being used by big corporations to shelter billions of dollars in taxes through bogus depreciation deductions. In order to assist us in assessing the scope and scale of this problem, I request that the Department of Transportation submit to the Committee on Finance copies of all LILOs, SILOs [sale in, lease out], QTEs [qualified technology equipment], and similar transactions that have been approved, funded, or otherwise reviewed by the Department of Transportation from the year 1995 to present.”

*Warning: The impact of Senator Grassley’s announcement may be to defer, if not terminate, sale leaseback transactions to tax exempt entities such as public hospitals, universities and cities in the United States. Each transaction of the type he has targeted should be closely evaluated to determine if alternative structure or delay in the transaction (pending completion of legislation) is appropriate. 

Senator Grassley’s objection to these transactions stems from his view that tax exempt entities receive relatively little consideration in comparison to the federal tax benefits received by lessors from depreciation benefits of taxpayer-funded leased property such as bridges, subways and rail systems. He explains his objection with this illustration:

"Say a city is getting $100 million through leasing its subway system to companies. Think about the fair market value of the assets to be leased to the promoter. Multiply that value by the 35 percent corporate tax rate, and you'll have a ballpark estimate of the tax savings to be realized by the private companies depreciating the underlying water line assets. I can guarantee it'll be much higher than $100 million.”

According to the Equipment Leasing Association, tax-exempt entity leasing transactions result in lessees conveying to lessors real interests in leased assets and undertaking real obligations. Lessors make significant cash investments and expect a cash return on that investment. Tax benefits constitute only a portion of a lessor’s return. For the cash-strapped public entities, the sale and leaseback of their assets provides a welcome infusion of cash. See: Equipment Leasing Association Comments on Senate Finance Committee's October 21 Hearing on Tax Shelters (October 21, 2003) (members only).

Nonetheless, Grassley intends to incorporate tax reform of these purported tax shelters in Senate Bill 1637, the “Jumpstart Our Business Strength (JOBS) Act of 2003” (the Act). Section 476 of the Act (proposed Section 470 of the Internal Revenue Code of 1986, as amended) could derail many of these transactions. See: Jobs Act - Insert “S. 1637” to find Section 476. 

*Tip: Lessors may elect to initiate their own legislative action as an option to address the sudden effective date and significant impact of Senator Grassley’s action given the high dollar value of leasing transactions at risk. The Equipment Leasing Association has initiated action to address this situation. 

As difficult a year as 2003 has been for the leasing industry, Senator Grassley’s bold move to shut down these leasing transactions is hardly welcome news, especially in the fourth quarter. Unfortunately, the attack on tax shelters, including leasing deals, may be far from over.

For more information on the Act or legislative solutions, please feel to contact David G. Mayer at 214 758-1545 for assistance. I would like to thank one of my tax partners, George Schutzer, for his comments on this article.

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2. Court Treats Casualty Value as a Penalty

When lessees default on a lease, lessors may demand that lessees pay the applicable casualty value or stipulated loss value (SLV) as the measure of the lessor’s damages. Lessors often state that the SLV “constitutes liquidated damages for the loss of their bargain but not as a penalty.” In Montgomery Ward & Co., Incorporated v. Meridian Leasing Corporation, 326 F. 3d 383 (3d Cir. 2003), the Bankruptcy Court, applying Illinois law, decided that the casualty value charged by the lessor constituted an unenforceable penalty. The SLV failed to meet the test under Section 2A-504 of the Uniform Commercial Code that the SLV is “reasonable in light of the then anticipated harm caused by the default….” The Court decided that the SLV was unreasonable because (among other reasons): 

• The lessor would receive more from the debtor by charging the SLV after a default than if the debtor had fully performed under the lease; and 
  
  

• The SLV exceeded a genuine pre-estimate of actual damages, as is the general standard to calculate liquidated damages. 

Fortunately for the lessor, the Court did not penalize the lessor for allegedly overreaching. It sent the case back to the lower court rather than reject the lessor’s right to any damages arising from the lessee’s default under the lease.

*Tip: As a lessor, consider calculating your SLV so that you closely approximate the return you would have received had the lessee fully performed under the lease. Credit your lessee with proceeds of a lease or sale of the leased property to which the SLV applies. See: Case Credit Corporation v. Baldwin Rental Centers, Inc., 228 B.R. 504 (Bankr. S.D. Ga. 1998) (SLV clause enforced).  In evaluating your pricing:

• Consult your counsel about the law that applies on this issue when setting the SLV in each lease.
  
  

• Expect lessees to challenge you on this issue, at least in a bankruptcy proceeding. 
  
  

• Understand that when a court just has doubts, it may construe SLVs as a penalty.

Although Section 2A-504 may not often be interpreted by the courts, this case sends out a warning shot to lessors about how to calculate SLVs and write damage clauses in their leases. From the lessee’s perspective, this case tilts the scales toward a balanced approach to damages under its leases. Lessors should reexamine their current approaches to pricing and damage claims in view of the attendant risks. 

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3. Mezzanine Financing Bridges More Gaps in U.S. and Europe

Mezzanine financing has become a welcomed and growing component of corporate finance in the U.S. and Europe. Both its stature and volume have grown in the past year in these markets, and trends suggest that demand will continue to increase as economies recover. See: Profile of Mezzanine Funds Gains New Stature, The Wall Street Journal (S.W. Ed.), October 1, 2003, Section B:13A, Col. 3 (called, “Profile Gains”).

Both here and in Europe, mezzanine financing is a form of subordinated debt that fills the gap between a company’s senior debt and equity layers of capital. Structurally, the senior lender subordinates the mezzanine debt, which may take the form of unsecured loans, secured loans or preferred equity. 

Increased Demand For Mezzanine Financing

In recent years, demand for mezzanine financing has increased as:

• Banks have tightened lending standards for senior debt in private equity or other middle market lending transactions. A lack of leverageable assets has chilled their desire to put their loan funds at risk. See: Mezzanine Financing Increases as Senior Lenders Retrench, Business Leasing News (October 2002). 
  
  

• The high-yield market has an implicit minimum threshold of supporting capital of between $125 and $150 million and mezzanine financing fills the gap to reach those financing levels. See: Mezzanine Debt—Another Level to Consider, Fleet CapitalEyes (August 2003) (called “Fleet Report”).
  
  

• Prices have begun to climb for buyouts. With banks only providing about 2.5 to 3.0 times the target company’s cash flow, equity sponsors seek mezzanine debt to reduce their equity investment and exposure to pay a part of the purchase price. See: Profile Gains.
  
  

• Returns on mezzanine debt have been attractive. Although actual returns remain closely guarded data points, returns usually reach 14 to 16 percent plus “equity kickers” in the form of warrants or common stock interests in some transactions in the U.S. and Europe. 

Holders of Mezzanine Debt

Investors in the U.S. market include insurance companies, pension funds and university endowments. As yields approached the low 20 percent range, private equity funds, leveraged public funds, commercial banks and investment banks participated in these transactions. 

In Europe, the base of investors in mezzanine transactions has expanded in recent years. Investors include international banks such as The Royal Bank of Scotland, bank investment funds and independent mezzanine investors. Unlike the other investors, investment banks generally don’t hold any mezzanine debt in Europe; rather, they sell down to investors. See: European Mezzanine Reconsidered, Fitch Ratings (subscribers only) at pages 2-3 (October 16, 2003) (called, “Fitch Report”).

Borrowers of Mezzanine Debt 

Most mezzanine transactions in the U.S. and Europe seem to finance smaller to middle market companies. Europe has seen increases in the size of transactions up to EUR100 million, and demand for mezzanine products has pushed larger rated facilities to even higher levels. See: Fitch Report at page 6. On the other hand, the U.S. market focuses on issuers with limited access to broader capital markets. Transactions of up to $20 million seem common, but high-yield transactions can require a much greater infusion of mezzanine debt. The issuers use mezzanine debt to fill shortfalls in other financing for the purposes of acquisitions, capital expenditures and recapitalizations. See: Fleet Report at page 1. 

Terms of Mezzanine Debt—the Warrantless and Warranted Transactions

U.S. transactions tend to have a term of six to eight years while European facilities extend six to ten years. Like the U.S., European mezzanine debt is contractually subordinated to senior debt. Loan covenants in U.S. and European mezzanine deals track the senior debt covenants. Mezzanine lenders in the U.S. tend to charge fixed interest rates. However, Fitch reports that most mezzanine lenders in Europe lend based on a floating rate of interest over their cost of funds. The rate spreads ranges from about 300 to 400 basis points for cash interest payments as well as for payment-in-kind notes (PIK) transactions (notes issued in lieu of cash interest). See: Fitch Report at page 17 (reported as of July 2002). Mezzanine debt borrowers on both sides of the Atlantic must pay moderate prepayment penalties. In Europe the mezzanine debt is generally secured, but U.S. deals tend to be both secured and unsecured. In the U.S., most deals are highly negotiated private transactions in the middle market. By contrast, the transactions in Europe may involve public and private investors in smaller and middle market segments.

In a divergence between the U.S. and European markets, U.S. transactions tend to include an equity kicker as an ordinary business term. By contrast, the evolution of the European market includes increasing growth of transactions without a similar feature—a “warrantless” transaction. This structure alters the character of mezzanine transactions towards current income rather than an equity-linked capital gain transaction. See: Fitch Report at page 5. The warrantless feature is attractive to sponsors as long as it maintains their prepayment terms, offers a lower cost than mezzanine transactions that include warrants and doesn’t dilute their equity. For investors, the warrantless transactions still have priority over equity and enjoy a low default rate in Europe. See: Fitch Report at pages 5, 12 and 14. 

*Warning: Mezzanine financing is a dynamic, growing and evolving area of finance. Any of the data and market factors discussed in this article may have already changed by the time of publication. Validate any assumptions you make in your markets. Factor in the growth in the economy in the market in which you provide or receive the financing, as well as the related pricing and demand for mezzanine debt or equity.

Trends in Europe and the U.S.

During the past two years, the U.S. has encountered serious default rates in mezzanine transactions that have required changes of control, recapitalization or other exits from transaction by mezzanine lenders. The mezzanine product has begun to mature, but its markets and growth potential largely depends on market forces. As profits and potential from private equity partnerships and other investments slump, mezzanine funds may become increasingly attractive and in demand. See: Profile Gains.

The European economy is showing some signs of real growth. See: After Hints and Nods, Europe Actually Grows, The Wall Street Journal (S.W. Ed.), November 14, 2003, Section A:10, Col. 3. Even before these growth signs appeared, Fitch made it clear that mezzanine finance has become an extremely important type of capital in Europe. See: Fitch Report at page 1. Some key observations made by Fitch about the European market include the following:

• The number of mezzanine facilities have dramatically increased since 2000;
  
  

• The average size of the facilities has dramatically increased since 2001;
  
  

• Mezzanine finance is increasing its market role following the turbulence of high yield markets since 2001;
  
  

• Concentrations in the UK, France and, to a lesser extent, Germany are continuing to develop; 
  
  

• Fitch’s top rated sectors include lodging and restaurants, healthcare, aerospace and defense, food and drug retail and textiles and furniture; and
  
  

• Large funds tend to obtain higher Fitch ratings. 

*Tip: Mezzanine finance generally has not become an efficient market yet. To understand these markets, plan to attend the top conferences and get the most recent information. For example, each year Atlantic Conferences Inc. produces the "Symposium on Mezzanine Finance" in Europe and in the U.S. The first conference convenes in London, England on February 9-10, 2004 at the Savoy Hotel. The second conference occurs at the Plaza Hotel in New York City on May 11-12, 2004. Patton Boggs LLP is one of the key sponsors of the U.S. conference. Respected industry speakers provide current insights into mezzanine finance in their respective markets. These gatherings also offer an excellent environment for networking. If you participate or desire to participate in the mezzanine financing business (either as a principal or as an investor in a mezzanine fund), or if you desire to obtain mezzanine financing, mark your calendar for these key 2004 events. 

As markets evolve and world economies improve, mezzanine finance will continue to bridge gaps in the capital structures of companies in the U.S. and Europe. It no longer looks like its will play a cameo role in corporate finance; rather, it appears that mezzanine finance has gained a lasting part in the financing companies in the United States and Europe.

I wish to thank my partner, Jeff Cole, for his comments on this article. Jeff is one of a substantial group of lawyers at Patton Boggs LLP who regularly represent domestic and foreign commercial banks and their affiliates, as well as public and private investment funds, with respect to mezzanine, private equity, and commercial lending and fund formation transactions. I would also like to thank Louise Vogel of Atlantic Conferences Inc. for her assistance with this article.

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4. Certificate of Insurance Fails to Protect Lessor 

If it ain’t broke, don’t fix it,” the saying goes. That seems to be the approach to a common method in leasing to obtaining insurance coverage from lessees. Lessors simply ask for and receive a certificate of insurance to protect them against the risk of loss or liability. Unfortunately for one New York real property lessor, the approach broke and the landlord had no insurance coverage. See: Benjamin Shapiro Realty Co., LLC v. Kemper Nat’l Ins. Cos., 2003 WL 1226726 (1st Dep’t, 2003), 2003 N.Y. LEXIS 1753 (N.Y. July 2, 2003).

The Case Background

In the Shapiro case, a tenant’s broker issued a certificate of insurance to the landlord that named the landlord as an additional insured on the tenant’s rental insurance policy. A claim occurred and the landlord expected to have insurance coverage. When the landlord found out that the policy did not, in fact, name him or provide coverage, the landlord sued the broker to recover damages for negligent misrepresentation. The broker stated that Shapiro had coverage, but in reality he did not. 

The Court dismissed the action because the insurance certificate contained a disclaimer that it was for information only. Further, the Court concluded that no privity of contract (a contractual connection) existed between the broker and the landlord to validate the claim. The landlord lost and the Court did not allow the landlord to amend its complaint to try to recover for the lack of insurance in some other way.

Proof is in the Form—A Certificate Versus Evidence of Insurance

Most forms that offer proof of insurance coverage have been developed by ACORD, a nonprofit association of insurers, agents and other professionals in the insurance industry. Such forms include ACORD 24 (Certificate of Property Insurance), ACORD 25-S (Certificate of Liability Insurance) ACORD 27 (Evidence of Property Insurance) and ACORD 28 (Evidence of Commercial Property Insurance).

A certificate of insurance is not the same as evidence of insurance. Insurance forms contain language that make them different from certain other forms. Both the ACORD 24 and ACORD 25-S certificates contain the following language: "This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below." These certificates also state: "the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies." By contrast, the ACORD-27 form of "Evidence of Property Insurance" contains no disclaimer language like the ACORD 24 and ACORD 25-S. Rather, it "is evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy." ACORD 28 differs by conveying to the holder of the form all rights that go with the policy, including notice of cancellation. However, these rights apply only to individuals identified on the policy. ACORD 28 provides a coverage statement for mortgagees, additional insureds and loss payees who provide mortgages or loans on real property or business personal property insured under certain types of coverage of commercial property.

*Warning: Many insurance certificates routinely issued in leasing and financing transactions contain various disclaimers, including the “information only” disclaimer featured in the Shapiro case. For example, the ACORD 24 form states only that the insurer “will endeavor” to give notice of cancellation or termination of coverage but have no legal liability to do so. However, the ACORD 27 form obligates the insurer to provide a specified amount of advance written notice of any termination or material changes in the policy. It is, therefore, imperative to take the forms seriously and read them closely to obtain the intended insurance coverage. 

The Road to Insurance Success

Lessors, lessees and owners of personal and real property, along with others who need insurance coverage in transactions, can travel this sometimes rocky road to a successful closing by treating insurance as a critical component of a closing.

*Tip: To do so, consider taking the following actions in each transaction: 

Do not rely on certificates of insurance with disclaimers as binding evidence of insurance. 

Obtain the right forms for your deal and carefully read each form offered by brokers or underwriters.

Examine the underlying insurance policies. If you are not the “named insured” (the purchaser of the policy), obtain binding evidence of, endorsements on, or amendments to, the policies to protect your interests. 

Ask insurance brokers to confirm coverage in writing in a “broker’s letter” that creates a contractual duty to you. Don’t be surprised if they resist giving you this assurance. Alternatively, draft or ask the insurance carrier for a form of endorsement that will protect you under the insurance policy and provide you with the desired protection. 

Avoid closing your transactions without binding evidence of insurance (as contrasted to a certificate).

Involve your risk managers and knowledgeable counsel in obtaining the right type and evidence of insurance. The party to be insured may accept a certificate of insurance. Share this article with them as a reminder about how a certificate of insurance differs from evidence of insurance.

Insurance plays a valuable role in leasing and financing transactions. The Shapiro case seems consistent with law that has been effective for a long time. Exercise caution in accepting any certificate of insurance. If, as Shapiro apparently did, you assume the usual way works in this insurance area, you may only succeed in putting your property or interests at risk.

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5. Positive Economic News from the Federal Reserve Bodes Well for Leasing

The most recent economic reports published November 26, 2003 will add fuel to the fire of a growing economy. Published by the Federal Reserve Bank eight times per year, this report, called the “Beige Book,” gathers anecdotal information on current economic conditions. The twelve Federal Reserve Banks and their branch directors develop this information through interviews with key business contacts, economists, market experts and other sources.

The full reports received from the District Banks suggest that the economy continued its broad-based expansion in October and early November. Of particular interest to equipment finance and leasing, the report summarized the following positive news:

• Manufacturing activity improved in most districts.
  
  

• Dallas, Boston, San Francisco and Minneapolis noted positive reports among manufacturers of various high-tech products. 
  
  

• Chicago said that new orders remained strong or increased for medium and heavy-duty truck and construction equipment manufacturers. 
  
  

• Commercial and industrial loan demands edged up in the Kansas City and Richmond districts, but the Dallas district remained nearly unchanged. Loan quality remained good in most districts, and New York indicated that delinquency rates declined across the board.
  
  

• Energy-related industries showed mixed results. Dallas noted seasonal cutbacks in production by refineries, continued excess capacity in onshore rigs and a pickup in international drilling.

In a separate economic report by the Commerce Department, durable-goods orders rose 3.30 percent to $184.50 billion last month, the largest increase in 15 months. See: Positive Economic Data Rains Down, The Wall Street Journal (S.W. Ed.), Section A:2, Col. 1 (November 28, 2003). The Institute of Supply Management published an even more positive report on December 1, 2003. ISM’s November survey of purchasing managers showed a surge in new orders and a big jump in production in almost every industry, including “Commercial Equipment & Computers” and “Transportation & Equipment.” See: Manufacturing at Highest Level in Two Decades, NYTimes.com (members only) (December 2, 2003). 

*Tip: Although the Beige Book offers only subjective evidence of economic activity, it nonetheless illustrates potential geographic areas of growth that may guide you to leasing and lending opportunities. For example, expansion in manufacturing suggests potential in the affected markets for leasing factory equipment. Increased truck demand may provide hints to businesses that may be ready to satisfy pent-up demand for better over-the-road equipment or equipment upgrades. Consider the detailed reports in areas in the Beige Book where you have a marketing presence. It may offer you a tool to finding new leasing or financing deals as you build volume in 2004.

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6. Leasing 101: What is a “Grantor Trust”?

A grantor trust is a special purpose entity defined and largely conceptualized under Sections 671-679 of the Internal Revenue Code of 1986, as amended (Code). In the context of leasing, a grantor trust often acts as the owner and non-recourse borrower in leveraged leases. A grantor trust can also act as the owner lessor or even a lessee in a single source (non-leveraged) lease.

State law governs most of the rights, benefits and privileges of the parties to a grantor trust. The owner of the trust is called the settlor or trustor.  Although the trustor does not hold legal title to the leased property, it owns the beneficial interest in the grantor trust and enjoys the benefits of the grantor trust. As the beneficiary, the trustor may also be referred to as the beneficial owner of the grantor trust. It usually has the power to direct its activities and decisions of the trustee, which administers the trust. 

A trustor generally enters into a trust agreement with a bank to form a grantor trust. One or more leasing companies or other lease investors generally act as the trustors. The bank serves as the trustee or owner trustee in a representative capacity only, not in its personal capacity. The trustee holds title to the leased property, but the bank accepts no personal liability as a trustee. 

Assuming the trust meets the requirements of a grantor trust under the Code, as a pass-through vehicle for the use and under the control of the trustor, the trust is disregarded for tax purposes. As a result, the trustor enjoys the direct benefit of tax write-offs, credits and income from the trust for federal income tax purposes as if the trust did not exist. 

Grantor trusts have diverse applications and differ from other trusts such as business trusts that operate more like corporations. For more on business trusts, Trusts, taxes and business, by Carter G. Bishop, Business Law Today, Vol. 13, Number 2, Page 23, American Bar Association, Business Law Section (Nov./Dec. 2003).

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7. BLN Briefs: Potential Lessor Liability from 9-11 Attacks; CFOs Survey on Capital Spending

Lessors and Others Face Potential Liability from 9-11 Terrorist Attacks

Approximately seventy families and ten entities (Plaintiffs) that sustained loss of life or property damage in the September 11, 2001 attacks on the World Trade Center did not elect to make claims on the Victims Compensation Fund to pay for their losses. Rather, they commenced lawsuits against the airlines, the airport security companies, the airport operators, the airplane manufacturer, and the operators and owners/lessors of the World Trade Center (Defendants) for damages. See: In Re September 11 Litigation, 21 MC 97 (AKH), Opinion and Order Denying Motions to Dismiss. The Defendants made motions to dismiss the complaints of the Plaintiffs. They argued that they had no duty to the Plaintiffs and could not reasonably have anticipated that terrorists would hijack several jumbo jet airplanes and crash them, thus killing passengers, crews, thousands on the ground, and the terrorists themselves. 

The Court considered the arguments, including those of the owner/lessor Defendants. It reviewed landlord-tenant and other applicable laws and stated that these Defendants do have a duty to their lessees and business invitees. Further, the Defendants must exercise reasonable care under the circumstances in maintaining its property in a safe condition, adopting fire safety precautions and establishing fire prevention programs to guard against foreseeable risks. Acknowledging the case is in its early stages, the Court held that each of these Defendants owed duties to the Plaintiffs, and refused to dismiss the case. The risks of terrorist attacks also seemed foreseeable to the Court, but the Court stated that the case has a long way to go to test that issue. See pages 23-28.

*Warning: With all the current terrorist activities worldwide involving “soft targets” (unguarded targets like banks or shopping areas), lessors and other property owners should heed the decision of this Court when planning insurance, indemnity and security provisions in documents affecting real and personal property subject to potential terrorist attack. Even the claim of responsibility for losses due to a terrorist attack could create an enormous burden on a lessor or property owner in legal fees, time commitment and opportunity costs. For more on this topic, see: Lessors Use Structures and Terms to Mitigate Terrorism Risk, Business Leasing News (May 2003).

Despite Optimism, CFOs Have Mixed Expectations for Capital Expenditures

Chief financial officers at middle market companies expressed great optimism about business growth in 2004. However, they had mixed views about capital spending. While one-third expected an increase in such spending in 2004, 43 percent expected sluggish spending to continue (remain stable). However, the survey also indicated that business spending is expected to pick up this year and next year at a rate of 12 percent and 10 percent, respectively. See: 2004 CFO Survey: Economic Optimism Hits Six-Year High—Manufacturing Outlook Mixed, Fleet CapitalEyes (November 2003). 

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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—there are no canned programs. Feel free to call me at (214) 758-1545 to discuss the possibilities.

Recent Publications

Besides BLN, I write other articles on leasing and financing topics with a current emphasis on energy, tax and terrorism issues. Check these out:

Tax Lessors Get a Bonus From New Depreciation Regulations, Monitor (Nov./Dec. 2003).

Federal Tax Law Changes Abound: More Bonus Depreciation and Deductions Affecting Leasing, ELT, The Magazine of Equipment Leasing and Finance, The Equipment Leasing Association, October/Annual Convention Issue 2003.

After Blackout, Prospects Brighten for New Investments in Grid, Distributed Generation, EnergyPulse™ (online Insight, Analysis and Commentary on the Global Power Industry), an Energy Central publication, September 26, 2003.

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A Message From the Publisher, David G. Mayer

As 2003 rapidly draws to a close, I have began to reflect on this year as one of significant challenges, growth and achievement. 

The challenges in business have been many as the economy has stubbornly remained slow for capital investment. Lenders and lessors have pulled back from approving deals and problem transactions have grown then ebbed somewhat. I have worried about the leasing and financing business even though I often speak with optimism. Would consolidation damage leasing? Would Congress legislate away some of the distinctions in leasing that make it different and attractive to the market? Would the economy ever pick up and help the leasing industry grow again? These questions will remain unanswered this year except that that a stronger economy is starting to percolate.

Despite these challenges, I feel that I have grown this year in my relationships with many of you and my colleagues. More of you have become clients and friends of Patton Boggs LLP. You have taken your valuable time to comment on and contribute to Business Leasing News in person, by telephone or e-mail, for which I am grateful. My knowledge of leasing and financing has grown because of the opportunities I have been given to represent you as your counsel and to speak and write on industry subjects. BLN has grown in quality, technology and authority, thanks to the creative and hardworking teams who have assisted me this year.

With all the challenges and growth, 2003 has also been a year of achievement, though much more needs to be done before year-end. As many of you have perceived, writing and publishing BLN takes an enormous effort. In a personal sense, my family— Anne, my wife, and Ashley and Lindsay, my daughters— deserve great credit for putting up with me this year. My work schedule is often very demanding, including practicing law full time and producing BLN. It has been a challenge to balance work with personal and professional activities. Anne, Ashley and Lindsay have had a year of achievement in supporting my efforts, for which I thank them and appreciate them. During this year, the BLN team produced a newsletter every month representing more than 60 articles and hundreds of research cites. BLN revamped its web page look with positive results and increased traffic. The partners and associates who also helped produce BLN had a year of achievement too. They made important contributions to many articles that carry out BLN’s mission of providing “leasing and financing strategies for your success.” Last, but certainly not least, this year has been a year of achievement in my work because of an increase in clients, friends and opportunities at Patton Boggs LLP, which thankfully has been supportive of my professional efforts.

Last year at this time, I talked about the holiday season and mentioned Dennis who works in the Dallas office. Each time I asked Dennis “How are you?” he would respond (and still does), “I am blessed.” As 2003 draws to a close, I, too, must join Dennis in saying again that I have been blessed in 2003. Thank you for your support. Good luck with your year-end push this month, and a have joyous holiday season!

Feedback From You 

Most months I share comments I receive on Business Leasing News.

Here’s a comment I received by e-mail recently: “David, what an excellent job you did on your latest [November] leasing newsletter. You are a human dynamo! I don't know where you find the time.” 

Another reader said: “I particularly enjoyed this latest [November] edition. Keep up the good work.” 

A third reader added: “Thanks again for another great edition of your newsletter.”

As always, thanks again for your encouragement and kind words. You make it worth the effort. Stay tuned for some of the enthusiastic comments, both past and present, appearing in our second anniversary issue next month.

About the Web Site of Business Leasing News 

If you have bookmarked BLN, please change your bookmark to BLN’s address at Patton Boggs LLP: http://www.pattonboggs.com/newsletters/bln. Please stop by and see the BLN web site any time. It offers not only past issues but also some of my speeches and various search tools.

About Patton Boggs LLP and My Practice

As you may be aware, I am a part of the Patton Boggs LLP Business Transaction Group in the Dallas office. Patton Boggs LLP is a law firm of about 400 lawyers located globally in six locations with extensive capabilities in over fifty areas of legal practice that include leasing, secured transactions, securitizations, syndications, project and mezzanine financing, bankruptcy, public policy, litigation, intellectual property and technology law and much more. 

The leasing practice regularly involves the buying, selling, financing and leasing real and personal property of all kinds, including aircraft, energy, facility, production, technology and healthcare assets. We also structure, negotiate and close specialized transactions such as vendor and venture leasing programs, tax exempt, state and federal leasing arrangements as well as corporate and portfolio acquisitions, to name of few. Given the state of the economy, we extensively assist our clients with troubled deals and bankruptcies, including repossessions, lift stay actions, deficiency litigation, workouts and forbearance agreements. 

Please feel free to call me at (214) 758-1545 or e-mail me at dmayer@pattonboggs.com 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!

Thanks to the BLN Staff

I extend a special thank you to my editors at Patton Boggs LLP for their comments on this edition, Adrian Nicole McCoy, Sheila McCoy, Steve Reagan and our web site review partner, Jeff Turner. The technical team, consisting in part of George Barber and Winston Jackson, continue to provide talented skills and support to BLN.

All the best, 

David 

David G. Mayer 
Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
(214) 758-1545 (phone)
(214) 758-1550 (fax)
E-Mail: dmayer@pattonboggs.com

© David G. Mayer 2003

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