Welcome to the April 2004 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 and one-half years.

This e-newsletter offers timely, concise information and analysis backed by supporting research. Please contact Business Leasing News (BLN) to provide us with your feedback. Thanks for taking your valuable time to read BLN which does more than just report the news. 

In this issue:

A Message From the Founder, David G. Mayer

1. After Train Bombing in Madrid, Should Lessors Enhance Risk Management?

The terrorist bombing of a train in Madrid last month resulted in a senseless and tragic loss of life. As terrorist events continue to occur around the world, they increasingly raise our awareness of security risks to people and property. 

This horrendous act not only took 191 lives, it also rocked securities markets, undermined confidence in a nascent economic recovery in Europe and damaged alliances for peace and stability. See: Madrid Attacks May Undermine EU’s Recovery, The Wall Street Journal (S.W. Ed.), Page A:14, Col. 6 (March 17, 2004); Political Fallout Of Bombs Hits U.S. and Europe, The Wall Street Journal (S.W. Ed.), Page A:1, Col. 6 (March 15, 2004).

Loss of Capital Assets

Amidst these immense concerns, another loss occurred. This loss involved the destruction of the value and use of capital assets--the rail cars, stations and infrastructure that transport Madrid’s citizens and visitors. Indeed, the destruction of these assets seems to play an insignificant part in this drama, which has been called Spain’s equivalent of 9-11. However, owners of capital assets such as rail cars, vessels and ports, refineries, pipelines, buildings and aircraft, representing economic forces in the public and private sectors, suffer too. They, too, face the risk of terrorism.

Which Risks Matter to Lessors?

Risk from terrorism can take many forms: armed attacks, explosions and fire, nuclear or radiological threats, biological releases and the use of chemical weapons. See: Marsh Crisis Academy.

Which of these threats, if any, pose realistic risks to owners of property such as lessors? While the risk of terrorism in the United States may seem low to civilians, George Tenet, the director of the Central Intelligence Agency, testified in February that the world is as “fraught with dangers for American interests” as a year ago. See: Tenet Says Dangers to U.S. Are at Least as Great as a Year Ago, New York Times (online), Feb. 25, 2004. 

The U.S. Department of Homeland Security (DHS) and the Transportation Security Administration (TSA) have created security programs. TSA issues and administers the Transportation Security Regulations (TSRs)  which affect transportation and other assets in the private and public sector. Here are some examples:

• Rail Assets. DHS and the Department of Transportation have jointly undertaken security initiatives to reduce vulnerabilities to transit and rail systems and improve commuters and transit riders threat response support capability, public awareness and participation, and future technological innovations. 
  
  

• Maritime Assets. On July 1, 2003, DHS announced the publication of security regulations for the maritime industry. The regulations build on the comprehensive port security strategy and range of actions to implement significant portions of the Maritime Transportation Security Act of 2002. 
  
  

• General Aviation. TSA has worked with industry groups in general aviation to develop threat analysis and risk management strategies. General aviation accounts for about 77 percent of all flights in the US representing more than 200,000 aircraft, 650,000 pilots and 19,000 airports. In the wake of recent terrorism, DHS published recommendations in November 2003 that general aviation and airport operation consider passenger and cargo security measures. DHS has reminded general aviation operators to review industry security measures such as the Airport Watch Program created by the Aircraft Owners and Pilots Association.
  
  

• Vehicles. The American Trucking Association announced last month that it entered into a $19.3 million agreement with TSA to expand its Highway Watch Program. This program intends to use a “Transportation Army” to link transportation professionals with first responders to cope with a crisis and ensure that commercial vehicles are never used as a weapon. These vehicles include trucks and buses in the private and public sectors.

The DHS and TSA actions illustrate legitimate security issues and risk mitigation measures that may help lessors and lenders identify potential risks and develop appropriate risk management strategies.

Practical Risk Management: Should Owner/Lessors Do More?

In an environment where terrorist’s bombs can damage transportation assets and infrastructure, should lessors/owners enhance their risk assessment measures? Should they effect risk transfers to lessees or third parties when making lease investments? The methodology to address these questions, though perhaps vibrant in theory, is not as easy to understand or apply in practice. Lessors own and lease most, if not all, of the types of assets of concern to DHS and TSA. In addition, lessors lease many other assets at risk such as commercial aircraft, power plants, water treatment facilities and refinery, pipeline and other energy assets. Losses from terrorism outside the U.S. don’t seem to involve every day property leased by lessors in the U.S. As time passes since 9-11, threatening events seem to have little potential to occur close to home or to affect most leased assets. 

However, heightened risk management should not be optional in a prudent business environment. Prior to the occurrence of any type of crisis that worries DHS or TSA, lessors can, in the relative calm of a negotiation, transfer risk to lessees and operators of leased property. In doing so, they protect their investments through financial, insurance and legal risk management. Equipment management, insurance and legal professionals can assist lessors in accomplishing these tasks. 

Risk Has Not Diminished Since 9-11

The Federal Bureau of Investigation recently warned Texas oil companies of potential terrorist attacks on refineries and pipelines. A quote in The New York Times by Exxon/Mobil illustrates a reasoned and practical response to these threats. Prem Nair of Exxon/Mobil said: 

“We have implemented security programs based on proven, structured risk assessment methodology and we comply with relevant laws and regulations affecting security in areas where we operate and work closely with local, state and federal law enforcement agencies.”

See: F.B.I. Warns Texas Oil Companies of Potential Terror Attack, New York Times (online),  March 25, 2004.  Lessors can ask lessees to establish similar approaches applied to specific leased assets.

*Tip: As a lessor of property with any meaningful security risk, ask your lessee about their risk management approach at the inception of a lease or financing transaction, impose requirements that protect your interests and enforce these requirements during the lease term. 

More specifically, lessors should implement steps for protection of appropriate domestic and cross-border/non-U.S. lease transactions, including the following:

• Evaluate the credit risk of your lessee with a view toward the ability of the lessee to pay for and manage a crisis event arising from leased assets that may be at risk. Keep in mind that if any insurer does not pay claims or fails financially (or can’t pay claims), your lessee remains obligated under indemnity provisions to protect your leased property and interests.

*Warning: Leased assets may be at risk because of their proximity to other higher risk property or areas such as rail stations, power plants, water treatment facilities or airports. 

• Include contractual and due diligence requirements in your lease documents that protect you from risk of property loss and liability based on risk mitigation for specific leased assets. See: Terrorism Issues Become a Routine Part of Due Diligence, Risk Management, Business Leasing News (Jan. 2004).
  

*Comment: Ascertain whether market standards exist for such terms and conditions. If not, you can establish those standards by incorporating published industry criteria for security. For example, the National Business Aviation Association and the International Civil Aviation Organization have published and conduct training on best practices for aviation security. 

• Structure transactions to insulate you from a crisis or loss. See: Lessors Use Lease Structures and Terms to Mitigate Terrorism Risk, Business Leasing News (May 2003).
  
  

• Transfer risk by using insurance coverage to shift risk of loss and liability to lessees or borrowers. War risk and terrorism insurance are available; however, insureds and lessors have largely shunned the purchase of terrorism insurance. See: Despite Increased Risks, Terrorism Insurance Has Few Takers, Business Leasing News (April 2003).
  
  

• Hire appropriate experts to help you make these determinations, just as you would hire an appraiser, insurance or engineering expert for particular projects. For example, Patton Boggs has both crisis management and Homeland Security teams, in addition to leasing and financing lawyers. Please feel free call me for information about how we can assist you or your customers at (214) 758-1545.

Once owners and lessors take these steps, the world may not seem like such a scary place to do business. Terrorism risk management should become a routine part of negotiating deals and not a deterrent. Leasing has successfully adapted to change since its inception. Security risk management simply entails a reasoned approach to leasing assets in the volatile world in which we now live. 

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2. Cape Town Convention Goes to Capitol Hill 

About a year ago, the Export-Import Bank of the United States promoted the ratification of the Cape Town Convention. See: EXIM Bank Promotes Ratification of Cape Town Convention, Business Leasing News (March 2003). Now it appears that U.S. lawmakers, including the Senate Committee on Foreign Relations, will begin hearings on the Convention with a focus on the Aircraft Protocol. See: Aviation Daily (online), March 16, 2004 at page 5. The U.S. signed the Convention in September 2003 and is expected to ratify it later this year.

The treaty creates a central registry of security rights in aircraft, aircraft engines and helicopters. According to the International Institute for Unification of Private Law (UNIDROIT), the Convention has been signed by 27 states, ratified by three states and acceded to by one state. See: Protocol Status. The Protocol will enter into force on the first day of the month following the expiration of three months after the date of the deposit of the eighth instrument of ratification, acceptance, approval or accession between the states which have deposited such instruments (Article XXVIII (1)). 

According to the International Civil Aviation Organization, the Aircraft Protocol will significantly reduce the risks of lenders, financiers, banks, leasing companies and other institutions by increasing the certainty of lien rights recorded in a single registry. 

*Tip: UNIDROIT has also prepared early drafts on the Protocols on railway rolling stock and space assets.

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3. From Turbulence to Stability: Insurance Markets Recover After 9-11

In the past year, insurance markets have shifted dramatically from high pricing, lack of insurance capacity and financial insecurity of insurers to greater stability, insurance capacity and moderating prices. Although several key segments of the insurance market have improved, uncertainty remains regarding the financial health of insurers and increasing risk retention by lessees and borrowers. Consequently, the selection of insurers or self-insurance, the cost of required or desirable insurance coverage, and the scope of insurance coverage by lessees and borrowers will be important issues this year.

Risk management has changed dramatically in the last few years. The marketplace for coverage has experienced unprecedented turbulence as human events, such as terrorism and natural disasters, have covered the front pages of newspapers worldwide. Even routine loss or damage to property tests the scope and impacts the cost of insurance coverage. Two specific categories of coverage remain of fundamental importance to leasing and financing: property insurance and liability insurance. Some general observations illustrate changes in these insurance markets.

*Warning: Any comments about pricing and coverage remain entirely subject to the nature of the assets and named insured’s business operations, other underwriting criteria, local market conditions and the policy terms. 

Property Insurance 

Property insurance may, perhaps, be the most important coverage for lessors, lessees and borrowers. Here are some general points about the state of the property insurance market:

1. Rate reductions began in the second quarter of 2003 and should continue this year, dropping as much as 20 percent on average, and 2004 may see an additional 10 to 15 percent reduction in rates.
   
   

2. Insurers have become more competitive, which soften resistance to required terms for selected customers.
   
   

3. Multi-year insurance may be available as an option, which may create greater coverage and pricing certainty.
   
   

4. Terrorism insurance remains available at significant limits, even in hot spots overseas.

General Liability Insurance

Liability insurance also experienced significant changes in the last year. Here are a few key points affecting liability insurance:

1. Capacity for both primary and excess coverages have increased, making such coverage widely available.
   
   

2. Due to competition, rates on coverage have generally moderated in 2003 after sudden drops late in 2001 and in 2002. Deductible and self-retentions may have increased.
   
   

3. Terms and conditions of coverage may tighten in 2004.

*Tip: For lessors, the softening of the insurance markets suggests an opportunity to negotiate for greater insurance scope and limits on coverage. Watch for the following elements in each deal:

• Focus on the quality of the insurers, including their A.M. Best Ratings as discussed in Leasing 101 below, as many insurers have experienced their own financial problems.
  
  

• Require higher coverage limits with respect to terrorism and war risk coverages for aircraft and other cross-border transactions and consider multi-year coverages, if available.
  
  

• Examine policy terms to assure you understand them and their scope, particularly because liability coverage may have stricter terms and conditions.

Insurance provides the most common, and perhaps the most valuable, method of risk transfer. Without adequate insurance, most lease transactions would not be completed. Insurance is, therefore, not solely in the province of risk managers and insurance brokers. Though complex, insurance represents a fundamental building block of lease and financing transactions that continually changes and evolves as surely as the events or losses to which it responds. 

See: Marketplace Realities and Risk Management Solutions, Strategies for a Changing Marketplace 2004, Willis Group 

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4. BLN Case & Comment: IRS Questions Sale-Leaseback Characterization

In a recent Technical Advice Memorandum 200346007 (TAM), released November 9, 2003, the Internal Revenue Service (IRS) questioned whether a leveraged sale-leaseback of a corporate headquarters should be respected as a sale or treated as a financing arrangement.

Facts: To raise funds and reduce the costs, the lessee agreed to sell its corporate headquarters to an owner/lessor and lease it back concurrently under a leveraged lease. The property had a useful life longer than the lease term. Both the rent and the sale price represented below market rates. The lessee negotiated an early buy out option (EBO) and fixed-price purchase option (FPPO). The lessor structured the rents to minimize the net present value cost to the lessee, effectively enabling the lessee to make “[n]o principal payments during the initial lease term.” The IRS and the lessee disagreed on the fair market value of the property at the dates on which lessee could exercise its EBO and FPPO. The equity investor invested 10 percent of the cost of the real estate. It obtained an event-risk letter of credit of the lessee (triggered by reduced credit ratings of the lessee). The lessor could require the lessee to renew the lease at the end of the initial lease term at a rent slightly exceeding debt service, if the lessee did not exercise its FPPO.

Legal Analysis: The TAM sets forth eight factors identified in Grodt & McKay Realty Inc. v. Commissioner, 77 T.C. 1221 (1981) for determining whether the benefits and burdens of ownership shift from the seller to the buyer in a sale/leaseback transaction. Generally, these factors consist of: (1) whether legal title passes to buyer; (2) how the parties treat the transaction for book and legal form purposes (for example, whether a bill of sale is used); (3) whether the buyer acquires an equity interest in the property; (4) whether the contracts create a present obligation on seller to execute a deed and on buyer to make purchase price payments; (5) whether the right of possession vests in the buyer; (6) which party pays property taxes; (7) which party bears the risk of loss or damage to the property; and (8) which party receives the profits from the operation and sale of the property. 

Some of the factors favored as sale while others suggested that a financing occurred. In evaluating the case, the IRS said:

In the present case, an evaluation of the eight factors set forth in Grodt & McKay Realty, fails to produce a conclusive determination as to whether the form of the sale/leaseback transaction should be respected. In our opinion, the first, third, and fourth criteria favor sale treatment; the fifth, sixth, and seventh criteria favor financing arrangement treatment; and the second and eighth criteria are neutral as to which treatment should prevail. Likewise, an evaluation of the four factors relating specifically to sale-leaseback transactions fails to produce a conclusive determination because of the factual disagreements between Taxpayer and the IRS audit team.

The IRS also questioned the business purpose and economic reality of the transaction, which seemed to have similarities to the state law analysis applied by the court in a recent bankruptcy case, Duke Energy Royal, LLC v. Pillowtex Corporation, Case No. 02-2674 (3d Cir. Ct. of Appeals, Nov. 14, 2003). See: BLN Case & Comment: True Lease Case In re: Pillowtex, Inc. Affects Leasing, Energy Services Industries, Business Leasing News (Jan. 2004). 

The IRS applied these criteria to the facts, but could reach no conclusion as to the characterization of the transaction. The transaction largely turns on whether the price of the EBO and FPPO represents true estimates of the fair market value at the time of exercise or, instead, merely amount to payments sufficient to cover the “unamortized balance” of the debt. The IRS and lessee disagreed on the values, which will be determined as a continuing part of the case.

Although not stated explicitly, in this case, the IRS seems to be looking for the owner to demonstrate some upside benefit and downside risk. By structuring transactions with true fair market value option amounts, as contrasted with discounted option amounts that compel a lessee to buy the leased property, you have a better chance of winning true sale argument with the IRS. Based on the TAM, the IRS seems to be less likely to recharacterize your lease as a financing arrangement if you obtain good appraisals that support fair market value estimates at the time of exercise of purchase options. 

*Tip: The TAM is one of the most comprehensive discussions of the characterization of a sale-leaseback versus a financing arrangement. The summary of the Grodt factors illustrates that structuring and analyzing lease transactions involves multiple elements and requires knowledgeable leasing and tax advice. Obtain this advice for each tax-oriented transaction in light of the current focus on allegedly abusive tax structures in leasing. 

The TAM also states that, if the transaction is respected as a sale, the lessee must include the fair market value of the bargain - rent benefit as a part of the price paid by the owner/lessor for the leased property. In this case, the lessee tried to exclude the rent from the sale price, which impacted the amount, if any, of the loss the lessee suffered on the sale.

*Remember: Revenue Procedure 2001-28 (at page 1156) provides guidelines that the IRS uses for advance ruling purposes in determining whether certain transactions purporting to be leases of property are, in fact, leases for federal income tax purposes. Typically used for personal property transactions, as contrasted with real estate issues like the TAM case, this revenue procedure modifies and supersedes Rev. Proc. 75–21, 1975–1 C.B. 715. See: Leasing 101: What are the "Tax Guidelines" and "Revenue Procedure 2001-28"?, Business Leasing News (March 2003). 

I would like to thank one of my tax partners, George Schutzer, for his comments on this article.

Feel free to contact George or me when you structure or review your lease or sale-leaseback transactions.

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5. Leasing 101: What is an “A.M. Best Financial Strength Rating”?

An A.M. Best Financial Strength Rating is an independent opinion of A.M. Best Company (A.M. Best) based on its comprehensive quantitative and qualitative evaluation of an insurance company's balance sheet strength, operating performance and business profile. Established in 1899, A.M. Best is the oldest and perhaps most authoritative source of insurance company ratings. 

The Guide to Financial Strength Ratings (FSRs) provides a useful tool for secured lending, facility, leasing and other financing transactions. FSRs create objective standards for lessors to approve the creditworthiness of a lessee’s or borrower’s insurers. For example, a “Secure Rating” applies when an insurance company rates A++ and A+ (Superior), A and A- (Excellent) and B++ and B+ (Very Good). Under B equates to “Vulnerable Ratings.” Not all insurers receive the same type of rating. Lloyds of London, for example, receives a specialized rating from A.M Best.

A.M. Best also provides information on the financial capacity of an insurer, evidencing a Financial Size Category (FSC). The FSC designation provides a convenient indicator of the size of a company in terms of its statutory surplus and related accounts. The range extends from FSC “I” of less than $1,000,000 to FSC “XV” of greater than $2 billion in adjusted policy surplus.

*Tip: Each lease and loan agreement should expressly state that lessees and borrowers must use insurance companies with satisfactory ratings in Best’s Insurance Reports. Insist on an FSR above B and a FSC approved by your appropriate credit officers. For example, consider a rating of no less than a “Best’s Rating of A --VIII” in any equipment lease or project financing. 

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6. BLN Briefs: Helicopter Sales to Rise; Basel II Divides Bankers; Boeing Tanker Lease Criticized

Helicopter Sales to Rise. Honeywell Aerospace surveyed 949 chief pilots and flight department operators about potential growth in the acquisition of helicopters. Driven by age, technological improvements and the need for larger cabin space, Honeywell found that those surveyed expected sales to increase by about seven percent worldwide in the next five years. Emergency medical services (EMS) and law enforcement authorities will lead the sales growth with about 30 percent and 16 percent, respectively, of all new acquisitions. See: Copter sales likely to rise, study says, Dallas Morning News, Page 13B, Col. 1 (March 14, 2004).

*Opportunity Point: Lessors and lenders should evaluate these survey findings because they translate into sales of about 2,350 new helicopters. The need for these aircraft may create new financing and leasing opportunities in the next few years.

Basel II Divides Bankers. Bankers on both sides of the pond have decidedly different views as to when Basel II, the new bank capital accord, will take effect. Delayed until mid-2004 by concerned U.S. bankers, the Federal Reserve has suggested that the date of reckoning may extend beyond 2006. Meanwhile, Jaime Caruana (chairman of the Basel II Committee), expects to meet the mid-2004 deadline and phase in the accord in an “evolutionary” manner. The accord may impose capital requirements well beyond internationally active U.S. banks, including leasing and finance companies. See: Basel II Accord Delayed by Protest of U.S. Financial Institutions, Business Leasing News (November 2003).

Boeing Tanker Criticized. Step one of four, down. The Boeing tanker lease now has three more inquiries to go as ordered by the Secretary of Defense. Pentagon Inspector General Joe Schmitz (a former Patton Boggs partner) said that no compelling reason exists to scrap the Boeing tanker. However, Schmitz criticized the transaction and suggested that its terms might need renegotiation because of “unsound acquisition and procurement practices.” The deal is still worth more than $17 billion to Boeing ($23 billion according to Schmitz) and may save Boeing’s 767 aircraft production line from extinction. See: Boeing tanker deal survives initial review by Pentagon, The Seattle Times (online), (March 16, 2004). 

*Remember: If the contract goes through, as Boeing expects, the deal now includes leasing 20 KC-767A aircraft from the Air Force order of 100 jets. 

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

Upcoming Speeches

Please consider attending the Large Ticket Conference of the ELA in Dana Point, California from April 25-27, 2004. At this conference, I will speak from 11:15 a.m. until noon on the topic titled: “A Business Approach to Structuring Leases in an Evolving Insurance Market.” This session will update you on the shift from turbulence to stability in the insurance markets affecting your transactions and customers, terrorism and war risk issues, and insurance risk management with respect to business aviation. 

For lawyers and contracts experts, please consider attending the ELA Legal Forum in New Orleans, Louisiana from May 2-4, 2004, 8:30 to 10:00 a.m. At this conference, I will help lead a panel titled: “True Leases Under Attack: Structuring a True Lease in the Face of New Challenges.” This session will clarify the confusing terminology of true leases and discuss how to understand and overcome the challenges to true leases as financing arrangements. 

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8. Feedback; About Patton Boggs LLP and My Law Practice

Feedback 

Occasionally, I receive general comments from readers of Business Leasing News, my book Business Leasing for Dummies or even those who hear me speak at a conference.

One reader e-mailed: “Your book, Business Leasing For Dummies, is a wonderful resource for companies to learn how to maximize the cost benefits from leasing." Another reader said to me in a telephone call recently: "I learned a lot from your article in your [March] newsletter on cross-border transactions.” A third person, whom I met at the recent FAA conference, e-mailed: “…I received the overview of your firm and passed it around here. Everyone found it impressive. Be assured that our legal department will keep Patton Boggs in mind for future out-placement matters.”

I truly appreciate this kind feedback and encourage you to communicate with me. Please think of Patton Boggs LLP as a broad-based legal resource available to assist you in transactions, workouts, intellectual property, litigation, public policy and other matters

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 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 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 healthcare 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, deficiency litigation, workouts and forbearance arrangements. 

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!

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This Too Will Pass, But Not Without a Fight

Never in my memory have I seen such negative attention paid to leasing. Despite changes in the past, such as the loss of the investment tax credit, leasing has provided an accepted and acceptable means to raise capital for companies around the world. 

In the last year, leasing has been depicted in the national media as an abusive sport using the resources of the U.S. Treasury as the prize of the game. See: Frontline Broadcast, “Tax Me if You Can.” The Treasury Department and Congress have primarily focused on transactions called SILOs (sale in/lease outs) as “abusive” tax shelters meritorious of national disdain. In their efforts to raise revenue, with few exceptions Congress and the Treasury Department may have taken aim at tax-exempt entities that badly need the capital that leasing provides. 

The Equipment Leasing Association (ELA), led by its President, Mike Fleming, has boldly gone where the leasing industry has not gone before. Mike has tirelessly worked to shift attention to the importance of leasing in general and funding municipalities and other so-called “tax indifferent” parties in particular. As a demonstration of leasing’s value, the ELA released a report in early March indicating that leasing produced $100 to $300 billion of additional real Gross Domestic Product (GDP) three to five million jobs over the past few years. Joining with the ELA, many of its members like John McCue, have acted to maintain the integrity and build upon the considerable success of the leasing industry, a $220 billion a year business in the United States alone serving about 80 percent of all businesses. See: McCue Opinion.  

Despite the troubling and traumatic events, the leasing industry can and will survive these difficult times. Congress has massive deficits to clean up. Leasing looks like a good candidate to burden with a tax bill despite the negative impact on traditional and rational transactions. See: New Treasury Proposal Would Crush Leasing to Tax-Exempt Entities, Business Leasing News (Feb. 2004). 

We should not, and must not, expect the ELA to carry the full burden of this fight. Each of us who benefits from leasing should take action from Main Street to Washington DC to help preserve and support the leasing industry. For example, you can participate in ELA initiatives such as Capitol Hill Day, scheduled for May 11 and 12 in Washington DC.  Alternatively, you can initiate or collaborate in lobbying efforts for the benefit of leasing or your organization. Patton Boggs offers the nationally acclaimed public policy practice to help you. Finally, every one of us can encourage other market participants who may express or have concerns about leasing due to the negative press reports, to remain active in leasing every day without being deterred from closing or pursuing appropriate transactions. 

Our failure to act immediately may not only adversely impact the industry this year, but also diminish our own opportunities well into the future. The next steps remain a responsibility we all share.

Have a good month and good luck in the second quarter!

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 primary web site review partner, Jeff Turner. The technical team, consisting in part of George Barber and Winston Jackson, provide you the easy-to-use e-mail navigation and artistic appearance of BLN.

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David G. Mayer
Founder
Business Leasing News
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 2005

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