A repurchase agreement is a contract between a vendor and a lessor requiring the vendor to buy back leased equipment that was purchased from the vendor, often in the event of the lessee’s default on the lease or as part of a vendor program. The repurchase transaction is commonly on an “as is, where is basis” for a purchase price equal to the remaining carrying (book) value plus interest and subject to an asset maintenance provision in order to prevent the incurrence of refurbishment costs. When equipment is subject to a repurchase agreement, the interested parties must follow strict procedures.
Vendors often provide buyback guarantees to repurchase their leased equipment from lessors upon lease termination, which reduces the lessor’s resale and residual valuerisks but exposes the lessors to vendor risk. Vendors can potentially negatively affect lease transactions due to their inability to perform as required and repurchase their leased equipment from lessors upon lease termination.
