What is big-ticket leasing?

Big-ticket leasing involves the lease financing of low-volume, high-value assets, such as aircraft, ships, telecommunications equipment and large industrial plants, arranged under highly complex and specially tailored lease documentation generally for lease terms of 20 years and longer (DBRS: > $500,000, ELFA: > $5mn, Fitch: > $500,000).  Due to their high cost and specialized nature, the anticipated residual value of big-ticket lease assets is generally relatively high.  For big-ticket leasing, semiannual and annual payments are common, with reduction of the lessor’s administrative cost being the main reason for less frequent payments.

Big-ticket leases are generally true leases.  The ability of lessors to claim the tax benefits is a key reason for the success of big-ticket leasing, where the capital-intensive nature of the transactions often limits lessees’ ability to take advantage of the tax benefits.

Big-ticket leases are very price-sensitive, price typically being the decisive element in the value proposition.  Their documentation is typically quite lengthy and complex.  Big-ticket lease financing is usually a highly time-consuming and expensive process that is economically feasible only for those transactions that are sufficiently large to generate profits in excess of the costs of preparing such individually tailored leases.

Lease syndication is often used to obtain funding for and to reduce the residual risk associated with big-ticket leases.  A syndicated lease is marketed to providers of equity and debt funding through the sale of lease ownership or lease assignment, respectively.  Because of the large exposure, the risks associated with a big-ticket lease are often spread among a number of lessors through syndication or, when feasible, different lessors that separately lease identifiable parts of the asset.

Lessors also use leveraged leases to obtain the necessary funding of big-ticket assets and to take advantage of the tax benefits of asset ownership.  Leveraged synthetic leases are leveraged with third-party nonrecourse funding, usually for big-ticket equipment and real estate.

The key competitive elements for big-ticket transactions are knowledge of the equipment and skill in structuring the tax and financial accounting aspects.  Banks leverage their network of affiliated financial institutions to syndicate big-ticket leases.  Subsidiaries of commercial banks dominate the market while investment banks and packagers often play an important role in arranging or advising on big-ticket lease deals.  As the ticket sizes become larger, transactions are more likely to be originated directly due to the required tax and accounting structuring.