Tax laws generally grant depreciation rights only to the asset’s legal owner, who depreciates the cost of the asset over its economic life and claims any available investment tax c…
What is liquidity risk?
The possibility of financial loss or lower-than-expected returns due to the inability of a finance provider (bank, leasing company) to meet its funding needs at a cost that is not…
What is lien perfection?
The security interest of a creditor (lender/lessor) in personal property is perfected upon the filing of the financing statement with the appropriate authorities. Lien perfection…
What is lease termination?
Lease termination is the discontinuation of a lease either voluntarily before the scheduled end of its contractual lease term, involuntarily or cancellation by the lessor. The ter…
What is lease termination risk?
The early termination of finance leases, which is a form of options risk, could have a significant impact on the lessor. The risk of a lessor’s potential loss due to the early, un…
What is lease term?
The date when a lease agreement closes or the parties commit to the principal provisions of the lease, whichever is earlier, is lease inception. This is when the lessor and the le…
What is lease syndication?
Lease syndication is the process of marketing the debt and any equity funding of a big-ticket lease to providers of a lease’s debt and equity components through the sale of the ass…
What is lease credit risk modelling?
Although finance leases may be viewed as collateralized lending and assessed using similar risk-rating criteria, the lessor’s ownership of and ability to repossess the leased asset…
What is lease amortization?
The value of a limited-life asset’s is reduced as a result of the passage of time or its use in the production of goods and services by means of amortization. A leased asset’s amo…
What is interest-rate risk?
Changes in interest rates change the lessor’s net interest income by changing the lease cash flows and the net present value of the cash flows. Interest rate risk (IRR) is the ris…
What is indirect leasing?
Indirect leasing is a three-party arrangement involving an asset’s supplier (manufacturer or dealer), the asset’s lessee and a lessor that is unaffiliated with the asset’s supplier…
What is fraudulent transfer?
Constructive fraudulent transfer occurs when a party transfers property in exchange for less than its reasonably equivalent value, such that the value of the party is decreased upo…
What is foreclosure? When does foreclosure occur?
The legal proceedings initiated by a creditor to recover the balance of a defaulted obligation in which the creditor holds a security interest or ownership by forcing the disposal…
What is equipment?
Narrowly defined, equipment is any movable asset (tangible movable asset) that is repeatedly or continuously used in economic activity in the production of goods and services. In…
What is direct leasing?
Leasing is frequently provided directly through the supplier of the leased equipment. Direct leasing is a two-party transaction that involves an equipment supplier (manufacturer o…
What is default?
The failure of a contractual party to perform in accordance with the terms and conditions of an agreement is a breach of contract. A breach of contract that would be an event of d…
What is credit scoring?
The process of determining the creditworthiness and forecasting future performance of existing or prospective consumer or small business (SME) borrowers or lessees through the use…
What is credit analysis?
Credit analysis is any process used for assessing the credit quality of a party through the analytical study of financial statements and other data, including payment history, repu…
What is collateral?
Collateral is personal or real property that is pledged or title to which has been assigned to secure the satisfaction of an obligation. Although the use of assets to secure lendi…
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…
What is automated underwriting?
Advances in computer technology and increasing information about credit risk have improved credit modelling techniques and led to automated underwriting and credit-scoring systems….
What is an undivided trust interest? What is a SUBI?
The beneficial interest in the vehicles and leases that have not yet been securitized is an undivided trust interest (UTI), which represents the right to receive all the proceeds o…
What is an SNDA agreement? What is privity of contract?
A subordination, non-disturbance and attornment agreement (SNDA agreement) is employed by a landlord, tenant and the lender to resolve how and when the rights of tenants will be su…
What is an outright assignment?
Outright assignment is the nonrecourse true sale of a lease in which legal title and the risks, rewards and control under an existing lease or lease commitment are transferred from…
What is an open-end lease? What is a closed-end lease? What is a TRAC lease?
A closed-end lease does not contain a purchase or renewal option, it requiring the lessor to take possession of the asset at the end of the lease term, thereby exposing the lessor…