Equipment Leasing

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Equipment Leasing
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Options to Acquire Equipment
Loan
Lease
Cash

Client owns equipment
Appeals to cash-rich firms
Not viable for small, new entities
You buy it, you own it!
Client owns equipment
Principal plus interest
Client focus on rates to minimize interest paid
You buy it, you own it!
Purchase, renew and equipment return options
Flexible rates payments
Focus on equipment access
Accounting tax advantages
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Types of Equipment Leased
Financing a variety of assets - plus software,
taxes, installation training costs
Rolling Stock 16
Air 11
Computers 9
Telecommunications 9
Construction Agri 6
Rail 10
Misc. 7
\ Marine/Power 5
Printing/Plastics Equipment ---- 2
Machine Tools/ Manufacturing 16
/ Office Equipment 2
/ Medical 2
\ Material Handling 2
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Leasing Products

• Operating leases
• Municipal leases
• Small ticket leases

• Tax-oriented lease products
• Non-tax (finance) leases
• TRAC leases
• Sale leaseback

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Lease Structures / Benefits

• Tax Leases For businesses that cant use more
  depreciation
• Shift tax depreciation to lessor
• Manage AMT risk and utilize expiring tax credits
• Lower financing rates compared to loans and
  non-tax leases
• Flexibility to return or own equipment at end of
  lease, depending on business needs
• Manage Obsolescence issues associated with
  equipment
• Write entire lease payment off taxes as business
  expense
• Non-tax (finance) Leases For businesses in need
  of tax offsets
• Retain tax depreciation to shelter taxable income
• Often ownership of equipment is automatic at end
  of lease
• Write equipment depreciation and interest off
  taxes
• Retain ability for owner-driven tax incentives
  such as Section 179 accelerated equipment cost
  write-off
• Improves EBITDA

Always consult your financial advisor
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Lease Structures / Benefits

• TRAC Lease For commercial vehicle needs
• Predictable total cost of ownership combined with
  benefits of a tax lease
• Very attractive cash flows compared to
  conventional financing
• Operating Leases Improve balance sheet and
  return ratios in keeping with GAAP requirements
• Lower on-balance sheet assets and long-term debt
• Supports covenant compliance associated with
  revolvers, industrial development bonds and other
  long-term financing arrangements
• Treat entire payment as an operating expense on
  Income Statement
• Sale Lease Back
• Monetize already-purchased equipment or improve
  tax and balance sheet management by selling
  equipment to Lessor and leasing it back using a
  Tax Lease

Always consult your financial advisor
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The Leasing Process
Client chooses equipment and vendor
Client negotiates best price for equipment
freight and installation costs may be included in
total costs
Client and Lessor determine appropriate structure
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The Leasing Process
Clients acceptance of formal leasing proposal
Formal credit approval
Lessor completes documentation and pays
vendor. Lease commences
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Leasing Solution A
Situation ABC Company needs to acquire 5MM of
new equipment to meet production demands.
Ownership will cause them to exceed their capital
expenditure ceiling on Industrial Development
Bonds.
Solution Lessor offers operating lease structure
which allows client to acquire equipment while
preserving IDB covenants.
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Leasing Solution B
Situation XYZ Company needs capital to acquire
2MM of manufacturing equipment relating to a new
contract which will ramp up over a two year
period. They want to own equipment at end of lease
Solution Lessor provides a five year tax lease
with a stated purchase option. Lease rentals are
lower during first two years and step up for the
remainder of term. Since Lessee is not a full
tax payer, they trade tax benefits to KEF for
lower effective rate financing
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Leasing Solution C

• Situation
• ABC Company is acquiring 250M of technology
  equipment. Plans to use the equipment for three
  years after which they plan to upgrade.

Solution Lessor structures a three year tax lease
with FMV purchase option allowing Lessee to
return the equipment, renew the lease, or
purchase equipment. This structure also shifts
risk of obsolescence away from Lessee allowing
them to return equipment if they so choose.
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Leasing Solution D

• Situation
• XYZ Transportation Co. requires additional 1MM
  of new rolling stock.

Solution Lessor structures a 5 year TRAC lease
for the new equipment. Benefits include very
attractive cash flows as well as attractive rate
with a stated purchase option at lease maturity