Limitation on sale-and-leaseback

(redirected from Limitation On Sale and Leaseback)

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into sale-and-leaseback transactions, financing techniques that could affect creditor thinness.

Limitation On Sale-and-Leaseback

A provision in some bond indentures prohibiting or curtailing the issuer's ability to enter sale-and-leaseback agreements. A sale-and-leaseback agreement is an arrangement whereby a company sells a fixed asset to a bank or other institution and then rents it back and maintains usufruct of the asset. This increases the debt-to-asset ratio, which is usually seen as negative. It may be used when a company cannot otherwise obtain financing; in either case it can increase the risk to the bond, and so some bond indentures limit the use of sale and leasebacks.
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