synthetic lease


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Synthetic Lease

When a company creates a special-purpose entity to arrange for a loan to purchase property, and then leases the property from the entity.The synthetic lease therefore keeps the loan off the company's balance sheet, while the company provides enough income to the special-purpose entity to cover the interest rate on the loan.

Synthetic Lease

The creation by a parent company of a special purpose entity to which is given a certain property and which leases the same property back to the parent company. A synthetic lease allows the parent company to use the property for any purpose it wants while not recording it as an asset on its balance sheet. Instead, it is recorded as an expense. This way, rather than paying taxes on the property, it may write off the rent from its taxable income.

synthetic lease

A financing method that confers certain aspects of ownership to the lessee, who, for accounting purposes, treats the arrangement as an operating lease. Neither the asset nor the lease is included on the lessee's balance sheet. A synthetic lease is a type of off-balance-sheet financing that results in a company understating its financial obligations.

synthetic lease

A transaction that appears as a long-term lease from an accounting standpoint but as a loan from a tax standpoint.In the past,such transactions were booked as leases in order to remove loan liabilities from the balance sheets of companies.The company did not have to disclose the duration of the long-term leases, simply the amount of annual lease expenses. Now, the Sarbanes-Oxley Act requires publicly traded companies to disclose the true nature of such off-balance sheet transactions.Unfortunately,many such synthetic leases included both real and personal property.Today,perhaps 10 years after they were originated,the transaction must be reported as a loan liability;the real property posted as an asset at its current value;and the personal property,now practically worthless,posted at its value.The result has been huge losses posted to corporate balance sheets because of the accounting corrections.

References in periodicals archive ?
He has prepared and reviewed valuation and feasibility studies for litigation support, conventional financing, synthetic lease transactions, bond financing, ad valorem, condemnation, estate, purchase accounting, financial reporting, federal tax disputes, fair rental studies, and insurance purposes.
He recently represented an investment bank in the development of its new world headquarters, which included the structuring of a $700 million synthetic lease for the 1.
a) EBITDA and Adjusted EBITDA were affected by a change in the accounting treatment of the synthetic lease arrangement on our Alabama facility (FIN 46R).
A synthetic lease, for example, appears as an operating expense on your books but is a capital expense for tax purposes.
Wachovia Real Estate Capital Markets, led by Bill Green, provides nonrecourse permanent and interim loans through CMBS conduit and mortgage banking executions, mezzanine and B-note financing, equity co-investing, sale-leaseback and synthetic lease structures.
In all, the company expects its capital expenditures to total about $2 billion in 2003, excluding acquisitions and the buyout of a synthetic lease.
Synthetic lease financing came into its own in the mid-1990s as companies sought to retain control of their real estate assets while financing them off balance sheet.
The synthetic lease is the most cost-effective method of financing the building and gives us a great deal of flexibility.
In the mid-1990s, a form of sale\leaseback called the synthetic lease became popular with Silicon Valley companies, such as Advanced Micro Devices, Applied Materials and Cisco Systems.
The synthetic lease is becoming increasingly popular among corporate chief financial officers.
Sunrise intends to finance the majority of the purchase price, which is expected to close in the third quarter of 1999, through a synthetic lease Structure.
The synthetic lease is intended to be treated as a financing transaction for federal income tax purposes with the corporate user/lessee respected as the owner of the property.