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 serves as special counsel to banks, insurance companies, finance companies and leasing companies in their various transactional roles, including as lender, agent bank, lessor, owner participant and credit enhancer, in a variety of transactions, such as: domestic and cross-border leveraged, single investor and synthetic leases involving aircraft, rolling stock, health care facilities, manufacturing and cogeneration equipment and real estate; syndicated bank credit facilities, including construction and bridge financings; project and facility financings; secured and unsecured bank lending and private placements; residual value support transactions; and workouts and restructurings.
Since 2000, he and his team have closed transactions across North America valued in excess of $4 billion involving synthetic leases, bond leases, single-tenant investment sales (sale/leasebacks and sales subject to a lease) and numerous other structured equity and debt products on behalf of numerous corporate clients, including Procter & Gamble, Thomson Corporation, Mazda, and Discovery Communications.
Synthetic leases often used an SPE to hold title to a specific asset and lease it back to the company, thereby avoiding the liability while still being allowed to deduct the interest and depreciation from the company tax bill.
The lease transaction we provided will enable the conversion of two synthetic leases and has provided AMERCO with additional capital following its successful restructuring.
Not surprisingly, synthetic leases and how they are accounted for under tax and GAAP are front and center in this debate.
It's all legal, and Acxiom discloses synthetic leases in filings with the U.
Although synthetic leases are still in use, there has been a shift back to basic sale\leaseback agreements in the high-tech world.
2] Synthetic leases are being used by a wide assortment of businesses as a vehicle that provides exceptional flexibility to corporations that must sort through the wide array of alternative structures to control real estate.
State and local issues continue to command attention, and in Philadelphia, TEI is planning not only a State update session by impresario Paul Frankel, but also programs on dealing with DOR discovery requests and synthetic leases and securitization.
Synthetic leases provide benefits similar to ownership, such as tax depreciation and an opportunity to repurchase the residences at the end of the lease term for a pre-negotiated fixed price.
The reality is "structured" operating leases, also know as synthetic leases, represented only 1 percent of leasing business in 2004.
Phase 3 also offers expertise in the areas of development, joint ventures, creative financing, sale/leaseback transactions and synthetic leases.