Used in particular transactions involving complex and large-scale assets, such as airplanes, ships, industrial plant and equipment, and large real estate projects, a structured leasing transaction can fall within one of the following two categories: (i) leveraged transactions (mainly cross-border leasing with a trust); and (ii) synthetic leasing. A structured leasing is understood as a transaction that develops synergies between funding policy, risk management of the underlying assets and tax benefits.
The increased tax benefits afforded by operating leasing have provided a strong stimulus to create "structured" transactions that give operating leasing the same characteristics as true financial leasing, the so-called synthetic leasing transactions.
She was involved in providing financing solutions that included syndicated loans, asset-backed securitization, high yield corporate bond, mezzanine debt,
synthetic leasing and business credit to middle-market companies as well as large corporations.
SEVIN, Additional Evidence on the Lease Choice Decision: A Study Incorporating the Use of Synthetic Leasing, Ph.D., University of Georgia, 2002; Assistant Professor of Accounting, University of North Carolina at Charlotte.
This study reexamines the incentive trade-offs embedded in the lease choice decision, considering both the conventional operating and capital lease choices, as well as a third lease choice, synthetic leasing. A synthetic lease combines the tax benefit of a capital lease with the off-balance-sheet advantages of an operating lease.
Through the use of a technique known as synthetic leasing, Acxiom is financing the $30 million-$35 million building without having to carry the debt from the transaction on its balance sheet.
Synthetic leasing involves the creation of a special purpose entity (SPE) to own the property, though the SPE company need only own a small percentage, as little as 3 percent, according to SS&CT Technologies Inc.
The popularity of synthetic leasing, a common financing tool for years, may be waning after the Enron debacle has applied greater scrutiny to "creative accounting."
AOL Time Warner is such a firm--and they will reportedly stick with synthetic leasing on two major projects, one being the billion dollar AOL Time Warner Center in Manhattan.
Synthetic leasing has been studied both by academic researchers (Morsfield 1999; Weidner 2000) and by practitioners (Holmes 1996; Sandler 2000).
One method is to decrease investment in fixed assets by eliminating surplus assets, consolidating operating fixed assets or by using an off-balance sheet tool (i.e.,
synthetic leasing, etc.).
Synthetic Leasing: A method of financing real estate or other assets which is treated as an "operating lease" for financial statement reporting and as ownership for tax reporting.
