off-balance-sheet financing

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Off-balance-sheet financing

Financing that is not shown as a liability on a company's balance sheet.

Off-Balance-Sheet Financing

A type of company financing that does not appear as a liability on the company's balance sheet. A company may engage in off-balance-sheet financing if it wishes to keep its debt-equity ratio low and thereby appear as if it is carrying little debt. This, in turn, makes the company look more creditworthy than it would otherwise. A common form of off-balance-sheet financing is an operating lease, in which a company rents, rather than buys, a capital asset. In an operating lease, the company must record only the rental payments, and not the whole cost of the asset. While off-balance-sheet financing is permissible, it can become unsustainable and can hide a company's true financial state. The term came into common parlance when Enron collapsed in the wake of excessive off-balance-sheet financing. See also: Enron scandal.

off-balance-sheet financing

An accounting technique in which a debt for which a company is obligated does not appear on the company's balance sheet as a liability. Keeping debt off the balance sheet allows a company to appear more creditworthy but misrepresents the firm's financial structure to creditors, shareholders, and the public. The sudden collapse of energy-trading giant Enron Corporation is attributed in large part to the firm's off-balance-sheet financing through multiple partnerships.
Case Study The sudden collapse of energy-trading giant Enron Corporation caught regulators, politicians, lenders, analysts, and the public by surprise. In large part the surprise resulted from the billions of dollars of debt the company had been able to hide by using off-balance-sheet financing through hundreds of partnerships. The hidden liabilities allowed Enron to maintain the appearance of a rapidly growing but financially stable company until near the very end, when bankruptcy was imminent. Enron's financial arrangements were complicated and sometimes entailed transferring overvalued assets to partnerships which it had a controlling interest in but was not required to include on its own balance sheet. The partnerships, with minimal equity capital from outside investors, raised most of their capital from loans using Enron stock, transferred assets, or pledges from Enron as collateral. Although Enron used aggressive accounting methods, many of the accounting techniques it employed were not illegal. For this the accounting profession was called to task.
References in periodicals archive ?
All-in-Pack[R] means off balance sheet financing, unchanged debt gearing and a reduced tax burden.
This one day conference will address the market for terrorism insurance, efforts to change the current Financial Examination Process, tax topics of importance to the insurance industry, developments in the reinsurance industry, off balance sheet financing, the future of the property-casualty market and other timely topics.
A synthetic lease is a form of off balance sheet financing relying on the company's corporate credit to guarantee financing of the transaction.
One of the major observations of the survey is that more REITs intend to use off balance sheet financing tools, particularly joint ventures with institutional and other capital sources, as a way to grow their businesses while minimizing potential risk.
Aside from the financial benefits of off balance sheet financing, dedicated carriage gives the Dean Foods image greater visibility within the marketplace.
While the system's direct debt is manageable, Fitch views its extensive use of off balance sheet financing for student housing at its various campuses as adding to the system's overall financial leverage.
We have $12 million in available capital, a $10 million credit line, $150 million of off balance sheet financing and several completed films that are going to be distributed in either late summer or early fall along with several other production deals.
The rating also considers the off balance sheet financing of its longer-dated land supply and the concentration of deliveries in Florida, Texas and California (the three largest and, in the case of Florida and California, among the most supply constrained state markets in the country).
With the recent joint ventures with Shurgard, Kalikow's ability to provide off balance sheet financing has now extended itself to the REIT market, where it can be especially helpful in furthering these public corporation's goal of maintaining a diversified capital base and the emphasis on growth through the development of high quality assets.
Additionally, 1st Miracle has arranged off balance sheet financing for the picture and will utilize its previously announced Prints and Advertising arrangement to provide over $13 million in further "off balance sheet" monies to support the marketing of the film in North America.
United also has substantial off balance sheet financing commitments in the form of aircraft and facilities operating leases.
The $30 million transaction, which is off balance sheet financing for the Company, is non-recourse, and bears interest at a floating rate 65 basis points over LIBOR, currently translating to 6.