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 ?
Cubics redevelopment will be completed under a synthetic lease structure, and the project is expected to be delivered in December 2020.
Total debt was approximately $2.4 billion, including obligations outstanding under the company's synthetic lease. The ratings and Outlook reflect Fitch's expectations for continued strong operating performance from competitive gaming growth and customer and developer adoption of NVIDIA's artificial intelligence (AI) and autonomous driving platforms as these markets evolve.
The transaction involved an 800,000-square-foot corporate campus synthetic lease conversion in Mt.
(JPM) (2) had intended to terminate its security interest in certain GM property serving as collateral for a $300 million synthetic lease transaction that GM was paying off.
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.
Exhibit 2 depicts the activities involved in a synthetic lease structure.
This facility replaces the company's earlier USD5m facility with Gibraltar Business Capital LLC and provides more benefits such as increased availability and borrowing capacity partly due to the inclusion of inventory in the borrowing base; an extended term of three years; more favourable net income (loss) financial covenants; and the ability to obtain a mortgage or synthetic lease on the company's Senatobia, Mississippi plant, subject to certain limitations.
These synthetic lease agreements are merely efforts to structure a deal to circumvent the spirit of SFAS 13.
A synthetic lease, for example, appears as an operating expense on your books but is a capital expense for tax purposes.
Miller says the company will use the new credit line to repay the company's $968.6 million senior secured credit facility and its $107 million synthetic lease. Both are due in March 2005.
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.
A synthetic lease combines the tax benefit of a capital lease with the off-balance-sheet advantages of an operating lease.