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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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 ?

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.

Fitch Ratings upgrades ratings for NVIDIA Corporation

The transaction involved an 800,000-square-foot corporate campus synthetic lease conversion in Mt.

Newmark Grubb Knight Frank (NGKF)

(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.

Triumph over a secured lender: how a Mistaken Termination of a UCC Financing Statement Rendered the Lender Unperfected in Its Collateral

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.

John W. Vansanten, Managing Director, Stout Risius Ross, Inc. to Speak at KC's Event

Exhibit 2 depicts the activities involved in a synthetic lease structure.

The economics of structured leasing

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.

Chromcraft Revington refinances and signs new credit facility of up to USD9m

These synthetic lease agreements are merely efforts to structure a deal to circumvent the spirit of SFAS 13.

A new lease on life: current issues in lease accounting

A synthetic lease, for example, appears as an operating expense on your books but is a capital expense for tax purposes.

Avoiding the growing pains of financing

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.

New financing gives Rite Aid more flexibility

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.

Wachovia

A synthetic lease combines the tax benefit of a capital lease with the off-balance-sheet advantages of an operating lease.

Doctoral research in taxation

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