Contents:

List of exhibits and annexes xii Author biographies xvi Foreword Digby Jones, Director General, CBI xx Preface Chris Boobyer xxi Part I: Role and operation of leasing and asset finance Chapter 1: Review of the leasing and asset-finance industry 1 Vic Lock Introduction: the evolution and growth of leasing 1 The benefits and limits of leasing 2 The growth of additional services leases 6 Calculating residual value 7 The impact of recent shocks on the leasing industry 9 Conclusion: the future for transparent asset financing 10 Chapter 2: The economic role of asset finance 11 Professor Chris Higson Introduction 11 The role of asset financing in capital markets 12 Resource systems in the network economy 16 Conclusion 19 References 19 Chapter 3: Risk underwriting 22 Malcolm Rogers Introduction 22 Lessee assessment 24 Facility assessment 30 Portfolio risk 35 Fraud 36 Ongoing monitoring 38 The future of risk underwriting 39 Summary 39 Annex: Accounting ratios used for financial analysis 41 Chapter 4: The Basle Proposal on Capital Adequacy: how the Basle requirements for banks will affect asset-finance businesses 42 Sally Williams, Richard Smith and Stephen Potts Introduction 42 Overview of the new requirements 44 Pillar I: credit risk 45 Pillar I: operational risk 48 Pillar II: what the supervisory review entails for asset-finance firms 51 Pillar III: the disclosure implications 52 What asset-finance businesses should be doing now 52 Conclusion 54 Part II: Law, taxation and accounting Chapter 5: Documentation 55 Simon Hall Introduction 55 Lack of uniformity of structures 56 Types of agreement 57 Typical lease provisions 58 Conclusion 87 Chapter 6: Transaction structures 88 Simon Hall Introduction 88 Japanese operating leases 88 Qualified technological equipment 91 Synthetic leases 94 European enhanced equipment trust certificates 98 Chapter 7: Legal features of cross-border transactions 103 Simon Hall Introduction: the absence of a uniform body of law 103 Attempts at standardising international leasing arrangements 103 Choice of law 111 Reciprocal enforcement of judgments 113 Foreign currency risks 115 Withholding tax 118 Sovereign immunity 119 Arbitration provisions 120 Conclusion 121 Chapter 8: Competition law in the European Union and the United Kingdom 123 Dorothy Livingston The basic rules 123 Introduction 123 Article 81 and the United Kingdom’s Chapter I prohibition 124 Article 82 and the United Kingdom’s Chapter II prohibition 130 Enforcement of Articles 81 and 82 133 Enforcement of Chapter I and Chapter II prohibitions 134 Unreasonable restraint of trade 136 Merger control 137 Monopolies 139 Practical issues for finance leasing 141 Agreements between lessors 141 Leases 142 Agreements involving lessees 144 Monopolies and market investigations 145 Annex: Checklist 148 Chapter 9: State aid and procurement 151 Dorothy Livingston State aid 151 Introduction 151 The basic law 151 Exemptions from prohibition on State aid 153 The risks when clearance is not obtained 154 How can State aid arise in a leasing transaction? 156 EU public procurement law 159 Policy and law 159 The scope of the procurement rules 160 Competitive tendering 164 Risks of non-compliance 167 Reform of the public procurement regime 168 Procurement and leasing transactions 169 Annex 1: The Directives and UK implementation 173 Annex 2: Valuation of contracts 175 Annex 3: Use of the negotiated procedure by public bodies 176 Annex 4: Checklist 177 Chapter 10: Taxation 178 Philip Marwood Introduction 178 Individual country profiles 182 United States 182 Germany 185 The Netherlands 188 Japan 190 United Kingdom 192 France 198 Spain 201 Cross-border operations 204 Conclusion: future developments 208 Chapter 11: Lease evaluation 212 David Maxwell Introduction 212 Examples 213 Lessee evaluation 213 Lessor evaluation 222 Investment incentive comparison 229 Conclusion 230 Chapter 12: Lessor income accounting 231 Colin Dowsett Introduction 231 The actuarial method before tax 231 The investment period principle 238 Summary and comparison of methods 241 Other problem areas 242 Conclusion 245 Chapter 13: Accounting – the capitalisation issue 246 Colin Dowsett Introduction 246 Historical survey 247 Arguments for and against capitalisation 248 Which leases should be capitalised? 251 The mechanics of capitalisation 254 Conclusion 261 Part III: Specific business issues Chapter 14: Financing of leasing companies and related operational and security issues 263 Nicholas Sanderson Introduction 263 The lease 264 Leasing companies 270 Funders 276 Funding structures and security 278 Financial implications of funding structures 287 Typical financing structures 289 Conclusion 300 Chapter 15: The purchase and sale of leasing companies 301 Nicholas Sanderson Introduction 301 Three views of a leasing company 302 Leasing company accounts 303 Tax issues 310 Trading issues 314 A buyer’s perspective 318 Pricing the company 320 The seller’s perspective 327 Documentation and execution of transactions 329 Conclusion 334 Chapter 16: Operating leasing 335 Sam Geneen Introduction 335 History of operating leasing 336 Size of the UK market 336 Types of operating leases in the market 337 The advantages of operating leasing 338 Forecasting residual values 339 Mitigating risk 340 Operating lease pricing 341 The future of operating leasing 341 Chapter 17: Cross-border finance: concepts and issues 343 Philip Griffin Introduction 343 Two jurisdictions: what are the implications? 343 The main markets 345 Cross-border leasing as a tool of policy 347 How have the markets changed? 348 Conclusion: what lies ahead? 352 Chapter 18: The securitisation of European lease receivables 354 Bruce Gaitskell Introduction 354 What is securitisation? 354 CP conduit securitisation 360 Credit ratings 363 Conclusion 364 Chapter 19: The European Union 366 Chris Boobyer Introduction 366 History and development of the European Union 367 Structure of the European Union 369 European monetary union 373 Leasing and asset finance opportunities 377 Conclusion 379 Annex 1: EU institution offices, addresses and telephone numbers 381 Annex 2: EU Commissioners and their responsibilities 382 Annex 3: The 15 EU member states, 10 accession/transition states and remaining applicants 383 Part IV: Global review of the leasing industry Chapter 20: International perspectives 384 Part 1: The Australian leasing industry 384 Ron Hardaker Lease market structure 384 The regulatory framework 387 Conclusion: lease issues in the 1990s 395 Part 2: Japan’s leasing industry 396 Katsuhiko Otaki Market structure 396 Principal players in the market: lessors 398 Economy 402 Lease market 403 Regulatory framework 406 Prospects for leasing 409 Value-added leases: differentiation and new services 410 Conclusion: five key issues for the next five years 410 Part 3: The European leasing industry 413 Marc Baert Market structure 413 Regulatory framework 414 Conclusion: what the future holds 415 Part 4: The UK view 416 Martin Hall Introduction 416 The players 416 The products 417 The market 417 Future moves 419 Tips for asset-finance providers 421 Prospects for prosperity? 422 Part 5: The US market 422 Michael Fleming Market structure 422 Conclusion: industry challenges 425 Appendix A:International and national leasing associations 428 International associations 428 National associations 429 Appendix B:International Accounting Standard IAS 17 440 Leases 440 Introduction 440 Leases 443 Objective 443 Scope 443 Definitions 443 Classification of leases 446 Leases in the financial statements of lessees 447 Leases in the financial statements of lessors 449 Sale and leaseback transactions 452 Transitional provisions 453 Effective date 453 Appendix A: Sale and leaseback transactions that result in operating leases 454 Appendix C:Unidroit convention on international financial leasing 455 Chapter I – Sphere of application and general provisions 455 Chapter II – Rights and duties of the parties 457 Chapter III – Final provisions 460 Parties to the Ottawa convention 463 Glossary 464