Leasing and Asset Finance 4th Edition
Euromoney Trading Ltd, April 2003, Pages: 479
Your complete guide to risk underwriting, documentary issues, cross-border leasing and finance, competition law, state aids and procurement, taxation, lease evaluation, accounting (capitalisation and lessor income accounting), an examination of the issues in purchase and sale of leasing companies and the securitisation of European Lease Receivables.
"Chris Boobyer is passionate about everything to do with asset finance. In this book he has assembled a number of leading authorities from around the world to comment on the factors and policies that drive this industry. If your contribution to the national or global economy is through asset finance, then this book is likely to give you additional insight to help you stay ahead of the game." Digby Jones, Director General, CBI
The fourth edition of this best-selling guide is a complete compendium for everything that you need to know about lease and asset finance around the world. Expanded and fully updated, this edition now includes explanations of:
- The state of the lease and asset finance industry;
- Portfolio management and the impact of Basle capital adequacy provisions for the asset finance industry;
- Transaction structures and synthetic leases;
- Operating leasing;
- Cross-border leasing; and
- International perspectives on current trends in Australia, Europe, Japan, the UK and US.
The Fourth edition has been completely updated to include:
- Taxation implications across the range of asset finance transactions including cross-border leasing, issues with residual value through to the tax implications of the purchase and sale of leasing companies;
- Due diligence factors from lease evaluation through to the purchase of a leasing companies;
- The current state of the asset finance industry, including future trends and the implications of the expansion of leasing in the EU accession states;
- Cross border legal, accounting, securitisation, lease evaluation and due diligence issues; and
- The impact of international agreements on the asset finance industry, such as Basle II, anti-competition and state aid restrictions.
This book has a strong global emphasis and this fourth edition includes many contributors from the previous edition as well as 11 new authors. Each a specialist in their field, they help guide us around the complex and global asset finance industry. The introductory chapters begin with a review of major leasing markets, selected sectors and some industry trends by Vic Lock. In Chapter 2, Chris Higson considers the contribution of asset finance to national economies and questions the value placed upon them by governments and their exchequers. Chapter 3 provides an explanation by Malcolm Rogers of the importance of thorough risk analysis and examines some of the techniques available. The objectives of the Basle Proposals on Capital Adequacy are explained and analysed by Sally Williams, Richard Smith and Stephen Potts in Chapter 4.
The legal, tax and accountancy section begins with a thorough review of documentation, transaction structures and the legal features of cross-border transactions by Simon Hall in Chapters 5, 6 and 7. These are followed by Dorothy Livingston who considers the competition laws in the European Union and the United Kingdom in Chapter 8, and in Chapter 9 she examines State aid and procurement, which have been the subject of much recent discussion in Europe and of great interest to asset financiers. Chapter 10 reveals the latest developments in taxation as explained by Philip Marwood. David Maxwell reassesses the techniques of lease evaluation in Chapter 11 and Colin Dowsett, explains the concepts of lease accounting and capitalisation in Chapters 12 and 13.
We then examine some areas of specific business focus; Nicholas Sanderson reviews the dynamic areas of financing leasing companies and some of the related operational and security issues involved in Chapter 14. He then moves on to discuss the purchase and sale of leasing companies in Chapter 15. Sam Geneen follows in Chapter 16 by explaining the principles, problems and opportunities of operating leasing. In Chapter 17, Philip Griffin takes us around the world explaining and challenging the vagaries and some of the mysteries of cross-border leasing from an intermediary’s perspective. In Chapter 18, Bruce Gaitskell reviews the many developments in securitisation and the wide applications for lessors. In Chapter 19, the editor, Chris Boobyer, attempts to provide an explanation of what the European Union is in terms of its construction, powers and future direction as an economic and autonomous semi-state and what this might mean for the development of asset finance in Europe.
The final chapter provides an in-depth look at the leasing industry in Japan and individual reviews by the respective senior lease association officers in the major leasing continents around the world. Their responses to a series of questions provide a comprehensive global picture of the asset finance industry.
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
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