PowerLease Solutions, L.L.C.
PRESENTATION SUMMARY:
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CONSULTING SERVICES INCLUDING CAPITAL
EQUIPMENT LEASING INTRODUCTION
FOR…
BY:
PowerLease Solutions, L.L.C.
PowerLease Solutions…Products
Menu of Financing Products:
1.
Fair Market Value Leases
(Non-Compliance-Capital Lease)
2.
Fair Market Value Leases
(In Compliance-Off Balance Sheet)
3.
Synthetic Leases
(In Compliance-Off Balance Sheet)PowerLease Solutions…Criteria
OPERATING LEASE CRITERIOR continued…
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FAS-13 OPERATING LEASES:
If none of the following four criteria is present at the
inception of a lease, it’s classified, by default, as an operating lease. 1). Ownership of the property is transferred to the
Lessee by end of lease term
2). The lease contains a bargain purchase option
3). The lease term exceeds 75% of the economic useful life of the property
4). The present value of the committed rents exceed 90% of the property’s original cost
PowerLease Solutions…Options
END OF LEASE TERM OPTIONS…
________________________________________________________ True Lease (IRS Guideline Leases)
The traditional end of lease options are…
Purchase the equipment for its then Fair Market Value Renew the Lease based on its Fair Market Value
Return the equipment pursuant to the terms of the Lease contract Lessor is treated as Tax owner of Equipment.
Lessee expenses the rentals as operating expense Off-Balance Sheet (FAS 13) treatment
PowerLease Solutions
SYNTHETIC LEASE STRUCTURE:
•Finance up to 100% of equipment cost
•Lease terms up to 120 Mos (Longer if requested) •Off Balance Sheet treatment for Lessee
•A fixed pre-determined Purchase Price…takes the guess work out of “end of
term” negotiations with Lessor.
•Tax Benefits belong to Lessee
PowerLease Solutions
Power Sale Agreements/Post Enron:
•Finance up to 100% of equipment cost
•PSA terms up to 120 Mos (Longer if required)
•Off Balance Sheet treatment for Client (FAS 13 compliance)
•No mention of a Purchase Price at end of term (Avoid property transfers at
nominal pre-negotiated bargains)
•Tax Benefits belong to ESCO
PowerLease Solutions…Products
WHY SELECT POWER SALE TYPE OF AGREEMENT?
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Preserves the integrity of a “Fee for Services” agreement
vs. capital equipment acquisition
Conserves customer bank credit lines for more
traditional uses
Allows for the ESCO to manage the energy assets
Manages a positive and more efficient impact on the
P&L statement
POWER SALE AGREEMENTS
RELATIONSHIP FLOW CHART
Payment for equip. to
VENDOR' designated Distributor
Client remits payments to $$$Lock Box
Long Term O&M service
Agreement with the ESCO
TIER ONE EQUIPMENT SUPPLIERS
EQUIPMENT DISTRIBUTOR/ SELLER OF ELECTRICITY AND THERMAL ENERGY The Client PowerLease SOLUTIONS
Funding Source for monetized “take or pay” minimum threshold
Accounting Changes:
BUSINESS CONCERNS…
Business failures and alleged accounting frauds have created a heightened
concern of off-balance sheet financings, particular focus on the use of Special
Purpose Entities and related party transactions
Public, press, investor and regulatory outcry forced quick actions by FASB.
REACTION…
- “Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others”
•
FASB Interpretation # 46 - “Consolidation of Variable Interest Entities”
Accounting Changes:
Summary of “Guarantee” Interpretation
Heretofore, many contingencies, including residual value guarantees
under synthetic leases, were neither footnoted nor properly recorded
in the financial statements
Exposure Draft requires that the ‘fair value’ of any guarantee be
recorded.
FASB has stated that such fair value should represent the market price to provide such
guarantee between a willing buyer and willing seller including a profit element.
Difficulty exists because generally no external market exists to provide guidance as to what
the ‘fair market value’ of a guarantee is worth; will develop with practice.
Accounting entry
Debit - Deferred rents Credit - Liability
Accounting Changes:
Summary of “Variable Interest Entity” Interpretation
For accounting consolidation purposes, entities may
be classified as a ‘Variable Interest Entity’(VIE)
Variable Interests represent an entity’s exposure to
the economic risks and potential rewards from a
Variable Interest Entity’s assets and activities.
Variable interests are the rights and obligations that
convey economic gains or losses from the changes
in the values of a VIE’s assets and liabilities.
Accounting Changes:
Summary of “Variable Interest Entity”
Interpretation
The FASB
reasoned that an entity with the majority of the risks or
rewards of a VIE is in the same position as the parent in a
parent-subsidiary relationship.
(1)A VIE
with non-recourse debt matched against specific assets
creates a ‘silo’ VIE
.
Primary Beneficiary of a VIE is that entity which holds
the majority of a VIE’s variable interests and therefore
should consolidate the VIE or silo. There can be only one
Primary Beneficiary for each VIE or VIE ‘silo’.
Range of Options
Put in place a new structure to preserve off-balance sheet
treatment under the new rules
‘True’ tax lease or leveraged lease – substantive third party lessor takes
significant risk to the asset
