February 8, 2016 ...The FASB on Leasing and Lease Reporting

I have yet to see a definitive publication on lease reporting coming from the FASB (Financial Accounting Standards Board) explaining the new but not yet implemented accounting rules. That is, a written dissertation on this is how you do it (also serving as a codification) may not yet be available. I think it is safe to say that leveraged leasing is dead for the foreseeable future. I have read that it was pretty much dead for the past few years anyway. If there was any question about it's health, the general opting to treat a leveraged lease as a finance lease essentially kills all hope of it's use in the future. As a straight financing transaction on paper, the EPS impact would be negative or weak at best, the real economics of the transaction not withstanding. The general trend of corporations not paying any taxes via other shelters and techniques probably had as much to do with the demise of the leveraged lease as anything else. When you can just off-shore the income and avoid all taxes, at least for the immediate future, why bother with tax shelters. Jesse James did not need any tax shelters. Someone should do a new book on modern tax sheltering techniques for Internationals. Maybe Bernie Madof could write something while he is doing his time? By the by, FASB, the technique of putting off implementation amounts to avoidance behavior, which is not the mark of good leadership.

The economics of tax sheltered leases of equipment still requires measurement via some sinking fund method enhanced yield approach to measure an after tax rate, if rate is to be used as one of the measuring tools. Systems that are able to do that will be harder to find. PAMDCF still provides sinking fund analysis of transactions including one sound method, the Standard Sinking Fund Method to do rate analysis when after tax analysis is sought, and equivalent pre-tax rates are sought. Using EXCEL as it's data base provides the flexibility to introduce any computed tax benefits to the flows and using the SSFM to establish a sinking fund provides a mathematically and logically sound approach to handing the sign change issues that create multiple yield problems. As an example, the SSFM model could be used to determine how much investors would have to invest up front to assure a business would succeed where it's projections cause sign changes over the projected period. Nothing to do with leasing, but the same concept as a leveraged lease. As long as there remains gaping holes in the tax code that permit Multi-nationals to avoid taxes entirely, who needs any tax shelters? Maybe some of theses pillars of independence running for election can fix things? Right!

We were working on a portfolio scenario with some very good results from our yield engine. We introduced management expenses that went well beyond the end of  the majority of transactions and found the SSFM (Standard Sinking fund Method) handled the flows nicely by setting up a needed sinking fund. We hope to benign a direct contact campaign shortly. looking forward to talking to some of you.

07/14/2014

It has occurred to us that in our shop talk about extended yield methods, we did not point out the fact that under the traditional sinking fund method or Standard Sinking Fund Method as it is alternatively called, earnings are reported on a much more even basis for all years over the entire life of the transaction (see Exhibits A,B,C -3). That fact when combined with all the other virtues of the traditional method  seems to make it a prime candidate for consideration as a method for reporting lessor leveraged lease interest income. It has the virtue of preserving the after tax considerations of leveraged lease accounting and helps provide the impetus (though not as great due to the loss of up fronting income on early years EPS) to continue doing leveraged leases should the tax appetites and/or market ever return for what ever reason(s). Where the FASB is going to land is anybody's guess! Retaining the MISFM-Legacy is certainly an option, though an unwieldy one, to be sure. I must repeat what I said on my blog  earlier on referring to the MISFM-Legacy...."Born of Ignorance, lived in Glory and should die in ignominy". Perhaps having up fronted all the income in leveraged deals done "back in the day" has helped lead some companies to consider leaving the business for more fertile grounds as what is left in income can't support the carrying costs. Does anyone have any companies in mind? The ole matching costs against revenues issue is rearing it's ugly head. What goes around, comes around! .........Just saying.