Stanley S. Fishbein, J.D., LL.M. (Tax), Managing Director LFC Capital, Inc. www.lfccapital.com.

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Presentation transcript:

Stanley S. Fishbein, J.D., LL.M. (Tax), Managing Director LFC Capital, Inc.

A lease is a contract through which an owner of property (Lessor) conveys to another party (Lessee) the right to use the property for a period of time (Term) in return for a consideration (typically a periodic payment). A usage agreement. Not borrowing money (No stated interest rate). Real or personal property.

Capital Lease or Operating lease Financial Accounting Standards Board Statement No. 13 (FASB 13): Capital Lease if: 1. Automatic transfer of title to Lessee at end of lease term. 2. Lease contains a bargain purchase option. 3. Lease term greater than 75% of properties economic useful life. 4. Present value of minimum lease payments equal or greater than 90% of propertys FMV. FASB and IASB Lease Accounting Proposal

Nontax Lease or Tax Lease (aka true lease) Who bears the risk of ownership (loss of residual value at end of lease term) ?

100% project cost vs. loan to value limitation No compensating balances No restrictive financial covenants Flexible payment structures, e.g. off season step downs Preserves existing bank lines Net benefit of leasing: More cash in hands of Lessee improves balance sheet ratios and profitability when invested in the business. Leasing: Will always be a powerful cash management tool!

Equipment vs. Building structural components Equipment examples: generators, chillers, boilers, energy management systems, lighting. Structural examples: windows, doors, roof, fascade, plumbing Capital Leases.

Question #21: Is an applicant who owns eligible energy property eligible to receive payment if the energy property is leased to a non-profit or otherwise ineligible entity? Answer: Yes. If the owner of the energy property is the applicant and is otherwise eligible, the fact that the property is being leased to an ineligible entity does not impact the eligibility of the owner/applicant provided it is a true lease and not a disguised sale.

Non-Profit EntitiesGovernment Entities Private schools & collegesPublic schools & universities HospitalsCourthouses 501 (C) 3 CharitiesPublic buildings Co-operative housingMunicipal and county airports Religious organizationsFederal government MuseumsState and local government

Year: System Cost (300kW)0 Electric Savings388,600400,258412,266424,634437,373450,494 Thermal Savings215,958222,437229,110235,983243,063250,355 Fuel Expense-256, , , , , ,896 Net Savings347,590358,018368,758379,821391,216402,952 Lease Payments-224, ,457 Net Cash Flow122,938133,366144,106155,169166,564216,495 Cum Cash Flow122,938256,304400,410555,579722,143938,638

CHP System Cost: $1,165, % Nonprofit (501C3, municipality, etc.)

Stanley S. Fishbein, J.D., LL.M. (Tax) Managing Director LFC Capital, Inc. 303 E. Wacker Drive, Ste 250 Chicago, IL Tel: ( Cell: (646)