ISTAT Definitions Questions And Answers
Asset Based Finance Secured asset financing, with credit emphasis on the ownership of,
or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment The final payment, which is substantially larger than the other
p...
Asset Based Finance Secured asset financing, with credit emphasis on the ownership of,
or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment The final payment, which is substantially larger than the other
payments, of an amortized term loan
or lease. Less commonly, balloon payments may also occur periodically during a lease term.
Bargain Purchase Option An option given to the lessee to purchase leased equipment at
lease expiry for a price which is
significantly lower than the expected fair market value of that equipment at the end of the lease.
Capital Lease A lease in the U.S. is classified as a capital lease if it meets any of the
following criteria:
The lease transfers ownership to the lessee at the end of the lease term.
The lease contains an option to purchase the property at a bargain price.
The lease term is equal to 75% or more of the estimated economic life of the property
(with exceptions for used property that is already near the end of its useful life).
, ISTAT Definitions Questions And Answers
The present value of minimum lease rental payments is equal to 90% or more of the
fair market value of the leased property.
Chapter 7 A chapter of the U.S. Bankruptcy Code which provides the rules whereby a
debtor or creditor
may petition the court for the appointment of a trustee or receiver to supervise the orderly
liquidation of a business.
Chapter 11 A chapter of the U.S. Bankruptcy Code which provides the rules whereby a
debtor is allowed to
file for court protection. Such protection enables the debtor to continue its operations while
undergoing reorganization. Chapter 11 also allows a creditor to protect its interests.
Discounted Cash Flow A technique for assessing the present value of future payments
which takes into account the
time value of money.
Dry Lease Traditionally in aircraft and marine leasing, an agreement that provides
financing only for the
, ISTAT Definitions Questions And Answers
equipment itself, and does not extend to personnel, maintenance, fuel and provisioning necessary
to operate the craft. Corollary in marine leasing is a bare boat charter. See also "wet lease."
ETC, Equipment Trust Certificate A debt security issued by a trust and secured by a
mortgage, lease, mortgages, or leases, over
a single asset or group of assets. ETC's may be split into several tranches (slices with unique
levels of seniority and typically unique interest and repayment terms and ratings).
EETC, Enhanced Equipment Trust Certificate An EETC (usually referred to as a "double-
ETC") provides an additional liquidity reserve
(usually supplied by a rated bank) to pay interest for a specified period of time after a default
within an ETC (which see above). Like an ETC, an EETC may be split into several tranches.
Investment Tax Credit (ITC) A provision of the tax code designed to stimulate investment
in capital equipment by
allowing a percentage of the purchase price to be credited directly against taxes due.
Leveraged Lease A leveraged lease involves at least three parties: lessor, lessee and a
lender. The lessor owns
, ISTAT Definitions Questions And Answers
the equipment and will generally provide a portion of the purchase price while borrowing the
remainder, usually on a non-recourse basis, from the lender. The lessor thereby enhances his
ability to purchase and own the asset using the capital of a third party.
Net Lease A lease which provides that all costs in connection with the use of the
equipment are paid by the
lessee and are not part of the rental, e.g. taxes, insurance and maintenance are paid directly by
the
lessee. Note that most capital leases, leveraged leases and direct finance leases are net leases.
Non-Recourse Loan A debt security in which only the equipment used as security is
available as remedy to the
creditor. The creditor is not able to look through to all of the borrower's assets. See also
Recourse Loan below.
Operating Lease For financial accounting purposes, a lease which does not meet the
criteria of a capital lease
(see separate entry). Also used generally to describe a short-term lease whereby the user can
acquire the use of an asset for a fraction of its useful life. It is not common, but the lessor may
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