RE: Re: sale and lease back of land and buildings
Now, the reason why I ask this question is that I started to think about an empirical study on the influence of lease for long-term debt swaps on stock returns and possibly more. Since it is a very fresh idea, just got triggered by Chris' question, I cannot get more specific than that at this point. remember that whatever their effect on the reported balance sheet (I am personally unconvinced that the finance lease loophole remains open rather than having been closed in the 1980s, but am open to be convinced), the primary purpose of a sale and leaseback transaction is to avoid or minimise a tax liability. dd ___ Email Disclaimer This communication may contain confidential or privileged information and is for the attention of the named recipient only. It should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. (c) 2002 Cazenove Service Company or affiliates. Cazenove Co. Ltd and Cazenove Fund Management Limited provide independent advice and are regulated by the Financial Services Authority and members of the London Stock Exchange. Cazenove Fund Management Jersey is a branch of Cazenove Fund Management Limited and is regulated by the Jersey Financial Services Commission. Cazenove Investment Fund Management Limited, regulated by the Financial Services Authority and a member of IMA, promotes only its own products and services. ___
Re: RE: Re: sale and lease back of land and buildings
Why do public agencies engage in sale and leasebacks? -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
RE: Re: RE: Re: sale and lease back of land and buildings
shamefully, usually to either avoid tax (NHS Trusts are big players in the industry) or to subvert restrictions on their ability to make large capital purchases by substituting for a capital outlay (which might be subject to some restriction, or possibly the debt raised to buy it might be) for a stream of lease payments (which can usually be dressed up as current expenditure). -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] Sent: 04 September 2002 15:27 To: [EMAIL PROTECTED] Subject: [PEN-L:30025] Re: RE: Re: sale and lease back of land and buildings Why do public agencies engage in sale and leasebacks? -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED] ___ Email Disclaimer This communication may contain confidential or privileged information and is for the attention of the named recipient only. It should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. (c) 2002 Cazenove Service Company or affiliates. Cazenove Co. Ltd and Cazenove Fund Management Limited provide independent advice and are regulated by the Financial Services Authority and members of the London Stock Exchange. Cazenove Fund Management Jersey is a branch of Cazenove Fund Management Limited and is regulated by the Jersey Financial Services Commission. Cazenove Investment Fund Management Limited, regulated by the Financial Services Authority and a member of IMA, promotes only its own products and services. ___
Re: sale and lease back of land and buildings
Nomi writes: Airlines do this all the time, too. They borrow money to buy airplanes, 'sell' the airplanes to a special purpose entity, which is owned by them, and then lease the planes back from this special purpose entity. Michael writes: I recall reading in a Nader report from the 70s that CitiBank had the third largest airforce in the world after the US and the USSR. Given the above, can we say that while some of the airlines, the ones that engage in transactions with special purpose entities, are after distorting market signals (am I polite or what?), others, the ones that publicly engage in transactions with financial institutions such as CitiBank or BofA, have other objectives? I expect these to types of transactions will look different on the balance sheet. Now, the reason why I ask this question is that I started to think about an empirical study on the influence of lease for long-term debt swaps on stock returns and possibly more. Since it is a very fresh idea, just got triggered by Chris' question, I cannot get more specific than that at this point. I would appreciate receiving information from the list members regarding earlier studies related to this topic as well as on data sources that may be useful in distinguishing the two types of lease for long-term debt swap deals as described above. I will not object to suggestions that would help me improve the above idea, either. My address is [EMAIL PROTECTED], in case you subscribe to the list in the no-mail/web-only mode. Best, Sabri
Re: sale and lease back of land and buildings
Last week it was reported that Hilton hotels were selling their buildings and land to a Scottish banking group and leasing them back. This slightly surprising idea is similar to the thinking behind the controversial private finance initiative in the NHS (though that involves a separate capitalist company being responsible for the costs of building the hospital and risks of delay and error in estimates). What they have in common is that building and land would be held by a finance capitalist company, while the service enterprise would be separate. Sale and lease of land and buildings have been going on here in the US as well. One of the companies I worked at used this tool and I read about many more firms who made similar arrangements, sometimes using special purpose entities that are controlled by the firm. This is an accounting trick to send distorted signals to the market to deceive investors. Although I don't know how exactly it distorts the accounting information yet, I know roughly that it is a tool to hide debt from the public eyes. With the ongoing re-regulation wave, this practice will most likely be questioned as well. Hence I have doubts about what is below: What interests me however is that this may be a step towards the greater socialisation of land. Sabri
Re: Re: sale and lease back of land and buildings
In a message dated 9/2/2002 1:15:08 PM Eastern Daylight Time, [EMAIL PROTECTED] writes: One of the companies I worked at used this "tool" and I read about many more firms who made similar arrangements, sometimes using special purpose entities that are controlled by the firm. This is an accounting trick to send distorted signals to the "market" to deceive investors. Although I don't know how exactly it distorts the accounting information yet, I know roughly that it is a tool to hide debt from the public eyes. When it sells an asset to a special purpose entity, a company effectively eliminates the debt it incurred to buy that asset. The balance sheet looks better, because it looks like the company owes less. In the case of accounting for leasing, a company only shows small quarterly payments to that special purpose entity, and no long term debt. Thus, for balance sheet purposes, large long term debt is replaced by short term smaller debt, giving the overall appearance of less debt. The main company, however, controls the special purpose entity, even though the special purpose entity's contents are not visible on its main balance sheet. Hence, the distortion. Airlines do this all the time, too. They borrow money to buy airplanes, 'sell' the airplanes to a special purpose entity, which is owned by them, and then lease the planes back from this special purpose entity. With the ongoing re-regulation wave, this practice will most likely be questioned as well. The practice has been questioned, but so far the only remedy that has been suggested is to make the existence of special purpose entity's more transparent on a company's balance sheet, and increase the percentage that must be owned by an independent party. Neither will solve the sleight of hand. Nomi
Re: Re: Re: sale and lease back of land and buildings
I recall reading in a Nader report from the 70s that CitiBank had the third largest airforce in the world after the US and the USSR. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
