Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Accelerated Cost Recovery System (ACRS) (Modified) The Tax Reform Act of 1986 established the modified (ACRS) tax appreciation system to allow for accelerated depreciation or capital expenditures.

Add-on Equipment added to an existing lease, resulting in an increased monthly lease payment for the remaining term of the lease.

Advance Lease Payment(s) The payment or payments made at the initiation of the lease contract, i.e. first rental payment or first and last rental payments.

Alternative Minimum Tax (AMT) An alternative, separate tax calculation based on the taxpayer's regular taxable income, increased by the taxpayer's preferences for the year. The resulting amount is called the alternative minimum taxable income (AMTI). After certain exemptions and offsets, the taxpayer determines its AMT and is required to pay the larger of the regular tax or alternative minimum tax. Among the preferences that can increase the taxpayer's AMTI is the accelerated portion of depreciation, thereby making it more likely that a taxpayer who buys equipment may be subject to the AMT rather than to regular tax.

Appropriation A designated use of revenues for which a potential liability is recognized by non-profit organizations.

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B

Bargain Purchase Option A lease provision allowing the lessee, at its option, to purchase the equipment for a price predetermined at lease inception, that is substantially lower than the expected fair market value at the date the option can be exercised.

Bargain Renewal Option A lease provision allowing the lessee, at this option, to renew the equipment lease for a rental rate predetermined at lease inception, that is substantially lower than the expected fair market value at the date the option can be exercised.

Big-Ticket A market segment, generally dominated by leveraged leases, represented by lease financing over $2 million.

Broker A company or person who arranges, for a fee, transactions between lessees and lessors of an asset.

Buy-Out Purchase of the leased equipment by the lessee during the term of the lease.

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C

Capital Lease (vs. Operating Lease).A capital lease will be found to exist if any of the following tests are met:
1) Title to the property automatically transfers to the lessee during or at the end of the lease term;
2) The lease contains a bargain purchase option;
3) The lease term is equal to or greater than 75% of the estimated economic life (note: this is not the same as useful life/depreciation schedule) of the leased property; or
4) The present value of the minimum lease payments (rent) at the beginning of the lease term is equal to or greater than 90% of the fair market value of the leased property.

Captive Leasing Company A subsidiary leasing arm of a manufacturer or dealer. IBM's subsidiary leasing arm, for example, is IGF.

Certificate Of Acceptance (Delivery and Acceptance) A document whereby the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or constructed according to specifications. In a government lease, it is then deemed to be eligible for maintenance from the manufacturer.

Closed-End Lease A true lease in which the lessor assumes the depreciation risk. The lessee bears no obligation at the end of the lease.

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D

Deferred Payment Lease A payment schedule that allows you to defer your first payment by 60 or 90 days.

Direct Financing Lease (Direct Lease) A non-leveraged lease by a lessor (not a manufacturer or dealer) in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.

Dollar Buyout Assuming that the lessee is not in default, an option at the end of the lease to buy the leased property for $1.00.

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E

Economic Life (Useful Life) The period of time during which an asset will have economic value and be usable.

Effective Lease Rate The effective lease rate (for the lessee) of the cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.

Equity Participant The owner participant, trustor owner, or grantor owner.

Equipment Schedule A document that describes in detail the equipment being leased. It may also state the lease term, commencement date, repayment schedule and location of the equipment.

Estimated Residual Value A document that describes in detail the equipment being leased. It may also state the lease term, commencement date, repayment schedule and location of the equipment.

Estimated Useful Life The estimated time period leased equipment is expected to be useful.

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F

Fair Market Purchase Option An end-of-term lease option that allows you to purchase the equipment at its fair market value. Generally, this is considered an operating lease.

Finance Lease A type of lease that gives you the option to purchase the equipment for a nominal fee at the end of the lease. A capital lease is considered a finance lease in the non-accounting terms.

Fiscal Year Renewal By law, federal agencies cannot obligate funds beyond the current fiscal year. As a result, agencies renew their leases each fiscal year based upon the availability of funds from Congress.

Full Payout Lease A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.

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G

Guideline Lease A lease written under criteria established by the IRS to determine the availability of tax benefits to the lessor.

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H

Hell-Or-High-Water Clause A clause in a lease that reiterates the unconditional obligation of the lessee to pay rent for the entire term of the lease, regardless of any event affecting the equipment or any change in the circumstances of the lessee.

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I

Indemnity Clause A clause in which the lessee exempts the lessor from loss of tax benefits.

Indenture Of Trust (Indenture) An agreement between the owner trustee and the indenture trustee: The owner trustee mortgages the equipment and assigns the lease and rental payments under the lease as security for amounts due to the lenders. Same as a security agreement or mortgage.

Insurable Value The value of the leased equipment that is to be insured by the lessee.

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L

Late Charges A contractual financial penalty that is imposed when the delinquency of a payment due exceeds the grace period.

Lease A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.

Lease Rate (Monthly Payment) The periodic payment to a lessor for the use of assets.

Lease Rate Factor Numerical factor multiplied by total cost of equipment to compute periodic rentals.

Lease Term The fixed term of the lease. (e.g., 24-month or 36-month)

Leasing Line A maximum amount of funding designated by the lessor for a lessee to use over a fixed commitment period.

Lease With Ownership Plan (LWOP) Offers the option to purchase the equipment either at the end of the lease term or during the term of the lease pursuant to a fixed purchase option that has been negotiated by the parties. Like an LTOP, an LWOP is an equity-building lease, whether the government accrues credit as it makes monthly payments.

Lease to Ownership Plan (LTOP) Enables a government agency to spread the cost of the equipment over time and automatically take ownership after all fixed monthly payments have been made.

Lessee The party that leases the equipment. In most cases, the lessee is the Verari customer.

Lessee (government) The government agency that uses the equipment (or ultimately owns the equipment in the case of an LTOP) for a specified period of time in exchange for regular and timely payments.

Lessor The company that agrees to buy the equipment and rent it back to you (or to rent equipment back to your customer as is the case when an independent lessor buys equipment from Verari).

Lessor (Government) The contractor or its assignee that owns the equipment and grants the use of that equipment to the lessee for a specified period of time in exchange for regular and timely payments.

Level Payments Equal periodic payments over the term of the lease.

Leveraged Lease In this type of lease, the lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a non-recourse debt basis. The lessor receives the tax benefits of ownership.

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M

Master Lease A contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract.

Middle Market A market segment generally represented by financing under $2 million and dominated by single investor leases.

Municipal Lease This program is available to all city and state agencies such as public school districts, municipal hospitals, police and fire departments. Due to the tax exempt status of the Lessee, rates are much lower than standard commercial rates.

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N

Net Lease A lease where payments paid to the lessor do not include insurance, taxes and maintenance, which are paid separately by the lessee.

Non-Recourse Loan In a leveraged lease, the lenders cannot look to the lessor for repayment. The lender's only recourse is to the lessee and, therefore, the lessee's credit rating is of prime importance.

Non-Payout Lease A lease in which the cash flows will not be sufficient to cover the full costs of the equipment, the costs of financing, the costs of administration and to provide a satisfactory return. The lessor looks to the residual to realize profit.

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O

Open-End Lease A lease which includes a provision for extending payments under the lease on predetermined terms after a set period of time.

Operating Lease (Also Known as a "Tax Lease" or "True Lease") For accounting purposes, an operating lease is any lease which is not a capital lease. These are generally used for short term leases of equipment, such as computers and storage. The lessee (Verari customer) can acquire the use of equipment for just a fraction of the useful life of the asset.

Operating Lease (Government) Provides government agencies the option to purchase the equipment during the lease term. Also allows for flexibility at the end of the lease term to either return or purchase the equipment.

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P

Packager The leasing company, investment banker, or broker who arranges a leveraged lease.

Platinum Lease A lease structure that allows you to add new equipment on an ongoing basis without changing the basic terms or conditions.

Present Value The current equivalent of payments or a stream of payments to be received at various times in the future. The present value will vary with the discount interest factor applied to future payments.

Prime Rate A rate of interest that banks charge to those institutions they consider most creditworthy.

Property Tax Taxes paid to a local or state government for ownership of equipment.

Purchase Option A provision, assuming the lessee is not in default under the terms of the lease, by which a lessee has the right to purchase the equipment at the end of the lease. The purchase option may be stated at a specific dollar amount or at fair market value.

Put Option The requirement to purchase equipment at a particular time and at a predetermined price. In a lease transaction, this is a lessor's right to force the lessee (or some third party) to purchase the equipment at the end of the lease term. IRS guidelines prohibit put options in tax-oriented leases.

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R

Renewal Option Lessee's option to renew a lease contract when it ends.

Rental (Use) Tax Many states charge a "use" tax in lieu of a sales tax when equipment is leased. Instead of paying a sales tax for purchase of the equipment, taxes are collected by the lessor as a percentage of the rentals over the lease term.

Repossession The process of taking back equipment that is pledged as security to the lessor, due to non-payment or other contractual breach by the lessee.

Residual Value The value of the asset at the end of the lease.

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S

Sale-Lease Back You sell equipment that you already own to a lessor who agrees to lease it back to you.

Sales-Type Lease A lease by a lessor who is the manufacturer or dealer, in which the lease meets the definitional criteria of a capital lease or direct financing lease.

Sales/Use Tax A state tax on leased equipment based on the amount of the monthly lease payment.

Seasonal Payment This lease is designed for those businesses with seasonal cash flows. We can design a lease where the payments might be lower during the summer months and higher during the rest of the year.

Security Interest An interest in personal property or fixtures that secures payment or performance of an obligation.

Single Investor Lease (see Full Payout or Finance Lease) A tax-oriented lease whereby the lessor achieves its desired rate of return via a combination of the rental payments, depreciation, and the fair market value of the equipment at the end of the original lease term. Because of the value of the tax benefit, the rental payments will be lower than for a finance lease.

Skip Lease A payment schedule that allows you to skip monthly payments without incurring penalties.

Small-Ticket Leasing Transactions under $100,000, typically using conditional sale leases or single investor true leases.

Step Payment Lease A lease in which the monthly payment either increases (steps up) or decreases (steps down) to a pre-determined amount over the term of the lease.

Step-Up Lease Geared for companies with limited cash who are dependent on the acquisition of specific equipment to increase revenue. Payment amounts increase over time under this repayment schedule.

Straight Lease Essentially an equipment rental arrangement, where the government builds no equity in the equipment and has no opportunity to take title to the equipment.

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T

Tax Lease A lease wherein the lessor recognizes the tax incentives provided by the tax laws for investment and ownership of equipment. Generally, the lease rate factor on tax leases is reduced to reflect the lessor's recognition of this tax incentive.

Term The length of time a lease agreement will remain in force. The rules of an agreement as supplied on a rental or lease contract between the customer (lessee) and the lessor. The terms of the contract will govern such things as the length of the agreement, rules of proper cancellation of the agreement, renewal terms, and charges for breech of the contract.

Termination for Convenience This clause allows a government agency to terminate a lease agreement at any time if it can demonstrate a legitimate reason to do so.

Trac Lease A tax-oriented lease of motor vehicles or trailers that contains a terminal rental adjustment clause and otherwise complies with the requirements of the tax laws.

Trade-Up/Upgrade Exchanging equipment and amending the terms of the existing lease or entering into a new lease obligation.

True Lease Depending on its structure, this is a type of lease that allows you to fully claim lease payments for tax purposes. The term is generally shorter than the full useful life of the equipment. At the close of the lease, you can decide to purchase the equipment at fair market value.  An operating lease, for example, is considered a true lease.

Trustee A bank or trust company that holds title to, or a security interest in, leased property for the benefit of the lessee, lessor, and/or creditors of the lessor. A leveraged lease often has two trustees: an owner trustee and an indenture trustee.

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U

Useful Life The period of time that an asset has economic value and is usable.

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V

Vendor Leasing A working relationship between a financing source and a vendor to provide financing to stimulate the vendor's sales. The financing source offers leases or conditional sales contracts to the vendor's customers. The vendor leasing firm substitutes as the captive finance company of a manufacturer or distributor through the extension of leasing to customers, provisions of credit checking, and performance of collections and operational administration. Also known as lease asset servicing or vendor programs.

Vendor Program A partnership between a funding source and manufacturer or dealer to offer leasing to their customers. Verari has created funding sources, for example, with independent lessors to help increase volumes of equipment by allowing customers the option to lease vs. purchase. This can be attractive to customers for many reasons, including cash conservation, technology refresh, take-out payments for older, existing equipment, guaranteed buybacks on existing Verari equipment, and easier disposal of computer assets following their usefulness.

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