A NEW LIFE OF LEASE
The US equipment leasing market is an attractive target to Washington legislators. No wonder. The American Association of Equipment Lessors (AAEL) estimates the total volume of leases written in 1984 at $88 billion; about 30% of all US equipment acquisitions and about 19% of all capital expenditures, broadly defined.
In a $175 million deal for the joint GM-Toyota New United Motor Manufacturing plant in Fremont, California, Chase Manhattan was the equity participant or lessor, enjoying the tax benefits and exposed to fair market residual value at lease expiration. Chase's investment is leveraged by debt provided by a Japanese consortium: Long-Term Credit Bank of Japan, Mitsui Bank, Tokai Bank and Golden State Sanwa Bank.
This exemplifies the basic features of the US-style leveraged lease: transfer of residual risk from lessee to lessor and transfer of tax benefits amplified by debt leverage, in tandem with a transfer of funds. The GM-Toyota deal also illustrates a remarkable growth in the financing of complete factories, presenting lessors with a new range of opportunities. Above all it shows how important the Japanese lenders are.
The Reagan Administration is seeking a tax reform which would be detrimental to tax-motivated leasing.