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May 2004


Welcome to the May 2004 edition of Business Leasing News.

From: David G. Mayer, a business transactions partner of the law firm of Patton Boggs LLP and author of the book, Business Leasing for Dummies (BLFD). The book is now, unfortunately, out of print and only a few copies remain available; so if you want to find a copy, please search the web today! Thanks for buying my book for two and one-half years.

This e-newsletter offers timely, concise information and analysis backed by supporting research. Please contact Business Leasing News (BLN) to provide us with your feedback. Thanks for taking your valuable time to read BLN-which does more than just report the news.


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In this issue:

A Message From the Founder, David G. Mayer


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1. Lessees in Bankruptcy Declare Open Season on True Leasing

At the recently completed ELA Legal Forum, attendees gained a clear perspective of true leasing from a twenty-year history of court cases in which lessees have challenged true leases disguised as security agreements. They discovered, and for many of them, confirmed, that true leasing has recently come under attack in bankruptcy proceedings more frequently than ever before.

Courts often write unpredictable opinions, misinterpret current law and confuse terminology regarding true leases, despite consistent rules under the current version of the Uniform Commercial Code (UCC). Section 1-201(37) of the UCC is the starting point for determining whether a transaction constitutes a lease as contrasted with a disguised security interest or sale. In general, Section 1-201(37) represents the "per se" or "bright-line" test of whether a transaction falls within Article 2A of the UCC and judicial precedent as a true lease.

*Term to Know: Section 2A-103(1)(j) of the UCC defines a "lease" as "a transfer of the right to possession and use of goods for a term in return for consideration, but a sale... or retention or creation of a security interest is not a lease."

Section 1-201(37) - A Key Definition for Leasing Under the UCC

A transaction is a security interest and not a lease, for UCC purposes, if: (1) the lease includes a fixed term that a lessee cannot terminate (an early termination or similar right, but not an early buy-out right) and (2) at least one of the following four criteria apply:

(a) the original fixed term equals or exceeds the remaining economic life of the goods (such as equipment); or (b) the lessee is bound to renew the lease for the remaining economic life of such goods or is bound to become the owner of such goods (for example, through a forced purchase obligation); or (c) the lessee has an option to renew the lease for the remaining economic life of such goods for no or nominal consideration (often showing up as a $1.00 renewal option); or (d) the lessee has an option to buy such goods for no or nominal consideration (often showing up as a $1.00 purchase option).

*Tip: Courts frequently use and confuse terminology from Financial Accounting Statement No. 13 (FAS No. 13), which refers generally to operating leases and capital leases. They also consider guidelines from true tax leasing under Rev. Proc. 2001-28 and related case law when determining in a bankruptcy proceeding whether a transaction constitutes a lease for state law purposes. Keep these concepts separate and distinct from each other. Further, keep each of those concept separate from your analysis under Section 1-201(37) even though you may apply all of these rules to the same transaction.

Pillowtex Case Illustrates the Current Bankruptcy Approach

Bankruptcy courts and judges seem to apply their own approaches to these issues, which often result in overturning true leases, despite the intention of the parties. One of the best examples is a recent case decided under New York law called Duke Energy Royal, LLC v. Pillowtex Corporation, 349 F.3d 711, Case No. 02-2674 (3d Cir., Nov. 14, 2003).

The transaction reviewed by the court did not involve a transaction called a "lease." Rather, the parties entered into a master energy purchase agreement (MESA). The MESA provided for an eight-year contract in which Duke agreed to acquire, hold title to, and install at its cost approximately $10.4 million of energy savings equipment in nine Pillowtex facilities. At the end of five years of the eight-year term, Duke expected to recover a "simple payback" of its investment. Duke (and not Pillowtex) retained various end-of-term options-the right to remove the equipment at its cost, abandon the equipment, extend the MESA term or give Pillowtex the option to purchase the equipment at a mutually agreeable price. The cost to remove the equipment was prohibitive for Duke when weighed against the nominal residual value of the leased property as removed at the end of the MESA term. In short, Duke had little residual value at the end of the term even though the leased property had much more remaining useful life.

Relying in large part on In re: Edison Bros. Stores, Inc., 207 B.R. 801 (Bankr. D. Del. 1997) (Edison), the court first analyzed the per se test under 1-201(37). It did not find that a security interest existed. For that moment, the lease survived. Then it considered that Duke (the lessor) had a large expense to remove the leased property but a very low residual value. The court considered the transaction as a whole, which UCC 1-201(37) anticipates and requires. It evaluated the "economic realities" of the transaction, as did the court in Edison, and found the transaction did not constitute a lease. The Edison case used the economic realities test to step beyond the per se tests of the UCC. It not only influenced the Pillowtex court, but also other courts in many other recent cases. For more on the Pillowtex case, see: BLN Case & Comment: True Lease Case In re: Pillowtex, Inc. Affects Leasing, Energy Services Industries, Business Leasing News (Jan. 2004).

Section 365(d)(10) Challenge

The Edison and In re: Pillowtex cases will likely provide a persuasive approach to analyze true lease cases in bankruptcy courts for the foreseeable future. Frequently, the contest over whether a true lease exists arises in connection with motions under Section 365(d)(10) of the Federal Bankruptcy Code. The bankruptcy courts provide fertile ground to test whether a lease exists and, if so, whether a lessor is entitled to the payment and performance by a lessee of its obligations to the lessor starting 60 days after the filing by lessee of its petition in bankruptcy. In that context, lessees typically assert that a lease does not constitute a true lease, but rather a disguised security interest. The ramifications can be dramatic for the lessor as it retains rights (as a lessor) or loses rights (as a lender) in its leased property.

*Tip: The lessee has the burden to show that a lease does not exist. Unfortunately for a lessor, some bankruptcy courts seem predisposed, using their equitable powers, to look for and find a disguised security interest. By doing so, the debtor's estate may gain value from becoming the owner, instead of a lessee, of the leased property. The Edison court found a true lease existed, but, using the same laws, the In re: Pillowtex court found that a true lease did not exist.

Five Fundamentals in Structuring True Leases

These cases and UCC rules suggest five fundamental points to remember when structuring a lease:

  1. Remember the Two-Prong Test. The law of true leases has shifted in the last 10 years from a single bright-line or per se test under Section 1-201 of the UCC to a two-prong analysis. Now, most courts predominantly apply both the bright-line/per se test and the economic realities test as seen in Edison and In re: Pillowtex.

  2. Expect Regular Challenges. Proceedings in bankruptcy now spawn routine formal or informal (negotiated) challenges to true leases. Results often favor lessees, ranging from a relaxation of a lessor's rights to recover property or payments to a total loss of such rights as an owner/lessor. Lessors should expect and prepare for these challenges. But, many leases still hold up as true leases if properly structured.

  3. Lawyers Do More. Lawyers can no longer focus only on drafting and structuring. To the extent they have not done so, lawyers can and should assist business people in a more comprehensive analysis. Whether as counsel to a lessor or lessee, they should look at the whole deal to anticipate how the economic realities of the transaction will be viewed in a potential bankruptcy or other challenge to the lease.

  4. Courts Rule Inconsistently. Unfortunately, lessors and lessees alike cannot expect consistent rulings in this area from the courts. Since the changes to the UCC over a decade ago, this area of law has become more confused as courts evolve from focusing on the intent of the parties to viewing the transaction as a whole. Terms and concepts from accounting and tax creep into proceedings causing more confusion and inconsistency. Generally, the accounting should not influence the UCC lease issues. A true tax lease may exist even though a lease is intended as security under the UCC.

  5. Understand Trends. To structure leases effectively, lessors and lessees, and their counsel, must understand the trends in the cases and structure leases that consider not only the front-end concepts but also the back-end bankruptcy court downside.

True leasing has been around in its modern forms for several decades. True lease concepts have become more complex over that time. In this area, lessors and lessees need well-informed counsel and savvy business people to collaborate in structuring and closing true leases. Those who do so will be the most likely to optimize economic returns and minimize downside bankruptcy risks.

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2. Lenders Perform Four Key Tasks in Texas Wind Energy Projects

In the last few years, wind energy projects in the United States have become a viable renewable energy resource, particularly in Texas. Texas offers vast areas of high wind power potential, and, as the second largest U.S. producer of wind power, it's becoming more common to find wind farms along ridge tops and mountain passes in the Panhandle, and even along the Gulf Coast.

Wind Power Development and Financing Continues

Despite the expiration of the production tax credit at the end of 2003, developers and lenders continue constructing and financing wind farms across the west Texas countryside. Installed capacity in Texas (1,297 Megawatts) has surpassed the Renewable Portfolio Standard goal for 2005 (950 Megawatts). See: Railroad Commission Meeting Bodes Well for Renewables: Nelson Reports on Wind, The TREIA Newsletter (Winter 2003).  If federal and state regulators grant further incentives for wind power, and as sufficient transmission lines and improved technologies emerge, wind energy projects should continue to proliferate in Texas. See: Wind Power Imperiled as Production Tax Credit Expires, Business Leasing News (March 2004).

Four Key Real Estate Tasks in Texas Projects

Wind power projects, like other power projects, require extensive business and legal analysis. Real estate due diligence on behalf of developers and lenders represents one of the important elements of completing a successful development. Texas developers and their counsel should undertake the following four major tasks in wind energy projects:

  1. Assure Financeability. Most wind energy production developers seek financing for the construction and operation of the project. As the starting point, developers must create a project with sound economics. 

*Term to Know: The term financeability in this kind of project financing generally refers to a wind farm that generates sufficient contractual cash flows from operations of the wind farm to pay all costs of the project including debt service and related reserves.  Depending upon the expected cash flows, financeabilty may require credit support from the sponsors or other equity players. 

Once that crucial element exists, and the financing reaches the real estate aspects, it is important to undertake the review of the critical real estate documents. The property documents include the leases and/or easements creating the developer's rights in the real property to construct and operate the project. The rights created in these documents must also extend to and protect a lender secured by the real property (mortgagee). The mortgagee must properly create an enforceable mortgage on the project site.

*Tip: Closely review the real estate documents. Individual landowners negotiate them differently, so property rights within any project site may differ. When evaluating the project, ask whether the developers have built or will build the wind farms in phases, which may expand the electrical energy generated or the land rights on which the project sits. The phasing often occurs because the proposed project is too big to develop at one time. To understand the big picture, determine whether the applicable transaction constitutes the entire project or merely one phase of a larger development.

Lenders in wind power projects should focus on obtaining: (i) sufficient rights under the property documents to realize value from the project equal to or exceeding their debt, (ii) a broad right to use, sublease and assign the project and applicable real property rights after foreclosure or repossession, (iii) casualty and condemnation provisions that cover the loan, (iv) estoppel or confirmations from landowners that assure lenders of their rights, and (v) a right to cure defaults and enter into a new lease or easement with the landowner. Most wind energy developers in Texas anticipate the financing needs and include these (and other) mortgagee protections in the project documents.

*Warning: Lenders will need other documents or provisions for a particular financing of a wind power project. This list is far from complete.

  1. Review Title/Survey. In Texas, wind energy developers and lenders usually require title insurance and an ALTA/ACSM survey in connection with the ownership and financing of the project. In some respects, due diligence review of the title commitment and survey is no different than typical real estate transactions, but the size and scope of due diligence for wind farm projects typically increases exponentially as the project site expands its required land area. A wind project site may consist of thousands of acres, leading to a multi-paged survey, a lengthy title commitment and a stack of exception documents best measured in feet rather than number of documents.

*Tip: Given the large size of most Texas wind energy project sites, the scope of title, survey and environmental due diligence may dwarf the typical real estate transaction. The role of the title company, surveyor and environmental consultants must be efficiently managed to meet the time and cost constraints of the project. Having experienced real estate counsel on the project team is critical for thorough and cost-effective due diligence review.

Given Texas' oil production history and the existence of numerous oil and gas facilities throughout the State, it is critical to review all drilling and pipeline easements granting such oil production rights across the project site. These easements may contain restrictive language prohibiting construction of improvements on or over the particular easement. As a result, it is important to confirm the project improvements do not violate the provisions of existing pipeline easements. This effort minimizes the likelihood of site-related interruptions by those who purport to have rights to the project site.

*Tip: Consider obtaining consents from landowners and/or holders of other land rights. Determine the need for such consents by reviewing the applicable real estate documents early in the development and/or financing process.

  1. Evaluate Environmental Status. Project developers should obtain all environmental permits arising under federal, state or local laws and regulations related to environmental protections. In Texas, lenders put special emphasis on scrutinizing environmental reports for potential liability or responsibility arising from oil producing facilities, oil spills and stream contamination. They confirm that environmental, archeological and other reports accurately reflect the environmental and other land conditions of the entire project. It is not uncommon for lenders to require environmental clean-ups and other remedial requirements as part of the financial structuring and analysis of the project.

  2. Obtain Other Permits. Project developers should also obtain all land use permits arising under federal, state, or local laws or regulations related to the project. Lenders' counsel, developers and environmental consultants generally create a comprehensive list of all permits and review them to confirm full compliance with applicable design, construction and operational laws and regulations.

*Tip: In Texas, permitting tends to be less burdensome in wind projects than in gas-fired projects. You may need few, if any, local permits. Get to know the local authorities, such as judges, county attorneys or supervisors, who may have authority over or knowledge of required permits or regulations affecting their community.

Wind power project development has experienced peaks and valleys over the years as the production tax credit and other incentives have come and gone. In Texas, the State has mandated certain goals for wind power apart from the tax benefits. For at least the next several years, you can expect wind power projects to appear across the mesas and ranges of Texas as surely as the wind blows in those remote areas. Making these projects work economically and legally remains a challenge for all concerned.

I would like to thank Patton Boggs real estate associate, Atwood Jeter, for preparing the initial draft of this article.

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3. General Aviation Begins to Grow, Presenting Financing Opportunities

All segments of the general aviation industry-piston-engine, turboprops, and business jets-increased in billings and deliveries according to the General Aviation Manufacturers Association (GAMA) Billings and deliveries of new general aviation aircraft in the first quarter of 2004 increased 9.7 percent (to $2.4 billion) and 21.1 percent (to 541), respectively, over the same period last year. Airframe manufacturers delivered 115 new business jets in the first quarter of this year compared with 101 in the first quarter of last year, an increase of 13.9 percent.

GAMA suggested that the bonus depreciation has contributed to the growth. See: Leasing Gets Bonus From New Depreciation Regulations, Business Leasing News (October 2003).  GAMA is lobbying for an extension of bonus depreciation to spur more and continued growth in the general aviation industry.

*Warning: Unless extended, bonus depreciation ends soon. To take advantage of 30 percent bonus depreciation, the aircraft must be acquired after September 11, 2001 and before January 1, 2005. Similarly, to use the 50 percent first-year additional depreciation, the aircraft must be acquired after May 5, 2003 and before January 1, 2005. Given the action in Congress to wrestle down the budget deficit of about $500 billion, as a lessee, buyer, lessor or borrower, you should push to complete purchases and financings before the end of this year. As a general exception, note that some larger aircraft with a cost in excess of $1 million and/or production periods of more than two years may qualify for an extended placed in service date of January 1, 2006. For more on the benefits of bonus depreciation, see: The Impact of Bonus Depreciation on Leasing Activity, by Jeffrey Taylor, Journal of Equipment Lease Financing, Volume 20, No. 2 (Fall 2002).

Taking a larger perspective of the industry in its April 22, 2004 Business Jet Update, UBS Investment Research published its findings that provide a snapshot of industry activity. UBS concludes that the market continues to firm for used and new jet sales, but strong activity has not yet appeared. UBS offers the following general market trends:

  1. Limited New Aircraft. The percentage of newer models remains relatively low. For example, inventory declined for the Global Express, the G400 (ex-GIVSP) and the Challenger. However, inventory levels have improved since last year. See p. 5. With fewer new aircraft available, UBS expects demand for used aircraft to increase with commensurate price increases to follow. See: p. 4.

  2. Available Used Aircraft Increase. Used aircraft inventories have increased slightly. UBS suggests that the used business jet market will serve as a leading indicator of improvements for new jets. Approximately 15 percent of business jets remain available for sale. See: page 2. Approximately 81 percent of used business jets consist of aircraft at least 10 years old. These jets draw less demand. Only about 364 aircraft are less than 10 years old, leaving fewer used aircraft of a younger vintage to impede the growth of the new jet market.

  3. Fractional Sales Increase. While fractional sales have increased 40 percent over last year, the fractional market shows significant weakness. A high loss of shareholders and low gross increases of new shareholders negatively impacts the fractional market. For example, at the end of March 2004, approximately 4,570 fractional holders existed relative to 4,533 at the end of February. Because the fractional providers account for the majority of business jet back orders, UBS expressed concern that the weakness there may generally temper the recovery in the business new jet market.

*Prediction: The general aviation market seems to be grinding slowly toward renewed growth. Business Jet Market Prepares for Takeoff to Sustained Growth, Business Leasing News (Jan. 2004).  Bonus depreciation is likely to expire at the end of this year, absent a reluctant extension by Congress. With limited availability of new jets, the jet market should offer relatively few attractive leasing and financing opportunities this year, far short of robust activity. The slower growth market should give way in 2005 to a stronger, more sustained growth and higher demand for business aircraft. For more on the direction of the business aviation market, see: Business Aircraft Prospects Look Up For Lessors and Lenders, Business Leasing News (Jan. 2004).

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4. States Increase Tax Receipts, But Shortfalls Persist

Stronger than anticipated tax receipts combined with spending cuts will allow 32 states to post surpluses for their 2004 fiscal year. Even more impressive, the states successfully closed a cumulative gap that reached nearly $80 billion according to the National Conference of State Legislatures.  Despite this good news, 33 states still face deficits due to spending that exceeds current revenues. See: States' Tax Receipts Rise, Leading to Some Surpluses, The Wall Street Journal (S.W. Ed.), Page A:14, Col. 5-6 (May 4, 2004).

*Warning: States have become increasingly aggressive in collecting tax revenues and passing new tax laws of various types to raise revenue that may not seem typical. For example, California just passed the Electronic Waste Recycling Act of 2003 (SB 20), which granted authority to the Board of Equalization to collect recycling fees starting July 1, 2004, that cover computers and other electronic equipment. Lessors must collect these fees or pay the fees themselves.

The State of California designed SB 20 to:

  • Reduce hazardous substances used in certain electronic products sold in California;

  • Collect an electronic waste recycling fee at the point of sale of certain products;

  • Distribute recovery and recycling payments to qualified entities covering the cost of electronic waste collection and recycling; and

  • Establish environmentally preferred purchasing criteria for state agency purchases of certain electronic equipment.

While this fee doesn't carry the label of a tax, it has the same effect. For more on this fee/tax from the ELA's point of view, see ELA's Recycling Fee Position

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5. Leasing 101: What is "Revenue Recognition"?

The concept of revenue recognition seems simple, but it isn't. If a buyer pays you cash today, you can probably recognize that revenue today. From the viewpoint of a vendor that sells a product or service, the timing of recognizing revenue is critically important to its financial reporting and results. For example, if a vendor in a vendor-leasing program closes a purported sale and lease of a computer on the last day of the quarter, but doesn't receive payment until several days into the next quarter, when does the vendor recognize the revenue? If the vendor maintains attributes of control over or liability for the leased property, when can the vendor recognize the revenue from its proposed sale?

The answers to these questions may require extensive thought by accountants and lawyers. The Securities and Exchange Commission (SEC) has summarized revenue recognition rules in Staff Accounting Bulletin 101 (SAB 101).  SAB 101 relies heavily on FASB Statement of Financial Accounting Concepts 5 (SFAC)

Section 83(a) of SFAC defines "recognition" as "the process of formally recording or incorporating an item in the financial statement of an entity as an asset, liability, revenue, expense, or the like." According to SFAC, our hypothetical vendor cannot recognize revenue until it is (a) realized and (b) earned. According to Section 83(b) of SFAC, "revenues are not recognized until earned. An entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations, and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues." Revenue is realized or realizable "when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" or when "related assets received or held are readily convertible to known amounts of cash or claims to cash." See: SFAC 83(a). Revenue is earned "when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues" (that is, delivered the goods).

As you can see, how and when to recognize revenue is no simple matter, and much more detail exists to derive the answer.

*Tip: Do not try to figure out revenue recognition (other than cash sale and delivery on the same day during a reporting period) without the help of knowledgeable accountants. Stay tuned to new developments in this area as the Financial Accounting Standards Board (FASB) is now fully engaged with the International Accounting Standards Board in a joint project to redefine revenue recognition concepts.  FASB's objective of the project "is to develop a comprehensive statement on revenue recognition that is conceptually based and framed in terms of principles." FASB will eventually issue an Exposure Draft and final standards. Ask your accountants about differences, if any, that may apply if the subject company is not a public company covered by SEC rules.

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6. BLN Briefs: TRIA Extension Debated; CIOs Reduce Tech Spending; Cape Town Bill Introduced

TRIA Extension Debated. Members of the U.S. House of Representatives proposed that the federal government extend the "make available" provisions of the Terrorism Risk Insurance Act of 2002 (TRIA).Conversely, the Consumer Federation of America said there is limited need to do so. See: Consumer Federation: Let TRIA Program Die. TRIA requires the federal government to pay 90 percent of an insurer's "insured losses" in excess of the insurer's annual deductible (15 percent of certain premiums in 2004). The government sets an annual industry-wide cap of $100 B, and the program expires December 31, 2005 unless extended.

*Warning: Insurance experts have expressed concern that if TRIA is not extended, there are serious questions about the continued availability, and increased cost, of terrorism insurance. Such a concern directly affects whether lessors or lenders can obtain terrorism insurance for leased assets such as aircraft, vessels and real estate. See: TRIA Update, Willis Group, Feb. 2004 - Issue 5. 

CIOs Reduce Tech Spending. Although the 12-month outlook still remains positive, chief information officers (CIOs) pulled back a bit on IT budgets from March, according to the April CIO Magazine Tech Poll. They now expect IT budgets to grow 6.6 percent over the next 12 months, down from 7.3 percent reported in March. CIOs plan to increase spending on infrastructure software, which jumped to 39.5 percent in April-a significant increase from 33.6 percent in March. More than half (53 percent) of the CIOs responding to the magazine's poll plan to increase investments in computer hardware and 42 percent will spend on e-business applications (up from 35 percent in March).

*Opportunity Point: As software becomes a more important component of financing and leasing technical equipment, including computers and healthcare equipment, the increase in spending in this area offers potential new financing opportunities in hardware and software for lessors and lenders.

Cape Town Bill Introduced. The "Cape Town Treaty Implementation Act of 2004" (H.R. 4226) was introduced to ensure a smooth transition to the international registration of aircraft, engines and helicopters under the Aircraft Protocol of the Cape Town Convention. In a press release and summary of H.R. 4226, Aviation Subcommittee Chairman Mica said: "This treaty is vital to international commerce because it will bring uniformity of modern commercial finance laws, already in place in the United States, to international transactions involving aircraft and aircraft engines." Lessors and lenders should benefit from the implementation of the convention, which is expected to occur later this year.

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7. Training Offered

Training - Substance the Easy Way!

To help improve your business operations, deal processing and risk management, I offer private training seminars tailored to your specific needs at your designated location. My interactive and informative training includes topics I cover in BLN. I customize the format and content for your specific training needs- no canned programs.

After a recent training, here's what one of the company's senior managers said: "David, thanks again for an excellent presentation. You helped us tackle a complex, but important topic. Your expertise is first rate and you are an excellent teacher to boot- that's a rare combination."

Feel free to call me at (214) 758-1545 to discuss the possibilities.

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8. Feedback; About Patton Boggs LLP and My Practice

Feedback

I receive comments from readers of Business Leasing News. Here are a few from the last month:

One reader e-mailed "Your newsletter is always fat with fascinating information." Another reader said: "I just forwarded the newsletter to about 100 of my contacts; it is very impressive." A third person, e-mailed about a recent BLN Case & Comment: "Your drafted an excellent summary."

Thanks for your feedback. As always, I encourage you to e-mail me or call me and think of Patton Boggs LLP as a broad-based legal resource available to assist you in transactions, workouts, intellectual property, litigation, public policy and other matters.

About Patton Boggs LLP and My Law Practice

As you may be aware, I am a part of the Patton Boggs LLP Business Transactions Group in our Dallas office. Patton Boggs LLP is a law firm of about 400 lawyers located globally in six locations with extensive capabilities in over fifty areas of legal practice that include leasing, secured transactions, securitizations, syndications, project and mezzanine financing, bankruptcy, public policy, litigation, intellectual property and technology law and much more.

The leasing and secured transactions practices regularly involve the buying, selling, financing and leasing of real and personal property of all kinds, including business aircraft, energy, facility, production, power plant, technology and healthcare assets. We also structure, negotiate and close secured transactions of all kinds, tax-exempt, state and federal leasing arrangements and corporate and portfolio acquisitions, among a full range of financing and acquisition transactions. Despite the improving economy, we continue to assist our clients with troubled deals and bankruptcies, including repossessions, lift stay actions, true lease contests, deficiency litigation, workouts and forbearance arrangements.

Please feel free to call me at (214) 758-1545 or e-mail me at dmayer@pattonboggs.com for information about any of these areas or the many others available at Patton Boggs LLP, or to discuss anything I have written in Business Leasing News. I welcome the opportunity to build a relationship with you!

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A Message From the Founder, David G. Mayer

Meeting You at ELA Large Ticket Conference and Legal Forum

I had the privilege to attend and speak at both the Equipment Leasing Association  Large Ticket Conference  and the Legal Forum in late April/early May this year. That's why BLN is a bit late this month.

What a difference a change of attendees makes.

Large Ticket - a Somber But Determined Crowd

At Large Ticket, the substantial crowd (but about a third less than last year) generally seemed to be dismayed and worried about the legislative damage Congress may do to highly structured leases to tax indifferent parties. See: H.R. 3967 (Grassley-Bacus) and S. 1637 (Bill Thomas). More than I expected, many of them had made very substantial investments in foreign cross-border lease in, lease-out transactions (LILOs) and domestic sale in, lease out transactions involving domestic tax-exempt entities (SILOs). They have enjoyed substantial earnings and volume from these deals. Naturally, seeing the writing on the wall, many Large Ticket players had no current business of that type in the hopper and expressed worry about what they will do next. Many of them spoke of returning to larger, "funded" or "non-defeased" transactions and even large single-investor/middle market leases. However, even for those who seemed to be doing well, everyone noted that deal volume was light except in rail. Located at a beautiful resort in Dana Point, California, the group, in short, seemed resilient if not resigned to major tax changes, and hopeful that Congress would soon settle on legislation so they could get back to work.

Legal Forum in the "Big Easy"

The Legal Forum drew a record-breaking, upbeat crowd of inside and outside counsel and some credit people. The conference offered massive, current materials on leasing and financing issues and a rich cultural atmosphere in New Orleans. Surprisingly, the attendees did not feel that the SILO or LILO craze in Congress materially affected their business. I could not help wondering about the complacency or lack of concern on the part of some attendees. Congress could paint a legislative picture with a very broad brush and damage tax leasing in general, not just SILOs or LILOs. ELA emphasized the importance and danger in the legislation to the attendees. ELA and other interests are working hard to limit the damage, but only time will tell. In any event, the lawyers generally seemed to be busy and cautiously optimistic about the business this year.

A Personal Note and Thanks

On a more personal note, many of you at these conferences introduced yourself to me and complimented me on producing this newsletter. You told me how well written, informative, useful and clear BLN is. You liked the length, the content and the style. I am flattered and greatly appreciative for your interest and readership as we soon approach our 30th monthly issue.

Some of you have asked me, with tongue in cheek, how I practice law full time while writing BLN. In one of my more flippant moments, I might have said: "It's all relative; you should try writing a "For Dummies" book while working full time, referring to my work on Business Leasing For Dummies. Although BLN presents a real challenge and consumes a fair amount of my time, I have wonderful support in producing, editing and publishing BLN. BLN helps remain fully engaged in and committed to the practice of law. In fact, many BLN by readers, clients and friends encourage me to keep writing BLN. So feel free to call me! Rest assured that I (and my almost 400 colleagues) would eagerly attend to you and your needs, whether they be in leasing, secured financing, aviation, project development, real estate, litigation, bankruptcy, technology or other areas. Let my efforts with BLN demonstrate that Patton Boggs LLP can offer you more -- more current knowledge, more informed insights and more solutions in all these areas. As Congress threatens to restrict tax-oriented leasing, and we undertake new directions to expand deal volume, I would be honored if you would think of me to help you cope with, and prosper in, these changing times. Have a great rest of the month of May!

Thanks to the BLN Staff

I extend a special thank you to my editors at Patton Boggs LLP for their comments on this edition, Atwood Jeter and Steve Reagan and our primary web site review partner, Jeff Turner. The technical team, consisting in part of George Barber and Winston Jackson, provide you the easy-to-use e-mail navigation and artistic appearance of BLN.

*Technical Point: Some people have mentioned to me that when they print out BLN, the words go off the page and don't print. To capture all the words on an 8.5 x 11 inch sheet, just change your print margins on your computer or ask your technology friends for help. Your printer can print BLN in full!  As a new service to you, look for a printable version (PDF) of this edition on the BLN Website.

PLEASE FORWARD THIS E-MAIL TO OTHERS. You may, for this purpose, disregard Patton Boggs' distribution restriction at the bottom of this email.

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All the best, 

David 

David G. Mayer 
Founder and Publisher
Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
(214) 758-1545 (phone)
(214) 758-1550 (fax)
E-Mail: dmayer@pattonboggs.com

David G. Mayer 2004

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