WELCOME TO THE JANUARY 2003 EDITION OF "BUSINESS LEASING NEWS."
Like my
book, this e-newsletter will be informative, concise and helpful.
It will
generally be distributed on the second Wednesday of each month. Please
contact Business Leasing News (BLN) <<mailto:bln@pattonboggs.com>>
to provide
us with your feedback. If you would like to see any edition of BLN
on the
web or to learn more about BLN, please click on
<http://www.pblaw.com/newsletters/bln>
<<http://www.pblaw.com/newsletters/bln>>
. Thanks for taking your valuable time to read this newsletter. You
will
find that BLN does more to help you than just report the news!
In this issue, you can read the following items:
1. Western Union Pays Big Fine Under USA Patriot
Act: Are Lessors and
Lenders Next?
2. Leasing Prospects Improve for 2003 Despite Credit
Concerns
3. Community Banks Increase Competition with
Small-Ticket Lessors
4. Merchant Energy Firms Tap Regulated Utilities
for Economic Power
5. FASB Delays Final Interpretation on SPEs
6. Leasing 101: What is a "Vendor Leasing Program?"
7. Events and Speeches; Training Offered
8. BLN Briefs: New Tax Bonuses, Boeing Tanker Update
and Streamline
Tax Agreement
A Message From the Publisher,
David G. Mayer
**************************************************************
1. Western Union Pays Big Fine Under USA Patriot Act: Are Lessors
and
Lenders Next?
Western Union has eight million new reasons to be patriotic. According
to a
recent press <<http://www.banking.state.ny.us/pr021218.htm>>
release, the New
York Banking Department fined the company $8 million for violating
the USA
<<http://thomas.loc.gov/cgi-bin/bdquery/z?d107:HR03162:@@@L&summ2=m>&>
Patriot
Act of 2001, Public Law 107-56, effective October 26, 2001 (the "Act").
The
Banking Department alleged that Western Union failed to file certain
Currency Transactions Reports (CTRs) and Suspicious Activity Reports
(SARs)
under the federal Bank Secrecy
<<http://www4.law.cornell.edu/uscode/31/index.html>>
Act, Public Law 91-508
(31 U.S.C. 53) regarding currency transactions aggregating over $10,000
per
day.
Although transactions for most lessors and lenders differ from the
Western
Union situation, this enforcement action serves as a wake-up call
for the
financial services industry. The powers created by the Act will change
the
way many financial institutions and their customers do business. The
critical issue here is whether the Act covers financial transactions
of
lessors and secured lenders, and, if so, what reporting, due diligence
and
other requirements the Act may impose on you, as a lessor, lender,
or as a
lessee or borrower.
*Technical Point: A "financial institution" is a very broad
term that
includes institutions subject to Federal regulations (such as banks,
mutual
finds and hedge funds), loan or finance companies, trust and insurance
companies, investment banks, sellers of vehicles (automobiles, aircraft
and
vessels), persons engaged in real estate closings and settlements,
and even
casinos. See: Section 352 of the Act and 31 U.S.C.
<<http://www4.law.cornell.edu/uscode/31/5312.html>>
Section 5312(a)(2) and
(c)(1). This definition leaves little doubt that most (if not all)
lessors
and lenders qualify as financial institutions. See: 31 U.S.C. 5312(a)(2)(P).
Basic Framework of the USA Patriot Act
The Act is sometimes referred to by its formal name: the "Uniting
and
Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001." While this name is a real
mouthful, it
describes the fundamental intent of Congress to create comprehensive
measures to combat domestic and international terrorism
<<http://www4.law.cornell.edu/uscode/18/2331.html>>
. 18 U.S.C. 2331. See:
Section 802 of the Act.
These measures include:
* Enhanced bank account, electronic and other surveillance procedures
(Title II)
* More controls on accounts and transactions to prevent money
laundering and funding of terrorism (Title III)
* Increased access to financial records allegedly arising out of
illegal activity (Title III)
* Improved immigration enforcement (Title IV)
* Expanded powers to gather and use information to stop funding for
terrorism (Title V)
The Act consists of ten "Titles" covering more than 340
pages of complex
changes and additions to over 15 existing laws and regulations affecting
financial institutions. For a detailed analysis of the Act by the
Congressional Research Service, see: The USA
<<http://www.fas.org/irp/crs/RL31377.pdf>>
PATRIOT Act: A Legal Analysis.
*Tip: On October 11, 2002, the Treasury Department issued a press
<<http://www.treas.gov/press/releases/po3530.htm>>
release stating that it
will "provide financial institutions with a reasonable amount
of time in
which to come into compliance" with certain regulations. The
Treasury
Department should issue more regulations in the next few months.
Western Union Caught by Broad Powers of USA Patriot Act and Bank Secrecy
Act
Even without complete regulations, the broad reach of the Money Laundering
Act creates or enhances the power of the Federal government to identify
and
interrupt terrorism-related financial transactions, dismantle financial
infrastructures of terrorism, and potentially confiscate funds or
assets
used by terrorists or for their benefit. In Western Union's case,
the
authorities used this power to allege multiple failures by the company
to
document transfers of cash around the globe, as required by the Act.
Such
funds could have been used to fund terrorism. Western Union has agreed
with
the New York Banking Department in a consent
<<http://www.banking.state.ny.us/ra021218.htm>>
agreement to provide missing
information and initiate training programs.
A "Square Peg in a Round Hole": The Application of the Act
to Leasing and
Lending
The financial services industry (including lessors and lenders) should
focus
on Title III of the Act, called the "International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001." See: Sections
301 to
377 of the Act (the "Money Laundering Act"). For a more
detailed summary of
how the Act affects financial institutions, see a Federal Reserve
Bank
article titled: "'Patriot'
<<http://www.clev.frb.org/bsr/Conditions/v3n1/v3n1.htm>>
Law Aims to Deter
International Money Laundering" and "Bank Secrecy Act: Changing
Environment." This title "sunsets" (that is, terminates)
on October 1, 2005
if Congress enacts a joint resolution to that effect.
Despite the different circumstances of the Western Union case, leasing
and
secured lending transactions may still fall within this scope of the
Act. In
essence, if a leasing or secured lending transaction of a financial
institution (which includes lessors and lenders) constitutes a money
laundering transaction or other violation of the Money Laundering
Act, the
lessor or lender may become subject to the reporting, due diligence
and
sanctions of the Act. Sanctions include fines and forfeitures of leased
property or collateral.
For example, as a lessor or lender, say you enter into a printing
press
lease with a non-U.S. person or make a secured loan to a non-U.S.
person.
For funds flow and/or additional security for rent/loan payments,
you
establish a blocked, controlled, reserve, deposit or other account
to
receive and disburse funds. You take a security interest in the account.
Absent a default, your lessee or borrower pays funds to the account
and can
receive funds from the account when appropriate. The funds can be
wired to a
non-U.S. account. This part of the transaction alone could cause money
laundering concerns, and trigger compliance requirements of the Act.
See
Section 312 of the Act regarding policies and controls of accounts
for
foreign persons.
*Technical Point: "Money laundering" in general refers to
the flow of cash
or other valuables derived from, or intended to facilitate, the commission
of a criminal offense (including terrorism). The USA PATRIOT Act:
A
<<http://www.fas.org/irp/crs/RL31377.pdf>>
Legal Analysis, at page 24. An
"account" seems to refer to any type of arrangement to hold
or transfer
money, but the term has not been completely defined. See: Section
<<http://www4.law.cornell.edu/uscode/31/5318.html>>
311(e) of the Act and 31
U.S.C. 5318(i) and (j).
Beyond the use of accounts in your deals, does the Money Laundering
Act
apply to your transactions? Does applying the law to lessors and lenders
seem like trying to fit a square peg (leases and loans) into a round
hole
(bank account regulation)? For the moment, no clear answer exists
to the
question of whether or to what extent the Act applies to leasing or
lending
deals. However, the sweeping nature of the law, the seriousness of
its
goals, and the powerful nature of its sanctions merit close attention
by
lessors and lenders.
*Warning: Your failure to comply with the Act (if it does apply to
you) may
result in potentially serious penalties, including confiscation of
leased
property or collateral and fines. Exercise caution and diligence if
your
lessee or borrower (including its owners/controlling persons) is not
a U.S.
citizens or resident or if you have any suspicion that funds or property
in
your deal may be used by your lessee or borrower to engage in or control
acts of terrorism. Should you face an inquiry, you may be able to
use the
so-called "innocent owner defense" to avoid forfeiture of
your property
and/or collateral (including proceeds). You may potentially use this
defense
if you do not know of a violation, and structure your deals properly
to
exercise appropriate and immediate remedies. See: 18 U.S.C.
<<http://www4.law.cornell.edu/uscode/18/983.html>>
983(d)(6) and Sections 106,
316 and 806 of the Act.
Taking Action To Comply with the Act
Given the likely expansion of efforts to enforce the Act and to combat
terrorism in the United States, if you qualify as a financial institution,
you should consider taking the following actions.
* Develop a compliance program that includes: (1) creating an internal
policy, procedures and controls relating to the Act, (2) appointing
a
compliance officer, (3) initiating training, and (4) establishing
independent audit procedures. See: 31 U.S.C.
<<http://www4.law.cornell.edu/uscode/31/5318.html>>
5318(h) and Section 352
of the Act.
* Perform due diligence on each cross-border, foreign or other
transaction in which you have any money laundering concerns, especially
if
your lessee or borrower is not a U.S. citizen or resident. Use due
diligence
to check appropriate lists to identify known or suspected terrorists.
* Draft representations, warranties and covenants for your loan and
lease documentation that enables you to identify and take immediate
action
that may remedy violations of the Act.
*Remember: This complex law may already include requirements that
apply to
you and affect your transactions. The focus of the Act is to stop
domestic
and foreign terrorist acts against US interests. Because compliance
with the
Act is not optional, you should evaluate the Act (if you have not
done so)
and comply with it early in 2003 to protect your interests, assets
and
operations.
[Top]
2. Leasing Prospects Improve for 2003 Despite Credit Concerns
The U.S. economy has been remarkably resilient in the face of corporate
scandals, terrorism, a down stock market and record
<<http://www.businessweek.com/bwdaily/dnflash/jan2003/nf2003012_8278.htm>>
bankruptcy filings. According to Bankruptcy.com
<<http://www.bankruptcydata.com>>
, 186 public companies filed bankruptcies in
2002 (with $368 billion in debt). These filings take second place
in the
record books for the highest number of public company bankruptcies
compared
to 2001 (with 257 public company filings). Bankruptcy casualties in
2002
included United Airlines, Kmart, Global Crossing, WorldCom and Conseco,
Inc.
It's no surprise to anyone that banks
<<http://www.monitordaily.com/app_enews/news.cfm?ID=8427>>
and other
financing entities reported the negative impact of major bankruptcies
and
defaults in the fourth quarter of 2002. The losses involve retailing,
energy, airlines, finance and telecommunications businesses.
The write-offs of investments by lessors and lenders in United Airlines
and
US Airways alone hit an array of luminaries in finance including Bank
<<http://www.monitordaily.com/app_enews/news.cfm?ID=8377>>
of America ($1.2
billion), The CIT Group ($41 million), Pitney
<<http://www.monitordaily.com/app_enews/news.cfm?ID=8376>>
Bowes ($100 million
including US Airways), and even Walt
<<http://www.monitordaily.com/app_enews/news.cfm?ID=8383>>
Disney Co. ($114
million). Each of these lessors/lenders took major write-offs in the
fourth
quarter.
Morgan Stanley has $4.8 billion of aircraft exposure, with impairment
write-downs in excess of $74 million already this year. This exposure
makes
Morgan Stanley one of the top players in financing aircraft along
with
General Electric Co., Boeing Capital Corp ($1.3 billion) and American
International Group, Inc. See: Morgan Stanley Could Take Hit On Leasing
Unit, The Wall Street Journal (S.W. Ed.), December 19, 2002; Section
C:5,
Col. 4.
Despite this bankruptcy trauma and the shaky economy, signs of an
economic
rebound and renewed capital spending have started to emerge, with
the
exception of commercial aviation. The following diverse points support
this
bit of optimism:
1. According to Alan Greenspan, the economy is still soft, but any
significant fall in the current geopolitical uncertainty about Iraq
in the
future should noticeably improve capital outlays. He also has said
that such
spending is the "indispensable spur to a path of increased economic
growth."
See: Economy
<<http://www.washingtonpost.com/wp-dyn/articles/A15030-2002Dec19.html>>
Still
Soft, Greenspan Warns. The Bush administration wants to prime the
economy
with a comprehensive "stimulus"
<<http://www.washingtonpost.com/ac2/wp-dyn/A14992-2002Dec19?language=printer>>
package. This package would, in part, include depreciation and other
write-offs to increase spending on equipment. Also see a summary of
President Bush's growth and job plan: Taking
<<http://www.elaonline.com/govtrelations/Federal/PDFs/BushPkgPt1.pdf>>
Action
to Strengthen America's Economy (January 7, 2003).
2. Chief financial officers have responded in surveys with improved
expectations about capital spending. Fleet Capital arranged for a
survey of
673 <<http://www.fleetcapital.com/resources/capeyes/a12-02-133.html>>
CFOs of
middle-market companies. In that study, 61 percent of the CFOs said
that the
economy did not alter their growth plans, while 87 percent reported
that
capital spending would remain stable or increase. CFO.com conducted
a survey
of 214 <<http://www.cfo.com/printarticle/0,5317,8279,00.html>>
CFOs
worldwide. The results of that survey suggest that the "U.S.
economy is once
again poised to take a run at a recovery." Most CFOs believe
the expansion
in the economy affecting them would show up in the second half of
2003.
3. According to its press release issued on January 2, 2003, the Institute
for <<http://www.ism.ws/ISMReport/ROB012003.cfm>>
Supply Management (ISM)
said that: "The manufacturing sector rebounded in December...Of
the 20
industries in the manufacturing sector, 11 industries reported growth:
Food;
Leather; Instruments & Photographic Equipment; Printing &
Publishing;
Textiles; Furniture; Electronic Components & Equipment; Paper;
Wood & Wood
Products; Transportation & Equipment; and Chemicals." These
industries
include some significant prospects for the leasing industry.
4. Martin Barnes, a widely quoted authority on forecasting and the
editor of
the Bank Credit Analyst (a Montreal based forecasting journal), has
analyzed
the current trends: He recently said: "For the first time in
50 years the
stock of installed equipment and software in U.S. business is shrinking
because it's wearing out faster than it is being replaced. The U.S.
economy
has become more capital intensive in the last decade because of the
spread
of information technology, which turns obsolete quickly and requires
continuing investments...Companies have actually under-invested, so
there
should be enormous pent-up demand for capital spending." See:
Inside a Shaky
Economy, Signs of Rebound Emerge, The Wall Street Journal (S.W. Ed.),
January 3, 2003; Section A:1, Col. 4.
*Tip: Spending on new equipment has continued to lag for several reasons,
including concern about a possible war with Iraq. As a lessor or a
lender,
you may benefit by promptly formulating and implementing a marketing
strategy that includes visiting CFOs at middle-market and other companies
within the industries mentioned above by ISM. Look for opportunities
to
finance and lease equipment in the most capital-intensive companies
mentioned by ISM, particularly those which may have obsolete technology
equipment in mission critical operations. Though the leasing market
may not
rebound early in 2003, efforts made now should help increase your
bottom
line when the pent-up demand for equipment turns into real deals.
[Top]
3. Community Banks
Increase Competition with Small-Ticket Lessors
According to recent Fitch Ratings <<http://www.fitch.com>>
, US community
banks will rebound in 2003, even if the economy has a slow start this
year.
Although interest rate margins remain under pressure, asset quality
remains
sound. See: US Community Banks & Thrifts to Rebound over Next
Quarters:
Fitch Ratings, Press Release (December 9, 2002), and community banks
stand
ready and able to compete with small ticket lessors.
Community banks can readily identify leasing opportunities with trained
personnel or by entering into collaborative efforts with brokers and
other
lessors. Although their potential for sourcing deals is significant,
some
experts in leasing believe that leasing products do not fall within
the
purview of the typical community bank. Rather, these banks often stick
to
typical consumer loans, mortgages and other small business loan products.
Small-ticket lessors do not seem to feel threatened by community banks
for
several reasons:
* Community banks often lack the expertise to create, price and market
leasing products;
* The infrastructure to form a leasing group requires time and
investment outside of core bank products and business models; and
* A typical bank may not be willing to take residual value and other
equipment-oriented risks in leasing.
See: What
<<http://www.elaonline.com/news/membersonly/news_report.cfm?id=4048>>
Lessors
are Saying About... Community Banks (ELA members only)
Before small-ticket lessors dismiss community banks as competitors,
lessors
should consider that community banks also possess large amounts of
available
capital, maintain extensive marketing contacts with small businesses,
and
can expand on existing or form new relationships with brokers and
other
lessors.
One of the more interesting ways for community banks to engage in
leasing
and avoid the infrastructure costs is a product called a "lease-loan
program." In these programs, a leasing company with the required
infrastructure helps identify and market equipment leasing to the
community
bank's best commercial customers. The bank then funds the lease by
making a
loan to the lessor. In turn, the lessor enters into a lease with the
customer as the lessee. On funding, the bank effectively gains a commercial
loan to its own customer with recourse to the customer and the lessor.
The
structure of this transaction looks like a back leveraged lease or
a
syndication. However, this application of the structure by community
banks
gives them a significant ability to compete with small-ticket lessors
without deviating too much from typical bank products or business
models.
See: How <<http://www.wib.org/wb_articles/delivery_oct02/leasing_oct02.htm>>
to increase loans with your best commercial credits, by David R. Frank,
Co-Chairman of BancLeasing, Inc. <<http://www.bancleasing.com>>
According to David Frank, the banks win three ways. They:
1. Earn fees for funding the lease;
2. Earn interest income from the loan to the lessor; and
3. Share in the upside residual value at the end of the lease.
Despite taking on risk management, the lessor also wins. The bank
has a high
level of confidence in funding leases for the benefit of the bank's
best
existing customers; therefore the lessor increases its deal flow and
acquires a built-in funding source familiar with the customer.
*Deal Opportunity: Though lessors may not feel the impact of community
bank
competition in the near future, this group of banks could become formidable
competitors in small-ticket leasing in the future. Perhaps independent
lessors should engage in more business with community banks as a source
of
deals and funding, which the leasing business needs in the current
economy,
and beat the competition in doing so.
[Top]
4. Merchant Energy Firms Tap Parent Utilities for Economic Power
With limited refinancing available to pay $90B of industry debt in
the next
few years, merchant energy companies have started to tap into their
regulated utility affiliates for cash and balance sheet support. See:
Energy
Firms Have Limited Refinancing Prospects for $90-Bil. Debt, Says S&P,
Global
Power Report (Nov. 7, 2002).
Parent companies recognize that their regulated utility units have
successfully provided energy to homes and businesses. The utilities
have
largely survived the traumatic downfall of the $200 billion energy
sector.
The unregulated energy companies have started to tap into the boring
but
steady regulated units to shore up their sinking fortunes. Through
a variety
of strategies, utilities have cut capital expenditures in order to
redirect
capital to parent companies, which, in turn, bail out their merchant
energy
units. See: Beleaguered Energy Firms Try To Share Pain With Utility
Units,
The Wall Street Journal (S.W. Ed.), December 26, 2002; Section A:1,
Col. 3.
In other cases, regulated utilities have absorbed operating costs
and other
obligations of unregulated affiliates.
Credit agencies have begun to recognize that "utilities are vulnerable
to
their parent's woes." Consequently, Fitch Ratings has cut more
than two
dozen utilities to junk status. According to Fitch Ratings, the economic
slowdown has devastated the wholesale power industry. Some merchant
generators and other power players face imminent bankruptcy. BusinessWeek
online predicts that NRG Energy Inc. (XEL) is a likely bankruptcy
candidate
early in 2003 followed closely by Mirant Corp. (MIR) and Allegheny
Energy
Inc. (AYE), each of which issued recent bankruptcy warnings. See:
The
<<http://www.businessweek.com/bwdaily/dnflash/jan2003/nf2003012_8278.htm>>
Bankruptcy Run Isn't Slowing (January 2, 2003).
In what other ways do the energy companies cope with their mountain
of debt?
They:
* Sell assets, including various power plants and service businesses,
to raise cash and pay debt
* Abandon power plants to pay their debts by handing the keys over
to
lenders
* Tap cash reserves of their regulated utility to pay debt of the
independent power units
* Defer building power plants; see: Energy Firms Defer Building Power
Plants, The Wall Street Journal (S.W. Ed.), November 6, 2002; Section
B:5B,Col.1
* Refinance debt by increasing interest rates and sweetening the terms
to win forbearance agreements
*Warning: Some experts suggest that time is running out for merchant
companies. As a lender or a lessor, you no doubt have been watching
this
saga develop. Signs of trouble at power/utility companies include:
1. Declining credit ratings 5. Working capital shortages
2. Deteriorating financial results 6. Borrowing from regulated utility
affiliates
3. Breaching of bank covenants 7. Changing senior management
4. Souring of bank relations 8. Failing to refinance short-term debt
See: Is
<<http://www.platts.com/businesstech/issues/0210/0210ebt_finance.shtml>>
time
running out for merchant companies? Platts Energy Business Technology,
by
Peter Rigby.
*Tip: Where economic crisis exists, look for indications (even small
ones)
of recovery and related financing opportunities. If you have a taste
for
risk, you may find some interesting opportunities to finance asset
purchases
or to lease mission critical equipment. Signs of a turnaround include
a
combination of successful asset sales, cancellations or delays of
construction plans, cost and staff reductions, winding down or eliminating
business lines, capital restructuring, debt repayments, and issuance
of
equity.
[Top]
5. FASB's Delays Final Interpretation on SPE's
The Financial Accounting Standards Board (FASB) announced
<<http://www.fasb.org/project/vie_update.shtml>>
December 30, 2002 on its web
site that "Interpretation 46, Consolidation of Variable Interest
Entities,
is being reviewed by the FASB staff, the Board, and a group of persons
outside the FASB." After considering these comments, the FASB
expects to
publish the final document in early January 2003 and to make it available
electronically by mid-January. The FASB has apparently moved toward
adopting
a variable interest model. This model tests the variable interests
of one
party in the subject entity, which may be a special purpose or other
entity
and may be called a "VIE" (a variable interest entity).
*Comment: This long-awaited Interpretation has led commentators to
say that
off-balance-sheet financing (including synthetic leases) has been
discredited. See an article in CFO.com titled: Off-Balance-Sheet
<<http://www.cfo.com/article/1,5309,8551||C|1,00.html>>
Deals: C'est la Vie?
The lack of a final Interpretation by the FASB has promoted such commentary
and virtually chilled (some might say, frozen) the use by financial
markets
of special purpose entities and even non-SPE synthetic leases. It's
time for
the FASB to publish a responsible and comprehensible document, even
if it
must narrow the scope of its project to do so.
[Top]
6. Leasing 101: What is a "Vendor Leasing Program"?
A "vendor leasing program" is an organized way for suppliers
of goods
(including software) and services to increase their sales. Vendors
accomplish this objective by arranging or providing financing for
their
customers to acquire these goods and/or services. The customer uses
the
financing to pay the purchase price to the supplier and then repays
the
financing over time under a lease or loan arrangement. Vendor leasing
programs primarily involve leasing of equipment and/or software, including
technology equipment, tractors and trailers, construction equipment
and even
aircraft. For more on vendor leasing, see: Tapping Diverse Markets:
Vendor,
Venture, and e-Leasing, in Chapter 21 of my book, Business
<<http://catalog.dummies.com/product.asp?isbn=0764553704>>
Leasing for Dummies
(BLFD)®.
[Top]
7. Events and Speeches; Training Offered
How the New (Accounting) Rules Will Affect Lease Financing Transactions.
Sponsor: Infocast. Event: Unwinding,
<<http://www.pblaw.com/Events/Pages/infocast_event/infocast.htm>>
Restructuring & Consolidating Special Purpose Entities Under the
New FASB
Guidelines. Dates and Times: Wednesday, February 12, 2003; 3:15 p.m.
- 4:45
p.m. in New York City (location to be announced). For
information/registration, contact Infocast <<http://www.infocastinc.com/>>
or
call (818) 888-4444.
Training Offered. To help improve your business functions, I offer
private
training seminars tailored to your specific needs at your designated
location. My interactive and informative approach relies, in part,
on my
book, Business <<http://catalog.dummies.com/product.asp?isbn=0764553704>>
Leasing for Dummies (BLFD)® and subjects I cover in BLN. We can customize
a
format for your training needs ranging from a three-hour seminar to
a
two-day course. For example, we can discuss such topics as the FASB's
changes in accounting rules affecting synthetic leasing. Feel free
to call
me at (214) 758-1545 if you would like to discuss your needs or interests.
Even if you don't train with me, perhaps I can recommend another training
program that works for you. Training is critical in any event!
[Top]
8. BLN Briefs:
New Tax Bonuses, Boeing Tanker Update and Streamlined Tax
Project Agreement
BLN Brief presents short-takes and updates of current issues. For
more
information on these stories, just email me at dmayer@pattonboggs.com
<mailto:dmayer@pattonboggs.com>
<<mailto:dmayer@pattonboggs.com>>
:
More "Bonus Depreciation" Proposed for 2003. The Bush "growth"
or "stimulus"
plan may include a temporary increase in the "bonus depreciation"
from 30
percent to 40 percent or more in first-year depreciation. For a description
of the law and how it works, see my article titled: New
<http://www.pblaw.com/newsletters/bln/release/bln_2002_04.htm#1
<http://www.pblaw.com/newsletters/bln/release/bln_2002_04.htm>>
Federal Tax
Law Changes Can Help Your Business Grow, in the April 2002 edition
of BLN.
In addition, the plan may increase to as much as $75,000 the immediate
write-off for certain new equipment purchases as a business expense.
See
article 2 above.
*Tip: Jeffrey Taylor, Founder of Executive Caliber, recently analyzed
the
impact of current bonus depreciation on the leasing market. Taylor
concluded
that the bonus spurred larger transactions involving 7-year and 10-year
property. However, a technical problem with passing the tax benefits
through
to investors in syndications, together with a slow economy, has inhibited
the volume of transactions created by the bonus depreciation. He also
noted
that bonus depreciation has not significantly helped increase leases
of
3-year and 5-year property. See: The Impact of Bonus Depreciation
on Leasing
Activity, Journal of Equipment <<http://www.leasefoundation.org/JELF/>>
Lease
Financing (Vol. 20, No. 2 - Fall 2002). It remains to be seen if the
bonus
depreciation gets a boost in Congress in 2003. Any such boost is expected
by
The Equipment Leasing <<http://www.elaonline.com>>
Association to include a
correction of the syndication glitch to foster new business in big-
ticket
leasing deals.
Boeing's Tankers Won't Fly...Yet. In a setback for The Boeing Company,
senior Pentagon officials again questioned in December 2002 whether
the Air
Force should enter into the $17 billion lease of 100 Boeing 767 aircraft
to
be converted to fuel tankers. Originally, Boeing intended to charge
around
$26 billion for the lease. However the lease cost has already dropped
significantly. See: Pentagon Delays Decision to Use Boeing Tankers,
The Wall
Street Journal (S.W. Ed.), December 20, 2002; Section B:4, Col. 3.
*Comment: While I would hardly count this as a dead project, Boeing's
persuasive abilities, Arizona Republican John McCain (a member of
the Armed
Service Committee) has long criticized the arrangement as a corporate
bailout <<http://mccain.senate.gov/boeinggao.htm>>
and thus made it a
political matter. Stay tuned for more developments in this deal.
Streamlined Sales Tax Agreement Becomes Final. The Equipment Leasing
<<http://www.elaonline.com>>
Association under the leadership of its Vice
President of State Governmental Relations, Dennis Brown, has actively
engaged in negotiations of the terms of the " Streamlined
<<http://66.28.69.53/sline/Final%20SSTIS%20Agreement%2011-12-02.pdf>>
Sales
and Use Tax Agreement." The Agreement is now in final form (as
of November
12, 2002). The fundamental purpose of the Agreement is "to simplify
and
modernize sales and use tax administration in the member states in
order to
substantially reduce the burden of tax compliance." In other
words, the
Agreement simplifies sales and use tax collection and other administration
for sellers of personal property. It does not, however, prescribe
the amount
of the tax to be set by a member state.
*Tip: When adopted and in effect, the Agreement will drastically change
how
states approach all aspects of sales and use tax administration. All
state
tax departments, sellers of goods and services and other state tax
experts
should closely follow the implementation of this Agreement.
[Top]
A Message From the Publisher,
<<http://www.pattonboggs.com/ourlawyers/a-z/dmayer.html>>
David
<<http://www.pattonboggs.com/ourlawyers/a-z/dmayer.html>>
G. Mayer
Happy First Anniversary to Business Leasing News!
With this issue, Business Leasing News (BLN) celebrates its first
anniversary. The past year has been one of amazing growth for BLN.
Your
interest expressed online, by telephone and in person has encouraged
me to
continue this significant effort of writing BLN. My primary goal is
to offer
strategies for your success through articles that you can use to make
money
or to stay out of harm's way in business. In short, I aim to do much
more
than report the news about leasing and finance. Stay with us as BLN
grows
and evolves! Encourage others to subscribe. Please continue to send
BLN or
me your comments. Your input is always welcome.
The Start of a New Year: Resolving to Reach Higher Standards
As is customary this time of year, most of us make New Year's resolutions.
Our resolutions should be more than the idle promise to hit the gym,
go on a
diet or give up a bad habit. Our resolutions in business should form
the
foundation of our year to come.
On December 31, 2002, Carol Hymowitz wrote in The Wall Street Journal
an
article worth reading titled: "Resolving to Let 2003 Be the Year
of Leading
With Higher Standards." (Page A:9, Col. 1). After the difficult
year we
faced in 2002, which included corporate scandals and far less than
a stellar
business results for many of us, here are three of her suggestions
for
leadership to ponder as you start the New Year:
* "Stand up for your beliefs and your dreams.
* Set goals that are reasonable but that stretch you to do your
personal best...
* Win your staff's respect-and motive them to work harder and
better-by eliciting their thoughts and opinions. Encourage them to
identify,
nurture and trust their talents and to try new things...."
I bet you have some resolutions of your own. Start by writing them
down.
Aspire to higher standards in 2003, as a leader and as a follower.
Learn
from the dramatic events of 2002 and apply those lessons this year.
I wish
you all the best for a successful, prosperous and happy New Year!
Feedback From You
Most months I share with you some comments I receive of what you think
of
Business Leasing News. In December, you responded eloquently and sincerely
to my holiday message and I would like to print two messages that
I
received.
One reader wrote: "I have enjoyed BLN and have found it to address
topics
impacting leasing in a timely and informative manner. I was particularly
taken by your heartfelt "I am blessed" comments. I applaud
your willingness,
at this time of year and in these economic times which are difficult
for so
many, to turn the spotlight, for just a moment, from the accounting,
tax,
legal, and political issues which make the leasing business challenging,
interesting and fun, to ... the real source of inspiration, happiness
and
thankfulness." Another reader wrote: " Thanks for the informative
newsletter. I too am very "blessed" for a variety of reasons.
It helps to
keep everything in proper perspective and keep our priorities in line."
As always, thanks for reading BLN and for your feedback.
About Patton Boggs LLP and My Practice
As you may be aware, I am a part of the Patton Boggs LLP
<<http://www.pattonboggs.com>>
business transaction group in the Dallas
office. Patton Boggs LLP is a law firm of almost 400 lawyers located
in
several US cities with extensive capabilities in over 50 areas of
legal
practice that include leasing, secured transactions, project and mezzanine
financing, bankruptcy, public policy, technology law and much more.
Patton Boggs engages in the legal aspects of buying, selling, financing
and
leasing real and personal property of all kinds, including aircraft,
energy,
facility, technology and other transportation assets. We also structure,
negotiate and close fractional ownership of business aircraft, vendor
programs and underlying transactions, tax-exempt and federal leasing
deals,
portfolio acquisitions, syndications of all sizes, and much more.
Given the
state of the economy, we often assist our clients with troubled deals
and
bankruptcies.
Please feel free to call me at (214) 758-1545 or e-mail me at
dmayer@pattonboggs.com <mailto:dmayer@pattonboggs.com>
<<mailto: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
opportunities to build relationships with you.
Thanks to the BLN Staff
I extend a special thank you to my editors at Patton Boggs LLP for
their
comments on this edition: Adrian Nicole McCoy, Julie Rivard, Sheila
Pedersen
McCoy and Steve Reagan. The technical team of George Barber and Winston
Jackson continues to provide invaluable support. Last but not least,
Patton
Boggs has selected some partners to look over BLN before it is posted
to our
website to make it the best it can be for you. I appreciate their
guidance
and assistance.
[Top]
All the best,
David
David G. Mayer
Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
(214) 758-1545 (phone)
(214) 758-1550 (fax)
E-Mail: dmayer@pattonboggs.com <mailto:dmayer@pattonboggs.com>
<<mailto:dmayer@pattonboggs.com>>
© David G. Mayer 2003
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<<http://catalog.dummies.com/product.asp?isbn=0764553704>>
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[Top]
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