A Spreadsheet Model for Domestic Leveraged Leases

Abstract

This article analyzes domestic leveraged leases (DLLs), which have been growing in importance as a method of financing numerous types of assets. DLLs are temporarily placed on hold in response to the 2008 collapse of financial markets, but will experience resurgence after the proposed regulatory reforms. Specifically, the author examines the financial and related issues that a lessor needs to evaluate when financing an asset utilizing the DLL. He discusses the intricacies of the DLL attributes and structures, and develops a spreadsheet model from a lessor's perspective for evaluating a DLL. Finally, the author illustrates the evaluation of a DLL utilizing a spreadsheet model with an example in which he derives cash flows, identifies the critical variables, and evaluates their impact on the rate of return to the lessor as well as the cost to the lessee.

TOPICS: Project finance, portfolio construction, portfolio theory