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Feature: More tax Leases as economy picks up
21 April 2011
Tax leasing has suffered from a shortage of equity in the downturn because of minimal corporate profits. With the market moving again, Patrick Winters looks at which credits are best suited to this channel of finance.
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Customers always want a cheaper lease rental. Along with sale/leasebacks, tax leases offer some of the most attractive rates and, in some cases, 100% financing.
In the commercial loan market predelivery payment finance is difficult to obtain because fewer banks are willing to take risk on this kind of structure. Spreads for aircraft loans rise 70% when the loan-to-value of an aircraft mortgage rises from 75% to 90%.
While providing an attractive form of financing, the market for tax leases is marginal compared with sale/leasebacks and export credit, because equity can be hard to source.
"Tax lease structures are fairly limited to supposedly good credits because an early termination of a tax lease structure is always costly for the tax provider," says Jose Abramovici, global head of aviation, Credit Agricole-CIB.
Instead, equity providers prefer to invest into airlines that have a lower risk of defaulting before expiry of...
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