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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.

Tags: tax leasing  |  french tax lease  |  spanish operating lease  |  japanese operating lease

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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