Leasing Warrants Convertibles

Prepared by:Jammie Ann Felpe

Aleaseis acontractualarrangement calling for thelessee(user) to pay thelessor(owner) for use of a property.

Sale and LeasebackAn arrangement whereby a firm sells land, buildings, or equipment and simultaneously leases the property back for a specified period under specific terms.

Operating LeasesA lease under which the lessor maintains and finances the property; also called a service lease.

Financial or Capital LeasesA lease that does not provide for maintenance services, is not cancelable, and is fully amortized over its life; also called a capital lease.

Off Balance Sheet FinancingFinancing in which the assets and liabilities involved do not appear on the firms balance sheet.

The Financial Accounting Standards Board issued SFAS #13Statement of Financial Accounting that details the conditions and procedures for capitalizing leases.

Regular capital budgeting procedures.How to finance the asset?Borrow? Retain earnings? Issue new stock? Alternatively, the asset can be LEASED.***A LEASE is comparable to a LOAN.

Estimated Residual ValueThe Value of leased property at the end of the lease term.Increase Credit Availability

A long-term option to buy a stated number of shares of common stock at a specified price.

Use warrants as sweeteners- help make the issue debt and preferred stock attractive

Convertible SecurityA security, usually a bond or preferred stock, that can be exchanged at the option of the holder for the common stock of the issuing firm.

Issuers standpointOffer a company the chance to sell debt with a low interest rate in exchange for a chance to participate in the companys success if it does well.Convertibles provide a way to sell common stock at prices higher than those currently prevailing.

1.T he exercise of warrants brings in new equity capital, while the conversion of convertibles results only in a switch from debt to equity.FlexibilityDifference in issuance costs between debt with warrants and convertible debt.