- HOW DO YIELDS ON COMMERCIAL LEASE OBLIGATIONS COMPARE WITH THE PRIME RATE AND WHAT ARE THE TYPICAL MATURITIES?
Yield relationships vary over time depending on the current interest rate environment and the lessee's financial strength. Yields usually range from approximately four to five hundred and fifty basis points over prime depending on the financial condition of the credit and rate environment. They are also considerably higher yielding then comparable maturing corporate bonds with similar terms. A “Fortune 1000” is going to get a much more aggressive rate than a credit of less financial strength. A majority of Commercial Lease Obligations placed by Dominique PLC have maturities of two -five years. The average life of a financing is much shorter due to the principal and interest return during the term.
- WHO ARE THE INVESTORS IN COMMERCIAL LEASE OBLIGATIONS?
Investors who are looking for a sound alternative to bonds or other fixed income investments are typical investors. These loans/fixed income investments are utilized by banks, individual/private investors and insurance companies.
- WHAT ARE THE TYPICAL DENOMINATIONS?
Offering sizes range from $5,000 to several hundred thousand dollars with some offerings being much larger. As a result of the large number of Commercial Leases we have access to, a variety of different size offerings are available. The entire financing is usually placed with a single investor. This gives the investor complete control and ownership of the financing, unlike a participated situation.
- FOR WHOM IS THIS TYPE OF LOAN/INVESTMENT SUITABLE?
As a result of the somewhat limited secondary market, individual and institutional investors who have a sufficient amount of liquid holdings should utilize Commercial Lease Obligations in their portfolio. Given their self liquidating nature, most investors can utilize commercial lease obligations in their portfolios.
- HOW LIQUID ARE COMMERCIAL LEASE OBLIGATIONS?
Commercial Lease Obligations can be sold to another party but they are not liquid like corporate bonds. Dominique PLC would work on a best efforts basis to find another investor.
- HOW IS THE INTEREST TREATED FOR TAX PURPOSES?
As a straight debt financing. These are private placements and there are no 1099s because these are not registered investments. The investor will receive a payment schedule stating how much principal and interest they will receive in each payment during the term.
- WHAT TYPES OF COMMERCIAL LESSEES/CREDITS ARE INVOLVED?
The credits can vary from “Fortune 1000's” to small and medium size private companies, colleges and Indian Nations. Some of the companies have been operating for several years and others since the turn of the century. A majority of the Commercial Lease Obligations that Dominique PLC place with its clients involve non-public companies.
- WHAT TYPES OF EQUIPMENT ARE FINANCED?
Equipment financed can range from telephone systems, trucks, forklifts to energy management systems.
- FOR BANK INVESTORS, HOW ARE THESE REVIEWED BY EXAMINERS?
As a result of the straight forward nature of these loans/investments, examiners give them a favorable review. The fact that over 95% of the Commercial Lease Obligations placed by Dominique PLC are not in the same state where our bank client is located, remains overwhelming testimony that these financings are viewed favorably by examiners. All of our bank clients are community institutions.
- WHY IS COMMERCIAL LEASE FINANCING UTILIZED INSTEAD OF A CASH PURCHASE OR CORPORATE BOND ISSUE?
The size has a lot to do with issuing a corporate lease. In many cases a borrower/lessee is financially capable of purchasing outright the equipment. Sometimes they prefer to take advantage of a true lease financing as opposed to a lease/purchase structure for tax purposes, which allows them to expense the entire payment. Approximately 80% of all corporations lease finance a portion of their equipment needs.
- HOW ARE THESE FINANCINGS STRUCTURED?
The Commercial Lease Obligations that we place resemble a loan more than a true lease. Under all of the following structures Dominique PLC investor is paid off in full at the end of the term with the receipt of the principal and interest due them. The equipment does not need to be sold at the end of the term to produce the investor's expected return. There are a few ways in which these financings are structured. The borrower/lessee can elect to own the equipment at the end of the term by paying off the equipment in full with all their principal and interest payments. Or, the lessee can structure a “fair market value” financing. Under this arrangement the lessee will not own outright the equipment after making all their principal and interest payments. They will have the option to purchase the equipment at the end of the term for the "fair market value", usually ten percent of the original cost.