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Federal Lease
Obligations
1. HOW DO YIELDS ON FEDERAL LEASE OBLIGATIONS
COMPARE TO "PRIME"?
The Federal Leases Dominique PLC places
with its clients usually yield two to three hundred basis
points over “prime”. They are also considerably
higher yielding then comparable maturing treasuries.
2. WHAT TYPE OF INSTITUTIONAL INVESTORS INVEST IN THESE
FINANCINGS?
Community banks and insurance companies who are looking
for a sound alternative to bonds or other fixed income
investments are typical investors in these loans/fixed
income investments.
3. 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.
4. ARE THESE INVESTMENTS LIQUID?
Federal Lease Obligations should be invested in with
the intention of holding to maturity. Federal Leases
can be placed with another investor they are nothing
like the most liquid investment in the world, that being
Treasury Bonds. Dominique PLC would work
on a best efforts basis to remarket the offering for
the investor.
5. WHAT TYPES OF FEDERAL ENTITIES USE THIS TYPE OF FINANCING?
Most federal departments and agencies use it. The Department
of Defense, USDA and Veterans Hospitals are a few of
the federal entities.
6. HOW ARE FEDERAL LEASES REVIEWED BY EXAMINERS?
They are reviewed favorably. This type of financing has
been in existence since approximately World War II. Since
the lessee/borrowers are federal departments and agencies
of Uncle Sam, entities examiners review them favorably.
7. HOW ARE THE PAYMENTS DETERMINED?
The federal government almost always structures their
payments on a monthly basis.
8. WHAT TYPE OF EQUIPMENT IS USUALLY FINANCED?
Equipment typically financed is usually telephone and
computer systems, copiers and medical equipment are typical
types of equipment financed.
9. WHY DOESN'T THE FEDERAL GOVERNMENT PAY CASH FOR THE
EQUIPMENT?
Although the federal government has been known to spend
freely at times, every department has a budget that they
try to stay within. Lease financing enables them to acquire
equipment when needed and pay for it over time while
not requiring them to make the up front expenditure outright
purchasing requires.
10. ARE THESE TRUE LEASES OR LOANS?
They can be true leases or loans depending on how the
federal government wants to finance the equipment. In
some cases, the government knows that they will continue
to use the equipment after the financing term has ended.
Under this format, they will have paid off the equipment
in full with their last payment being for one dollar
just like a loan. Therefore, they own the equipment outright.
The government may choose to structure the financing
like a true lease. Under this arrangement they have not
paid for the equipment in full by making all principal
and interest payments, but have the option to purchase
the equipment for usually ten percent of the equipment
cost. If they choose not to exercise their purchase option,
the equipment goes back to the vendor or leasing company.
The government may also elect to finance the equipment
under a rental arrangement. In this case, they may wind
up making payments for indefinite time periods with their
total payments made far exceeding the cost of the equipment.
Under any of the three scenarios the government chooses,
our clients would have received all principal due to
them along with the appropriate amount of interest after
the successful completion of the financing term. No matter
which scenario the government chooses, investor is buying
only the principal and interest stream, not a residual
position. The investor is secured by the equipment during
the term.
11. WHAT IS THE ANNUAL VOLUME?
The industry volume is well over ten billion dollars.
The federal government is the largest lessee in the world.
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