Valuation Topics

Re: Capital Lease Discussion

Easiest way to think about it is like this: When you buy a company, you are NOT buying out the existing leases; i.e. the rent on HQ is not being paid in advance at the time of sale. As such, you wouldn't add Operating Leases as a form of debt to TEV nor to Sources & Uses of Funds in a transaction (... Read More

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by WST Expert 1.

added 9 years ago

Re: Capital Lease Discussion

Ok, that makes sense. When looking at credit ratios, however, do you account for capital leases?

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by Guest X.

added 9 years ago

Re: Capital Lease Discussion

Great, thanks a lot. That makes much more sense. If you were to include capital leases in the capital structure, would they be above common equity/preferred stock (in the context of a distressed situation).

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by Guest X.

added 9 years ago

Re: Capital Lease Discussion

1) Capital leases are treated as part of debt in credit ratios, as are the lease payments for both operating and capital leases. Refer to our in-class model on credit ratios 2) In a distressed situation, capital leases are typically cured and thus, no impairment. If yes impairment, then it falls ... Read More

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by WST Expert 1.

added 9 years ago

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