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LEASING RENEWABLE ENERGY Projects

LEASING RENEWABLE ENERGY Projects. Stanley S. Fishbein, J.D., LL.M. (Tax), Managing Director LFC Capital, Inc. www.lfccapital.com. Legal Definition of a Lease .

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LEASING RENEWABLE ENERGY Projects

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  1. LEASING RENEWABLE ENERGY Projects Stanley S. Fishbein, J.D., LL.M. (Tax), Managing Director LFC Capital, Inc. www.lfccapital.com

  2. Legal Definition of a Lease A lease is a contract through which an owner of property (Lessor) conveys to another party (Lessee) the right to use the property for a period of time (Term) in return for a consideration (typically a periodic payment). A usage agreement. Not borrowing money (No stated interest rate). Real or personal property.

  3. Lease: Accounting Classification • Capital Lease or Operating lease • Financial Accounting Standards Board Statement No. 13 (FASB 13): Capital Lease if: 1. Automatic transfer of title to Lessee at end of lease term. 2. Lease contains a bargain purchase option. 3. Lease term greater than 75% of properties economic useful life. 4. Present value of minimum lease payments equal or greater than 90% of property’s FMV. FASB and IASB Lease Accounting Proposal

  4. Lease: Tax Classification • Nontax Lease or Tax Lease (aka true lease) • Who bears the risk of ownership (loss of residual value at end of lease term) ?

  5. Lease vs. Loan • 100% project cost vs. loan to value limitation • No compensating balances • No restrictive financial covenants • Flexible payment structures, e.g. off season step downs • Preserves existing bank lines Net benefit of leasing: More cash in hands of Lessee improves balance sheet ratios and profitability when invested in the business. Leasing: Will always be a powerful cash management tool!

  6. Leasing Energy Projects • Equipment vs. Building structural components Equipment examples: generators, chillers, boilers, energy management systems, lighting. Structural examples: windows, doors, roof, fascade, plumbing Capital Leases.

  7. U.S. Department of TreasurySection 1603 Energy Grant • Question #21: Is an applicant who owns eligible energy property eligible to receive payment if the energy property is leased to a non-profit or otherwise ineligible entity? • Answer: Yes. If the owner of the energy property is the applicant and is otherwise eligible, the fact that the property is being leased to an ineligible entity does not impact the eligibility of the owner/applicant provided it is a true lease and not a disguised sale.

  8. Ineligible Entitiesthat may benefit using true lease

  9. CHP: Nonprofit True Lease Cash Flow

  10. CHP : Key Metrics CHP System Cost: $1,165,150 100% Nonprofit (501C3, municipality, etc.)

  11. Contact Information Stanley S. Fishbein, J.D., LL.M. (Tax) Managing Director LFC Capital, Inc. 303 E. Wacker Drive, Ste 250 Chicago, IL 60601 Tel: (800-942-6341 Cell: (646) 418-6056 sfishbein@lfccapital.com www.lfccapital.com

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