I am pretty sure that not everyone reads all the comments that come in to my blog (other than Kit Menkin and myself), so occasionally I will highlight some of them. This week I got one from Doug Dawkins of Tyco Healthcare relating to Unlimited Net Loss (UNL) pools. Specifically, Doug would like to see comments on UNL pools and maybe get some discussion going between lessors and vendors to share their ideas on how to structure and account for them. For instance, are there characteristics common to most pools, or are there alternatives to pools that lessors and/or vendors have used successfully?
The UNL, of course, is one of several techniques that lessors use to provide funding to a broad credit range of their partners’ customers while, at the same time, protecting themselves against credit losses. There are several variations of the pools, but usually the vendor agrees to provide the lessor with some level of recourse or residual support. One of the primary obstacles to putting a pool together, other than the vendor’s lack of enthusiasm to do so, is the revenue recognition problems created for the vendor. This continues to be an issue, particularly given the SEC’s interest after big blow-ups like Lucent. There also is a body of accounting literature that continues to grow of which everyone in vendor leasing must be aware. The trick is to strike that perfect balance between serving all the vendor’s customers, adequately addressing the lessor’s risk, and providing immediate revenue recognition for the vendor.
So, tell us what you are doing out there. How many of you regularly incorporate UNLs into your program agreements? What are the primary issues? Is it revenue recognition, economics, tracking, etc.? Let’s get perspectives form all sides. Inquiring minds want to know.
Thanks, Shawn. I hope we'll get some feedback on this issue.
I really appreciate your efforts to assist us.
Posted by: Doug Dawkins | April 10, 2006 2:32 PM | Permalink to Comment