One of the most common issues that I encounter in my teaching activities is the many definitions that often are used for the same word. Keeping the tax and accounting rules straight, for instance, is always confusing. This phenomenon is not limited to the regulatory arena, however. We in the leasing industry always are using similar terms to describe different products, etc. This is what has occurred in a recent post I made on Early Buyouts (EBOs). Luckily, my friend, Rick Remiker, the Managing Director of Merrill Lynch Capital – EF, has stepped in to help clarify EBO terminology by sharing his experience with us.
The context for Rick’s comments was my description of two types of EBOs. One of them was used to create off balance sheet leases, and the other form was used to meet potential flexibility issues of the lessee. Based on his experience, Rick believes that most industry participants would characterize an EBO as strictly an early buyout option without the ability to return the equipment at the EBO point. (As you may recall, the question that originated this discussion was “How does an EBO help with the FAS13 tests?”).
