8038-G
Form of the Internal Revenue Service that governmental borrowers (including lessees) must complete to report the issuance of tax-exempt securities, their general purpose, their general financial terms, the exemption used for tax-exempt private activity bonds, and to transmit arbitrage rebate amounts to the IRS. An 8038-G is used when the issue price is over $100,000.

8038-GC
Form of the Internal Revenue Service that governmental borrowers (including lessees) must complete to report the issuance of tax-exempt securities, their general purpose, their general financial terms, the exemption used for tax-exempt private activity bonds, and to transmit arbitrage rebate amounts to the IRS. An 8038-GC is used when the issue price is under $100,000.

Acceptance Letter
A letter signed by the lessee signifying the equipment has been delivered. The letter allows the lessor to pay the vendor.
Advance Payments
One or more lease payments required to be paid to the lessor at the beginning of the lease term. Lease structures commonly require one payment to be made in advance. This term also refers to leasing arrangements in which the lease payment is due at the beginning of each period.

Advance Payments
A leasing arrangement in which the lease payment is due at the beginning of each period.

Amortization
The process of separating payments into their principal and interest components. An amortized loan is one in which the principal amount of the loan is repaid in installments over the life of the loan, with each payment comprised partially of interest and partially of principal.

Arbitrage
Simultaneous purchase in one market and sale in another of a security in order to make a profit on relative price differences. For example, a lessee cannot borrow money through a lease and then take those funds and invest them at a higher interest rate than the stated rate on the lease. If this occurs, in many cases the lessee must pay federal income tax on those additional earnings.

Arrears Payments
A leasing arrangement in which the lease payment is due at the end of each period.

Assign
To transfer or exchange future rights. In leasing, the right to receive future lease payments in a lease is often transferred to a funding source, in return for up-front cash. The up-front cash represents the loan proceeds from the funding source, and is equal to the present value of the future lease payments discounted at the leasing company’s cost of borrowing. A lease assigned by the lessor to a funding source is called an assigned lease. The assignment of leases is a very common funding technique used by leasing companies.

Assignment
A provision within a lease agreement that allows either, neither or both parties of a lease transaction to deliver their obligation to a third party in return for immediate compensation.

Balloon Payment
A large payment at the end of the loan allowing smaller payments to be made during the term.

Bank Qualified
Under current provisions of the Internal Revenue Code, commercial banks can deduct 80 percent of their interest costs on funds used to acquire or “carry” tax-exempt obligations (bonds and leases) of governments that borrow no more than $10 million in a calendar year; otherwise, the interest cost is not deductible by the bank. The availability of the interest deduction on bank qualified leases makes them more attractive to commercial banks than obligations of larger issuers. Commercial banks may invest in non bank qualified leases but the loss of the deduction for interest costs on funds borrowed by the bank for the initial investment in the lease, requires additional compensation through a higher interest rate in the lease than in a smaller bank qualified transaction.

Basis Point
One one-hundredth of one percent (.01%). For example, 100 basis points equals 1%.

Broker
A company or person that arranges lease transactions between lessees and lessors for a fee.

Buyout
The amount the lessee must pay the lessor to terminate a lease early. Usually calculated to include tax recaptures, unpaid property taxes and lost revenues.

Certificate of Acceptance
A document signed by the lessee to acknowledge the equipment to be leased has been delivered and is acceptable. Many lease agreements state that the actual lease term commences once this document has been signed.

Certificate of Participation
A municipal lease fractionalized into shares and assigned or marketed to investors.

Collateral
Equipment or other tangible assets such as a house, car or securities pledged by the lessee to the lessor to minimize the risk of default.

Commitment Fee
A fee required by the lessor at the time a proposal or commitment is accepted by the lessee to lock in a specific lease rate factor and/or other lease terms.

Commitment Letter
A document prepared by the lessor that sets forth its commitment, including rate and term, to provide lease financing to the lessee. This document, if utilized, precedes final documentation, and may or may not be subject to lessor credit approval.

Corporate Resolution
A document signed by the registered corporate officer, designating company representatives who may sign leases.

Default
A condition whereby the lessee does not make the payments as required by the lease contract.

Depreciation
A means for a firm to amortize the cost of a purchased asset, over time, through periodic deductions or offsets to income. Depreciation is used in both a financial reporting and tax context, and is considered a tax benefit because the depreciation deductions cause a reduction in taxable income, thereby lowering a firm’s tax liability.

Dun and Bradstreet (D & B)
A financial company that provides credit information on businesses in the U.S.

Early Termination
Occurs when the lessee returns the leased equipment to the lessor prior to the end of the lease term, as permitted by the original lease contract or subsequent agreement. At times, this may result in a penalty to the lessee.

Equipment Schedule
A document incorporated by reference into the lease agreement that describes in detail the equipment being leased. The schedule may state the lease term, commencement date, repayment schedule and location of the equipment.

Equipment Specifications
A specific description of a piece of equipment that is to be acquired, including, but not limited to, equipment make, model, configuration and capacity requirements.

Escrow Account
In some cases, the lessee and lessor will agree to fund the lease up front rather then waiting until the property being leased is delivered and accepted. The funds to eventually pay the vendor are placed into an Escrow Account created through the use of an Escrow Agreement between the lessee and lessor. Tatonka may be the Escrow Agent that manages the Escrow Account or it may be a banking institution. Funds are invested and the earnings on the funds can accrue to the lessee or the lessor. This account can be used to disburse progress payments during the installation period if approved by the lessee and lessor, which is one of the primary reasons for using an Escrow Account. The other main reason is to “lock” in the interest rate at the time the Escrow Account is created rather than trying to hold or index an interest rate.

Essential Use
Use of leased equipment is considered essential when in a well-and long- established program or function.

Fair Market Value (FMV)
The value of a piece of equipment if the equipment were to be sold in a transaction determined at arm’s length, between a willing buyer and a willing seller, for equivalent property and under similar terms and conditions.

Financing Statement
A notice of a security interest filed under the Uniform Commercial Code (UCC).

Fixed Purchase Option
An option contained in the lease agreement allowing the lessee to purchase the equipment at a predetermined price at lease term.

Funding
The process of paying the manufacturer of the equipment for the equipment being placed on lease.

Funding Source
An entity that provides any part of the funds used to pay for the cost of the leased equipment. Funds can come from either an equity funding source, such as the ultimate lessor in a lease transaction, or a debt funding source, such as a bank or other lending institution.

Guaranteed Residual Value
A situation in which the lessee or an unrelated third party (e.g., equipment manufacturer, insurance company) guarantees to the lessor that the leased equipment will be worth a certain fixed amount at the end of the lease term. The guarantor agrees to reimburse the lessor for any deficiency realized if the leased equipment is salvaged subsequently at an amount below the guaranteed residual value.

Guarantor
The party that promises to pay the lease payments to the lessor in the event the lessee defaults.

Hell-or-High-Water Clause
A clause in a lease that states the unconditional obligation of the lessee to pay rent for the entire term of the lease, regardless of any event affecting the equipment or any change in the circumstances of the lessee.

Indemnification
A clause in a master lease agreement that requires the lessee to indemnify lessors against any and all claims, suits, actions, damages, liabilities, expenses, costs, including attorney fees, whether or not suit is instituted, arising out of or incurred in connection with the equipment.

Interest
The difference between the total loan payments and original loan amount (principal). Interest is to a loan as earned income is to a lease.

Interest Expense
An amount paid to a lender in return for a loan. Typically the interest is paid out over time, accompanied by a reduction in loan principal.

Landlord Waiver
A document required by a lessor when a lessee is placing the leased equipment on a property leased from another party, to secure lessor’s rights.

Lease Acquisition
The process whereby a leasing company purchases or acquires a lease from a lease originator, such as a lease broker or leasing company.

Lease Origination
The process of uncovering (through a sales force), developing and consummating lease transactions. Steps in the process include, but are not limited to, prospecting for new lease business, pricing potential transactions, performing credit reviews and completing the necessary documentation.

Lease Payments
Also called rentals. The amount the lessee pays the lessor in return for using the leased equipment.

Lease Rate Factor (“LRF”)
A rate widely used in the leasing industry. Computed by dividing the monthly payment by the cost basis of the lease.

Lease Term
The fixed, noncancellable term of the lease. Includes, for accounting purposes, all periods covered by fixed-rate renewal options, which for economic reasons appear likely to be exercised at the inception of the lease. Includes, for tax purposes, all periods covered by fixed-rate renewal options.

Lessee
The user of the equipment being leased.

Lessor
The owner of the equipment leased to a lessee or user. (Legal title under the Uniform Commercial Code may be with the lessee in finance leases and non-tax leases.)

Lien
A security interest on property to protect the lender in the event of lessee default.

Master Lease
A lease containing boilerplate provisions that allows a lessee to obtain additional leased equipment under the same basic lease terms and conditions as originally agreed to, without having to renegotiate and execute a new lease contract with the lessor. The actual lease rate for a specific piece of equipment generally will be set upon equipment delivery to the lessee.

Nonappropriation Clause
Contractual provision found in municipal leases that provides that if the governmental lessee fails to appropriate or make available funds to make the lease payments called for under the agreement for the next appropriation period, the agreement terminates at the end of the current appropriation period. Such a clause is used to prevent lease payment obligations in future years from being classified as debt. Exercise of the nonappropriation clause is not an event of default.

Nonrecourse
A type of borrowing in which the lessee-borrower is not at-risk for the borrowed funds. The lender expects repayment from the lessee and/or the value of the leased equipment; hence, the lender’s credit decision is based upon the creditworthiness of the lessee, as well as the expected value of the leased equipment.

Nonsubstitution Clause
A clause providing that if the lessee in a lease with a nonappropriation clause exercises the clause to terminate the agreement, the lessee, within a specified time period after such termination, cannot purchase or use property similar in function to the property being leased.

Not Bank Qualifed
Refer to the definition of bank qualifed.

Operating Lease
From a financial reporting perspective, a lease that has the characteristics of a usage agreement and also meets certain criteria established by four rules of FASB. Such a lease is not required to be shown on the balance sheet of the lessee. The term also is used to refer to leases in which the lessor has taken a significant residual position in the lease pricing and, therefore, must salvage the equipment for a certain value at the end of the lease term in order to earn its rate of return.

Payment Stream
The rentals due in a lease.

Payoff
Occurs when the lessee purchases the leased asset from the lessor prior to the end of the lease term.

Point
One percent, or one percentage point (1.00%). A point also represents 100 basis points.

Private-Public Use Rules
A property must meet the private-public use rules in order to qualify for tax-exempt status. This pertains to the fact that there are federal guidelines that do not allow “private” entities to benefit from tax-exempt financing. An example is a City Hall of approximately 10,0000 square feet. It has a news/gift shop that uses 1,000 square feet and a coffee/snack shop that also uses 1,000 square feet, and both are operated by a for-profit enterprise. The private use of the facility is 20% of the total square footage. This would disallow the financing on a tax-exempt basis of the 10,000 square foot City Hall. Tatonka Capital Corporation would likely utilize a bond counsel to evaluate such a transaction.

Present Value
The discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate. Present value represents a series of future cash flows expressed in today’s dollars.

Purchase Option
An option in the lease agreement that allows the lessee to purchase the leased equipment at the end of the lease term for either a fixed amount or at the future fair market value of the leased equipment.

RFP
Request for Proposal

RFQ
Request for Quote

Rate Factor
A percentage amount that, when multiplied by the original equipment cost, produces the monthly rental.

Recourse
A type of borrowing in which the borrower (lessee) is fully at-risk to the lender for repayment of the obligation. The recourse borrower (lessee) is required to make payments to the lender whether or not the lessee fulfills its obligation under the lease agreement.

Renewal Option
An option in the lease agreement that allows the lessee to extend the lease term for an additional period beyond the expiration of the initial lease term, in exchange for lease renewal payments.

Residual Value
The value, either actual or expected, of leased equipment at the end, or termination, of the lease.

Rolling Stock
A general term for cars, trucks, etc. Could also include school buses, fire trucks and ambulances.

Sale-leaseback
A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.

Security Interest
An interest in property acquired by contract for the purpose of securing payment or performance of an obligation.

Spread
The difference between two values. In lease transactions, the term generally is used to describe the difference between the interest rate of the lease and the interest on the debt used to fund the lease.

Step-payment Lease
A lease that contains a payment stream requiring the lessee to make payments that either increase (step-up) or decrease (step-down) in amount over the term of the lease.

Structuring
Pulling together the many components of a lease to arrive at a single lease transaction. Structuring includes, but is not limited to, lease pricing, end-of-term options, documentation issues, indemnification clauses, funding and residual valuations.

Termination Value
The liability of the lessee in the event of termination is set forth in a termination schedule that values the equipment at various times during the lease term. This value is designed to protect the lessor from loss on investment. If the equipment is sold at a price lower than the amount set forth in the schedule, the lessee pays the difference. In the event the resale is at a price higher than in the termination schedule, such excess amounts belong to the lessor.

Uniform Commercial Code (UCC)
A set of standard rules, adopted by 49 states, that governs commercial transactions.

UCC-1
A UCC document filed by a lessor informing the public that the filing party legally owns the equipment on lease.

UCC Financing Statement
A document, under the UCC, filed with the county (and sometimes the secretary of state) to provide public notice of a security interest in personal property.

Useful Life
A period of time during which an asset has economic value and is usable. The useful life of an asset sometimes is called the economic life of the asset.

Variable Interest Rate
Interest rate charged under a lease that is subject to upward and downward adjustment during the lease term.

Warehousing
The short-term funding of leases before permanent funding is finalized.

Yield
The rate of return to the lessor in a lease investment.