Sale and leaseback : using your production equipment as a tool for growth

Sale and leaseback is an arrangement in which one party sells one or several equipment items to a buyer who then immediately leases the property back to the seller for an agreed period. The seller continues use his production equipement and pays lease rentals.


Does your company own production equipment?  Do you wish to generate liquidity in order to finance a development project? Sale and leaseback allows yout to use your production equipment as a real tool for growth, providing immediate liquidity for you to implement your investment projects.

Traditionally, companies have mainly resorted to bank financing to support their development projects. However, recent years have seen a substantial credit crunch partly due to the new regulatory constraints introduced by the Basel III agreement. This trend has resulted in banks becoming prudent and imposing tighter credit conditions. As a result, many SME’s and intermediate size companies who traditionally turned to bank credit (intermediated financing) to finance their development, suddenly got deprived of their main source of financing.

In this favourable climate for disintermediated financing, alternative financing solutions such as sale and leaseback appear to be a real answer to credit crunch, by assisting companies in the refinancing of their industrial equipment in addition to or replacement of traditional credit lines.

Banks have limited presence in this market segment requiring complex equipment analysis.

«Unlike banks who use a statistical and granular approach, sale and leaseback  follows a case-by-case logic by financing equipment items that are core to companies’ activity», explains Jean-Baptiste Magnen, ChetWode President. «This is a practical approach with expert equipment brokers who are highly specialised and able to find value on old equipment items».

S&LThe implementation of a sale and leaseback transaction relies on a tri-criteria analysis:

  • Equipment valuation : assessment of their strategic and liquid nature,
  • Analysis of the lessee’s credit quality (corporate),
  • Structuration of the transaction allowing to offset the transaction risk areas (over-collateralisation, repayment pattern, re-marketing risk etc…)

 

This original and innovative reading of a business specific to sale and leaseback, based upon a dual approach (Corporate and Equipement) allows the possibility of providing financing to any kind of business. The « asset risk » analysis and the personalised structurating of leasing contracts allow the transaction risk to be balanced with the lessee’s credit risk, thus improving the overall assessment.

Industrial SMEs and intermediate size companies are the major beneficiaries of these new disintermediated financing tools, such as  sale and leaseback, that are perfectly adapted to substantial investments into production lines for example. By supporting investment strategies and growth projects of SMEs and intermediate size companies,  sale and leaseback lies at the very heart of the economic fabric and actively contributes to industrial development.

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