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.
Recent years have seen a substantial credit crunch resulting in banks imposing tighter credit conditions. As a result, many SMEs and intermediate size companies who traditionally turned to bank credit (intermediated financing) to finance their development, suddenly got deprived of their main source of long-term 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.
Sale and leaseback characteristics and benefits
«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».
The 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 innovative reading of a business specific to sale and leaseback, is based upon a dual approach (Corporate and Equipement). It allows the possibility of providing financing to any kind of business. The « asset risk » analysis and the specific structurating of leasing contracts allow the transaction risk to be balanced with the lessee’s credit risk, especially for companies with complex credit stories.
Who is sale and leaseback meant for ?
However, this type of financing is not exclusively meant for companies facing difficulties. On the contrary, some leading names in industry like Chargeurs Group or Arc International have been using sale and leaseback to support their growth and diversify their financing sources.
More recently, the automotive subcontractor MBF Aluminium and the Spanish tissue paper manufacturer Cominter Group, have sought a sale and leaseback financing (respectively 7.25M€ and 6.3M€), to modernise their processes and finance their growth.
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.