Hey monkeys, so I'm currently working on a sale-leaseback deal, and I was just curious about some of the technicalities of the leaseback.
Can a company buy back/replace an asset that they have sold and leased back within the period of the lease?
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As with all these things, it depends. In short, yes, it is possible to structure a deal such that the company has an option to buy back leased assets subject to some make whole premium or a yield. These deals are often referred to as “off balance sheet financings” and can be an attractive means of freeing up some change to deploy into growth capex.
much appreciated
What would be some examples? I know that operating leases are on the balance sheet unless it is less than 1 year.
Is it possible for operating leases longer than 1 year to be off-balance sheet?
Thanks for your time
Example: company sells a pipeline to buyer, company then leases its use back off buyer at some monthly rate, with the option to repurchase at 115, to use an arbitrary number. So company gets an upfront cash injection which it invests, and then it uses cash from ops to pay down the lease. It may or may not buy it back.
In the same example, the company may not want to even lease the pipeline back at all but may still want the option to buy it back subject to some structure.
As to how it hits the statements - cash comes in, PPE drops, equity hits the other side. Lease payments hit the income statement other expenses section, depreciation drops, both of which hit the cash flow statement, and so on and so forth.
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