Which statement best describes a Leveraged Lease?

Which statement best describes a Leveraged Lease?

• A. two parties - lessor and lessee
• B. three parties - lender, funding source, lessee
• C. ownership transfer occurs automatically at end
• D. non-recourse is not a feature

Answer: (B)

Leveraged leases are financing structures that use three participants: the lessee who will use the asset, the owner/lessor who purchases the asset, and a lender or funding source that provides a substantial portion of the purchase price. The lender funds the asset through a loan to the lessor, with the asset itself serving as collateral and the lease payments designed to cover debt service. This three-party arrangement—lessee, lessor, and lender/funding source—is what distinguishes a leveraged lease from a simple two-party lease. Ownership transfer at the end is not automatic; there is typically an option for the lessee to purchase or other end-of-lease arrangements. The debt is usually non-recourse to the lessee, meaning the lessee’s obligation is to make the lease payments, not to satisfy the loan directly.

Leveraged leases are financing structures that use three participants: the lessee who will use the asset, the owner/lessor who purchases the asset, and a lender or funding source that provides a substantial portion of the purchase price. The lender funds the asset through a loan to the lessor, with the asset itself serving as collateral and the lease payments designed to cover debt service. This three-party arrangement—lessee, lessor, and lender/funding source—is what distinguishes a leveraged lease from a simple two-party lease. Ownership transfer at the end is not automatic; there is typically an option for the lessee to purchase or other end-of-lease arrangements. The debt is usually non-recourse to the lessee, meaning the lessee’s obligation is to make the lease payments, not to satisfy the loan directly.