Revolvers Return, with Some Twists- Good news for credit-seekers as banks relax, a little.

If anything bodes well for the economy, this does: companies are opening up new revolving lines of credit and refinancing older instruments at reduced rates.

In 2010, lenders doubled their issuance of syndicated, revolving lines of credit, a staple of corporate finance, according to data from Thomson Reuters Loan Pricing Corp., with borrowings accelerating the second half of the year, to $381 billion.

During the financial crisis, banks cut their exposure to revolvers, downsizing instruments or flatly refusing to renew them. Now, individual banks are slowly raising the amount of untapped commercial-credit commitments they're willing to keep on their books, according to federal call reports.

As in the larger corporate-loan market, new issues are predominantly refinancings of debt set to mature in the next 12 months. In late February, for example, Avista Corp. replaced existing debt set to mature last April with a new $400 million facility that expires in 2015. Near the same time, FelCor Lodging Trust, an owner of 82 upscale hotels, closed on a $225 million instrument secured by 11 of its properties.

FelCor had terminated a line of credit in 2009 because covenants were getting tight, says Steve Schafer, FelCor's vice president of strategic planning. But once earnings rebounded, FelCor pursued a new revolver with a three-year maturity, a lower interest rate, and an option for a one-year extension to 2015.

"It's always good to push out maturities," says Schafer. "The lower interest rate [LIBOR plus 4.5%] improves our earnings, and a new [line] will help us manage liquidity better — we've been carrying excess cash because we didn't have a line of credit."

"With not as many strong credits, banks are eager to lend, and they are kind of bending some of the standards," says Richard M. Pollak, a practice group leader in lending and structured finance at Troutman Sanders LLP.

Companies with steady earnings can lengthen terms to five and, at the outside, seven years. "It's fairly typical of what we see entering a growth cycle," says Walter Owens, head of U.S. commercial banking at TD Bank. "But we're a bit surprised by some of the deals going out [five and seven years]. We've let some of these deals go because we didn't think the company deserved that type of facility."

Borrowers like being locked in. "They don't have to worry about waking up one morning and discovering that their lender is not so enamored of their business anymore," Pollak says.

So, could banks be under pricing risk again? While easing up on some loan conditions, banks are more disciplined at valuing the receivables, inventory, and real estate that secure lines of credit, says TD Bank's Owens. "Since loss and default rates were not as high as most banks anticipated, in the last six months banks have been more aggressive. But, from a historical perspective, they're still fairly conservative."

And companies are having to put up a lot of assets. For example, Delta Air Lines's new revolver is secured by accounts receivable, airport slots, ground-service equipment, spare parts, engines, and flight simulators, among other property. "Out of an abundance of caution, banks are taking a lot more collateral," says Pollak. So, while banks and institutional investors may be going long, they're definitely hedging their bets.

http://cfo.com/

Accounting update from ELFA

May 23, 2011: At a joint meeting on May 19, the FASB and IASB reversed recent tentative decisions in the lease accounting project as follows:

• Lessee P&L - No leases will be allowed straight line rent expense treatment but rather all leases will have be front ended lease costs equal to interest expense and depreciation of the right of use lease asset
• Lease Term - Will not be current GAAP but rather will be a lower threshold including consideration of strategic importance of asset, lessee intent and behavior in renewing in the past and will be adjusted when there are changes in judgment or circumstances
• Incremental Borrowing Rate - Lessee will use its new incremental borrowing rate to calculate adjustments when lease payment assumptions change
• Short-Term Leases - Will not be exempt from capitalization
• Lessor Accounting - Still undecided between only using a derecognition method or having both an operating lease method and a derecognition method. They are considering accreting residuals in the derecognition method.

New Government Regulations Driving Healthcare's Demand for Equipment Financing

Have you ever stood in a doctor’s office and stared at the seemingly endless rows of color-coded file folders lining every spare inch of the office? It is a scene we are all familiar with because the healthcare profession still maintains vital medical records the old fashioned way – handwritten notes, stuffed in manila folders, and stored on shelves or in file cabinets.
The federal government is seeking to change this system by promoting wide-spread usage of electronic health records (EHR) and providing financial incentives so physicians, hospitals, clinics and other medical services facilities are able to implement EHR systems. New government regulations will automate and streamline the physician’s workflow to improve patient safety and the quality of patient care. This industry-wide transformation is driving demand for new equipment and system upgrades.
Despite leading the world in IT development for sectors such as banking, communications and transportation, the United States has lagged behind other industrialized nations in the race to adopt EHRs and modernize its healthcare system. Some of the world’s leading users of this technology include the Netherlands, where 98% of primary-care providers use EHR systems, New Zealand and Australia, with 92% and 89% use respectively, according to a 2009 Commonwealth Fund survey.
Recently, however, US adoption rates of EHRs have improved. At the 2011 Annual Conference for HIMSS, Health and Human Services Secretary Kathleen Sebelius highlighted increases in the use of EHRs by US patient care providers in what she called “a revolution in healthcare.” Secretary Sebelius cited 2008 figures that showed only 10% of hospitals, and just fewer than 20% of doctors, use basic EHRs. Over the last two years, according to Ms. Sebelius, the percent of doctors using electronic records has increased to almost 30, and four out of five hospitals say they are planning to apply for government incentive payments by 2015 that will require them to meet meaningful use standards in EHRs.
Paper-based medical records lead to inevitable inefficiencies, and possible life-threatening errors. The aim of the federal regulations is to reduce data entry errors, speed the sharing of patient information, and minimize the time spent on preparing charts in advance of appointments. In order for electronic medical records to be truly effective, all healthcare providers who have a meaningful impact on patient care – from generalists to specialists – must meet the “meaningful use” standards.
Overview of the “HITECH” Act
The American Recovery and Reinvestment Act of 2009 included $19 billion in funding for the Health Information Technology for Economic and Clinical Health (HITECH) Act, aimed at advancing the adoption of electronic health records. The HITECH Act provides incentive payments for healthcare providers who implement EHR systems and meet “meaningful use” requirements. Penalties for those who fail to comply with these requirements will begin in 2015. The tight timeframe for achieving meaningful use and receiving the financial benefits will drive significant demand.
The objective of the HITECH Act was to encourage the use of EHRs in a meaningful manner while improving the quality of care through the efficiencies the electronic exchange of healthcare information creates. The financial incentives provided under the HITECH Act come in the form of Medicare and Medicaid reimbursements.
Achieving Meaningful Use
To receive the financial incentives and avoid penalties, medical providers must demonstrate that they are using the equipment and software in a meaningful way. Simply purchasing new software and hardware will not qualify a provider for incentive payments. Healthcare providers must demonstrate their usage of the equipment in a meaningful way, as defined by the Centers for Medicare and Medicaid Services (CMS), thereby reducing the redundancy and cost of patient care.
Meaningful use will be implemented in three stages, with stage one covering 2011 and 2012. For full details on the HITECH Act and the meaningful use requirements please visit the CMS website at www.cms.gov or the Office of the National Coordinator for Healthcare Information Technology’s website at www.healthit.hhs.gov.
Once approved, healthcare providers will be eligible for $40,000 to $65,000 in incentive payments. Federally qualified health centers, rural health clinics, children’s hospitals and other healthcare facilities are also eligible for funding through CMS.
The incentive payments for providers will be phased out over time, and Medicare/Medicaid payments will be reduced for those who fail to adopt certified electronic health records. Those not meeting the meaningful use requirements will see the incentives turn to penalties if meaningful use is not met by 2015.
Factors Driving Investment
Compliance with the new regulations means medical providers will need to invest in new IT hardware, software, and services. Purchasing the necessary equipment could cost tens of thousands of dollars for a small practice and carry a significantly higher price tag for larger practices and healthcare facilities. This required investment comes at a time when the healthcare industry, like most US industries, faces significant budgetary constraints.
During the recession, healthcare providers deferred investments in equipment upgrades to protect their own financial well-being. To cope with the recessionary environment, medical providers have been forced to improve quality, reduce costs, and increase transparency. In these tight budgetary times, medical providers cannot afford noncompliance. The built-up demand created by those deferrals, accompanied with the government initiatives, will drive new equipment purchases and installations.
Providers are looking to preserve their cash reserves and credit facilities to deliver services, fund operations, and undertake projects that are not easily financed. Installing the technology early will help healthcare providers to demonstrate “meaningful use” in order to qualify for the federal stimulus incentives provided by the HITECH Act. Therefore, it is increasingly important for them to team-up with a knowledgeable financing partner to acquire and deploy the necessary hardware, software, and services to evolve their businesses to comply with the new regulations and satisfy the meaningful use requirements.
Healthcare Providers Have Multiple Financing Options
By acquiring the necessary equipment through a lease, healthcare providers get access to the cutting edge technology needed to deliver best-in-class patient care without bearing the full up-front cost of ownership. Term financing enables the lessee to match a long-term capital acquisition with a long-term finance solution.
Medical professionals need to partner with healthcare equipment manufacturers, software providers, and IT professionals to satisfy the meaningful use requirements. The acquisition and implementation of these systems present a significant growth opportunity for finance providers who understand the industry and regulatory framework, and who can provide financing solutions within the industry’s budgetary restraints.
In summary, as the healthcare industry continues to upgrade technology and equipment to comply with federal regulations, there is a growing demand for equipment financing solutions tailored to the healthcare industry. The good news is that healthcare providers are looking for knowledgeable financing partners that can work with them to provide best-in-class healthcare and qualify for federal stimulus incentives to offset the cost of deployment.

Source: World Leasing News/Leasing Finance Blogs

More Accounting News From ELFA

ELFA Issues Joint Letter on Accounting for Lessors to IASB, FASB

ELFA and the global leasing industry have issued a Joint Letter on Accounting for Lessors to Leslie Seidman, acting chairman of the Financial Accounting Standards Board, and David Tweedie, chairman of the International Accounting Standards Board.
The letter is signed by the Equipment Leasing and Finance Association (ELFA), Leaseurope (the European leasing and automotive rental federation), the Japanese Leasing Association (JLA), the China Leasing Business Association (CLBA), the Canadian Finance and Leasing Association (CFLA), the Australian Equipment Lessors Association (AELA), the Australian Fleet Lessors Association (AFLA) and the Truck Renting and Leasing Association (TRALA).
The joint letter explains that the global leasing industry has followed the Boards’ recent re-deliberations on the Leases project with great interest. In light of recent Board discussions, the industry wishes to reiterate its common views on lessor accounting before the Boards progress further in their re-deliberations on this topic.
The letter outlines the industry’s position on accounting for lessors as follows:
1. The de-recognition model, with accretion of residual assets, must be the general approach for lessor accounting. This will allow for manufacturing/sales profit recognition for manufacturer/dealer lessors, which we believe to be an entirely appropriate outcome.
2. The performance obligation model lacks conceptual grounding and fails to depict the economics of leases. It must be abandoned.
3. New guidance for lessors must be issued simultaneously with new guidance for lessees and be given full and proper consideration in order to achieve a high quality final standard.
Read the Global Leasing Industry Joint Letter on Accounting for Lessors.
For more information, visit the ELFA Lease Accounting page.

What Segments of Equipment Leasing Have the Most Optomistic Outlook?

According to ELT Magazine there is considerable improvement in the industry overall from last year.  According to a recent study done by the ELFA the industry is returning to prerecession levels and a greater volume of equipment is expected to be leased in 2011.  So what industries are leading the comeback?  Here they are ranked from highest-rated to lowest-rated.
Medical
Oil/gas/energy
Machine tools
Truck/Trailers
Hi-Tech/Computers
Aircraft
Rail
Container
Construction
Telecom
Marine/Intercoastal
Automobiles
Plastic
FF&E
Printing

Medical Equipment has been leader of the pack when it comes to growth the last 6 years.  With the rising demand it is expected to be a 57 Billion dollar industry by 2017.  The medical industry's preference for leased equipment is fueled by the "baby-boomer" generation.  There are some challenges facing health care growth including the "reform" proposals, various potential reimbursement cuts, rules and other things aimed at the industry.  All of these factors make used equipment more and more attractive.

Oil/Gas/Energy markets are improving, due impart to optimism and opportunities for "clean energy" technology and equipment.  There is also a drilling boom in natural gas and oil that has given solid increased value to drilling rigs.

Machine Tools are up thanks to the turnaround in the domestic and international manufacturing sectors.  This market has seen an 85% growth, which is linked to the financing of smaller ticket sizes and one-off deals.  The secondary market demand for machine tools has also played a part in the growth of this sector.

Trucks/Trailers experienced  the greatest overall improvement from last year.  Both new and used trailers increased as the freight tonnage index steadily improves month over month.

Hi-Tech/Computers showed a small decline, but demand continues to grow.   The industry has low margins and demand for upgrades that were put off the past few years will begin to catch up and add to growth.

Aircraft has shown some growth in the commercial structure and the private sector demand is on the rise, particularly the business jet segment.  We will keep our eyes on this industry and measure the effects of the rising price of fuel and effects it will generate.

Rail is still soft, but the demand for over 300,000+ rail cars is creating some buzz.  This market should see a steady and consistent turnaround.

Containers seem to be experiencing tremendous growth as production volume has increased by 10 times over. Conditions for growth are strong and will remain so for the future.

Construction seems to be in a constant battle with the market.  The segment is still soft, although many resellers are experiencing shortage in used equipment.  New equipment is still slow and has seen a decline over the past two years.  The opportunity to buy low and sell high presents itself for the future.

Telecom equipment is turning the corner as demand expands.  With the increase of broadband capacity related to video and data transfer the industry is ramping up.  Long term evolution to accommodate 4G mobile phones will keep growth steady.

Marine/Intercoastal saw declines due mainly in part to supply and demand issues.  The container shipping segment is rapidly outpacing with deliveries of new container ships.

For more information on industry outlooks visit http://www.elfaonline.org/  For specific data on leasing options contact Mazuma Capital 801-816-0800 http://www.mazumacapital.com/

U.S. Banks Fight Proposed Accounting Standards through IASB and FASB

U.S. derivatives accounting at odds with foreign rules
* Some bank balance sheets could nearly double
* Changes on FASB's board cloud proposal's future
Wall Street's biggest banks are urging rule-makers to scrap a derivative accounting proposal that could inflate their balance sheets by trillions of dollars.
The draft rules, unveiled by the Financial Accounting Standards Board in January, would force banks to report their full exposure for most derivatives on their balance sheets, instead of net amounts.
In a worst-case scenario, S&P 500 companies might have to bring nearly $7 trillion in derivatives onto their balance sheets if no netting is allowed, according to a report by Credit Suisse.
About 97 percent of that would come from five big banks: Bank of America Corp (BAC.N), JP Morgan Chase & Co (JPM.N), Citigroup Inc (C.N), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), according to the report. Derivatives are a big source of revenue for banks.
The proposed rules are meant to harmonize U.S. accounting standards with their international counterparts. But with new board members at FASB, the future of the proposal is uncertain.
In letters to FASB, banks complained that the change would exaggerate risks. In practice, banks typically have legal agreements in place that allow them to net, or offset their derivative positions against one another, so they are not exposed to losses on gross amounts, banks said.
"The flawed offsetting model in the exposure draft will either obscure or create nonexistent risks which will ultimately mislead financial statement users," Robert Traficanti, deputy controller at Citigroup, wrote last week.
The accounting proposal could also make it hard to net derivatives traded on clearinghouses, banks complained. One requirement for netting is that derivatives be settled simultaneously; but on a clearinghouse, derivatives are often settled in batches throughout the day.
"There is certainly concern right now about how those rules are written, and justly because there are significant implications," said Lisa Filomia-Atkas, a partner at Ernst & Young.
U.S., INTERNATIONAL RULES AT ODDS
Derivatives have come under scrutiny by regulators worldwide since the global financial crisis. Many investors complain that banks' exposures are opaque, making it difficult to determine exactly how safe a lender is.
Accounting treatment for derivatives differs sharply, with netting allowed for most derivatives in the United States but not under International Financial Reporting Standards.
Leaders of the top 20 world economies have been pushing rule-makers to iron out accounting differences.
The proposed rewrite, a joint effort of FASB and the International Accounting Standards Board, would restrict netting to limited circumstances.
"It certainly will be very onerous to meet all the netting requirements in the proposal," said Olu Sonola, director of credit policy at Fitch Ratings. "In its current form, the bar is very high."
The American Bankers Association, a lobbying group, argued that banking analysts rarely use gross amounts to figure out a company's risks. Balance sheets should report the net information, with gross amounts in footnotes, it said.
Some accounting experts, however, said it is important to see the total derivative amount on the balance sheet.
"Netting just doesn't give you a fair representation of what the company's full asset and liability exposure is," said Charles Mulford, accounting professor at Georgia Institute of Technology.
Changes on FASB's board have clouded the future of the proposed rule, which passed by a 3-2 vote. Former FASB Chairman Robert Herz, who voted for it, has resigned and been replaced as chair by Leslie Seidman, who opposed it. The board also has three new members, "so anything could happen," Fitch's Sonola said.

FASB Chair Answers Push for Private-Company GAAP

Prompted by a proposal earlier this year by a blue-ribbon panel on the future of private-company accounting standards — a proposal that includes giving oversight of those standards to a brand-new board — the Financial Accounting Standards Board has heightened its focus on private-company issues, according to Leslie Seidman, the board's chairperson.
Seidman chose the prestigious Zicklin Center Financial Reporting Conference at Baruch College in New York on Thursday to respond to the challenge from the panel. Declaring that she hopes the responsibility for private-company financial reporting remains squarely in FASB's hands, she noted that the decision about how to respond to the panel's proposal is being deliberated by the Financial Accounting Foundation, FASB's parent organization. (Ironically, the FAF, along with the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy, established the panel.)
In January the panel recommended that the FAF "create a separate accounting standards board . . . with the ultimate standard-setting authority to determine and set exceptions and modifications in [generally accepted accounting principles] for private companies." Rather than proposing the creation of a separate version of GAAP for private companies, however, the panel recommended that accounting standards for nonpublic companies be based on existing U.S. GAAP "but with exceptions and modifications that would result in financial statements that provide relevant, decision-useful information that meets the needs of users of private company financial statements in a cost-effective manner."
Seidman acknowledged hearing concerns about the relevance of GAAP to private companies and complaints that current accounting standards are "overly complex for [private company] stakeholders." The FASB chair said she "strongly support[s]" the panel's short-term recommendations related to process changes, including considering a delay for private companies of the effective date of major new standards. In fact, Seidman noted, FASB has implemented or is in the process of implementing practically all of the short-term recommendations.
For instance, the panel recommended that FASB fill at least one of its then-open board positions "with individuals who have primarily private company background and experience." In a footnote, the panel acknowledged that FASB had done that and more. On January 14, the board named two board members: Daryl Buck, who spent 18 years as CFO of Reasor's Holding Co., a private company with $400 million in annual sales, and R. Harold Schroeder, who "has substantial experience as a user of financial statements, including financial statements of private companies," in the words of the panel's proposal.
Another of the recommendations was that the differences in GAAP for private companies be based on a framework, or set of decision criteria. Seidman noted that FASB's staff has begun developing such a "differential framework" in the form of a white paper on the unique needs of the users of private-company financial statements.
Noting that she "strongly hopes" FASB ends up being the governing body, Seidman said that any standard-setter must come to grips with the question of how much of GAAP should be altered to meet the needs of private-company stakeholders. If that doesn't happen, "any effort is doomed to fail because there will be an ongoing expectation gap," she warned.
In developing the framework, FASB's staff is looking primarily at potential differences in the disclosure needs of financial-statement users of public and private companies. "If you accept the premise that the investors in a private company have ready access to management," said Seidman, "maybe they don't need as much disclosure." The staff is also considering the unique needs of preparers of private-company financials and is mulling cost-benefit analyses in that context, according to Seidman.
Also speaking at the conference was James Kroeker, chief accountant of the Securities and Exchange Commission. "A number of areas of additional research, study, and outreach — particularly to investors — would be warranted prior to implementing any significant structural change" in financial reporting for private companies, he said.