Lease Capitalization - Impacts Your Borrowers' Leverage, Liquidity, Profitability and Repayment Ability

Lease capitalization has significantly impacted financial reporting by requiring borrowers to disclose their lease liabilities on their financial statements. This provides lenders with a more accurate and comprehensive view of a borrower’s total obligations, allowing for better-informed decision-making. With a clearer picture of a borrower’s financial commitments, lenders and creditors can now more accurately assess the borrower’s ability to repay debts, ensuring a more precise evaluation of their overall financial health.

Topics covered in this session

Lease capitalization GAAP  (ASC 842)

• Implementation date
• Elements of capitalization—capitalization rate, amortization, right-of-use asset, lease liability

Operating leases and financing leases

• Analysis and underwriting
• Impact on cash flow
• Ratio covenants most sensitive—leverage ratio, current ratio

Lease cap’s impact on liquidity, leverage, solvency, and profitability

• Liabilities—additional long-term debt and short-term debt
• Right of use (ROU) asset—additional fixed assets and treatment as intangible assets

Portfolio management

• Identification of industries and borrowers most sensitive to lease cap
• Changing interest rates—impact on capitalized lease asset and ROU asset
• Review and restructuring as needed of loans with financial covenants affected by lease cap

 Who Should Attend:

• Credit policy managers
• Commercial lenders
• Business bankers
• Commercial loan underwriters
• Credit managers
• Credit Risk Managers
• Credit approval officers
• Risk Managers
• Enterprise Risk Managers
• Chief Credit Officers
• Senior Lenders
• Senior Lending Officer
• Bank Director
• Chief Executive Officer
• Bank President
• Board Chairman