BankerCollege

Generally accepted accounting principles (GAAP) do not change often, but when they do, bankers and other lenders need to understand how the change in GAAP effects their borrowers’ ability to repay.  This new GAAP requires firms to capitalize their leases, and that will worsen their leverage, reduce their liquidity, and lower their profitability.

Lease capitalization is one of three significant GAAP changes occurring very close together—revenue recognition, current expected credit loss, and lease capitalization.   Lease cap will affect for-profit companies, not-for-profit organizations, and local and state governmental entities, so bankers need to identify and evaluate how the addition of this new liability and the corresponding right-of-use (ROU) leased asset will impact their borrowers.

This leasing webinar will explain why and when lease capitalization will be implemented and show how capitalizing both operating leases and financing leases affects the financial condition and performance of borrowers.

Key Learning Objectives:

• Learn the key elements of the lease capitalization GAAP
• Explain how lease capitalization will put both the lease liability and the right-of-use asset on the borrower’s balance sheet
• Offer guidance on what items of financial condition and performance will be most impacted and tips on how to underwrite borrowers under the new GAAP

Topic Areas Addressed:

• Lease capitalization
  • Implementation date
  • Elements of capitalization—capitalization rate, amortization, right-of-use asset, lease liability
  • Operating leases and financing leases

• Analysis and underwriting

  • Ratio covenants most sensitive—leverage ratio, current ratio
  • Lease cap’s impact on liquidity, leverage, solvency, and profitability

• Portfolio management

  • Identification of industries and borrowers most sensitive to lease cap
  • Review and restructuring as needed of loans with financial covenants affected by lease cap