Lease Discounting [U0123]

 

The Lease Discounting update [U0123] is used to discount lease payment streams which are being sold to investors. The sold, discounted leases are tracked in a separate portfolio which does not affect the books of the lessor’s own portfolio. The lessor may choose to service discounted leases or the servicing may be handled by the investor or a third party.

All outstanding lease receivables and unbilled interest for the discounted leases sold to the investing institution are recorded in suspended General Ledger accounts, the same accounts otherwise used for suspended earnings. Therefore, the availability of discounting in a portfolio disallows placing leases within the same portfolio in suspended earning status. If desired, the suspended accounts names and numbers may be modified for lease discounting through the Office G/L Change update [U0716]. Refer to the LEASE DISCOUNTING USED switch in the Modules Customizations option of the Portfolio update [U0212] for more information on enabling discounting in a portfolio.

Use the Suspended Leases report [R0602] for a list of discounted leases. Use the Suspended Earnings report [R0609] to view the income accumulated for discounted leases.

It is suggested that offices be set up in such a way that each office corresponds to an investing institution’s account. Refer to the Office update [U0206] for more information.

Note that only those leases tied to a portfolio that uses the lease discounting feature may be processed in this update. In addition, operating leases and interest bearing loans are not allowed in this update.

A lease that is to be discounted should have the correct NPV discount rate defined.

The Use Tax code is automatically changed to NOEX (exempt) when a lease is discounted, as LeasePak assumes the investor will handle taxes. If the lease is to be serviced, the Use Tax code should be changed to the valid taxable status for the assets’ location after discounting has taken place. Use the Asset Maintenance update [U0210] to change the Use Tax code.

Depreciation codes on assets of leases to be discounted should be bypass if the original lessor is not tracking depreciation. Refer to the depreciation codes information in Add Asset option of the New Lease update [U0101] for more information.

Payments on the discounted lease may be handled using the Payment update [U0102] or Batch Payment update [U0415], a separately licensed module, which automates the processing of payments with manual intervention required only on exceptions.

When the discounted lease has reached maturity, use the Payoff update [U0103PF] to close out the lease. The INV payoff calculation method should be used. Upon close out, the amount of income collected for the lease while in discounted status is cleared against the Lessor Income General Ledger account. Use the General Ledger Adjustment update [U0121] to transfer this entry to another income General Ledger account, if desired. In addition, the status of the closed out discounted lease is changed to NPDS (Paid Discounted).

If the discounted lease should go into default and must be bought back by the lessor, the payments processed to the discounted lease must be reversed back to the start date of the default period using the Payment Reversal update [U0102PR]. The defaulted discounted lease should then be closed out using the Payoff update [U0103PF]. Use the PVS payoff calculation method, which will calculate the repurchase amount to be paid to the investor. This will also be the amount used by the system to close out the discounted lease. The repurchased lease may then be booked into the lessor’s own portfolio using the New Lease update [U0101]. Use the amount calculated by the Payoff update as the equipment cost and the start date of the default period as the commencement date. The new lease term should be set at the number of months from the start date of the default period to the original maturity date of the lease. An accounts payable will be set up as a result of booking the defaulted lease which may be disbursed to the investor.

 

This screen specifies the lease to be discounted.

• LEASE
  Only leases tied to a portfolio that uses lease discounting may be processed in this update. Leases that have already been discounted (leases with status of NDSC) are not valid for discounting again.

This screen is used to specify the effective date after which the remaining payment stream will be discounted.

• EFFECTIVE DATE
  Note that the effective date entered must be on or before the next payment due date currently recorded on the Master Financial file for the lease to be discounted.
  
  This field is defaulted to the next payment due date in MM/DD/YY or DD/MM/ YY format, depending on the Date Format Preference field in Security [U0706]. Change it, if desired. If the effective date entered does not fall on any payment due date, then the next payment due date immediately after the effective date is calculated and displayed for confirmation. For example, if the current date is 02/03/96 and the lease has a monthly payment due date on the 15th, the effective date defaults to 02/15/96. If the effective date is entered as 01/10/ 96 the next payment due date 01/15/96 is calculated and displayed as the effective date.
  
  If the effective date entered is prior to the next payment due date recorded on the Master Financial file for the lease to be discounted, accruals are reversed to the effective date entered. Pertinent information for the lease after the accrual
  
  reversal is displayed for confirmation on the next screen. If confirmed for discounting, the lease is then re-accrued as a discounted lease from the effective date to the current date.

This screen is used to verify the lease to be discounted.

The information displayed reflects the numbers as of the effective date. If the effective date entered is prior to the next payment due date currently on file, an accrual reversal is performed and the information displayed on this screen reflects the lease after the accrual reversal.

If this lease is valid for discounting, the gain/loss on the sale is recorded, the tax payment codes of all assets on the lease are changed to NOEX (exempt), the activity status of the lease is changed to NDSC (lease discounting), and accruals are performed to the current date under the discount status.

• CONTRACT RECEIVABLE
  The unbilled contract receivable balance as of the effective date is displayed in MM/DD/YY or DD/MM/YY format, depending on the Date Format Preference field in Security [U0706].
  
  
• TOTAL ADVANCE PAYMENT
  The total advance payment(s) amount (net of sales tax) due at lease commencement is displayed.
  
  
• TOTAL NON-ADV PAYMENTS
  The total original contract receivable amount less the total advance payment amount is displayed.
  
  
• NPV DISCOUNT RATE
  The discount rate on file for the lease is displayed. Refer to DISCOUNT RATE in Book Lease [U0101] or DISCOUNT RATE in Master Financial [U0202] updates for more information on discount rate.
  
  
• NET PRESENT VALUE
  The net present value, calculated as follows, is displayed:
  
  

  NPV =

  CF (1) + CF (2) +...+ CF (n) (1 + i)1     (1 + i) 2           (1 + i) n

  where, n is the remaining term, CF(1) through CF(n) are the cash flows for the remaining payment stream to sell, and *i is the periodic discount rate.

  Refer to the Calculations document of the Reference Guide for more information on net present value.

  The user may override this field and enter an actual sale price if desired. If this occurs the Net Income field is automatically updated to reflect the sale price. All G/L transactions will reflect the new field values.
  

• NET COST
  The Net Cost is calculated using two methods. The one used depends on the setting of the NET COST CALC METHOD switch in the modules customizations section of the portfolio update [U0212MO].
  
  When this switch is set to A for acquisition cost, the calculation is as follows:

  ORIGINAL ACQUISITION COST
  - DOWN PAYMENT
  - EARNED INCOME

  where ORIGINAL ACQUISITION COST is the total acquisition cost of the asset(s) on the lease, and EARNED INCOME is the total income (interest) earned by the lessor, vendor, and investor for the lease.
  
  The EARNED INCOME also includes the lessor's residual income if it is separated from the lessor income during accrual (i.e., when the portfolio switch ACCRETE RESIDUAL (Y/N) in the New Lease customization screen of Portfolio update [U0212NL] is set to Y).
  
  When the NET COST CALC METHOD switch is set to C for contract receivable, the calculation is as follows:

  CONTRACT RECEIVABLE
  - UNEARNED INCOME

  where CONTRACT RECEIVABLE is the remaining rental payment stream as of the effective date of the lease discounting.
  
  The UNEARNED INCOME is the remaining lessor, vendor, and investor income to be earned as of the effective date of the lease discounting.
  

• NET INCOME
  The net income is displayed. The net income is calculated as follows:

  NET PRESENT VALUE
  - NET COST

• BANK CODE
  This field will only appear if the Multiple Banks module has been purchased. It allows the user to specify which bank has received the cash. The default bank code is 125 and the valid entries are 1 or 125-144. Press HELP for a list of valid bank codes.
  
  
• INVESTOR
  This field allows the user to associate an investor or investor group to the discounted lease. INVESTOR is input required if the investor required switch in the Module Customizations option of the Portfolio update [U0212MO] is set to ‘Y’. This field is not accessible if the investor required switch is set to ‘N’.
  
  The investor or investor group, if required, must have an active activity status (An activity status starting with ‘A’). For an investor group, only the investor group activity status is required to be active.
  
  
• SETTLEMENT DEFERRAL
  Enter the number of days to wait after the payment due before creating a settlement to the investor. The SETTLEMENT DEFERRAL field is not accessible if INVESTOR is not entered.
  
  
• IS THIS THE CORRECT LEASE TO DISCOUNT (Y/N)?
  Enter ‘Y’ if this is the correct lease to discount. Otherwise, enter ‘N’ to return to the lease selection screen.

 

LeasePak  Reference Guide

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