A Business Encyclopedia

Single Investor Lease and Leveraged Lease

Definition: The Single Investor Lease and Leveraged Lease are other types of leases classified on the basis of a relationship between the lessee and the financier. The lease refers to the contractual agreement wherein the lessor, the owner of the property give rights to the lessee to use his property in exchange for periodical rental payments.

Single Investor Lease: In the case of a single investor lease there are two parties to the contract, the lessor and the lessee. Here, the lessor or the leasing firm raises an optimum mix of debt and equity to finance the entire investment.

One important thing to be noted here is, the lender cannot recover any amount from the lessee in case the lessor defaults on his debt service obligations. Thus, the lender is only entitled to recover money from the lessor and not from the lessee in case the lessor defaults in paying back to the lender.

Leveraged Lease: In a leveraged lease, there are three parties to the lease agreement Viz. Lessor, lessee and lender or loan participant. Here the investment is financed jointly by the lessor and the lender; wherein the equity is arranged by the lessor, and the debt is financed by the financier. In this kind of a lease agreement, the lender has the direct connection to the lessee which means in case the lessor defaults in his debt obligations, the lender can recover his money from the lessee.

Hence, the major difference between the single investor lease and leveraged lease is that in the case of the former lease type, the lender has no direct connection to the lessee and cannot recover money from him in case the lessor defaults. Whereas in the case of the leveraged lease, the lender can recover money from the lessee in case the lessor defaults and thus, has the direct connection to the lessee.

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