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Leveraged Lease Gone Bad? Avoid the Courtroom with Mediation

By Paul Bent
May 01, 2004

Throughout the 40-year history of U.S. leveraged leasing, deals have occasionally gone bad. Lessees default, markets change, equipment loses value ' sometimes even the best planned and executed deal may turn out to be the biggest problem in a lessor's portfolio.

And historically, when a lease has turned out for the worst, the standard procedure for the lessor (after getting the debt participant on board) has been first to try to work out some sort of resolution directly with the lessee and then, failing that, to call the lawyers; time to go to court. Conventional wisdom, in the most intractable situations, says litigation is the only way to force the lessee to meet at least most of its obligations under the lease, to wind up with sufficient money to satisfy the lender and avoid an equity squeeze, and, it is hoped, to book a little something positive from the deal.

In fact, though, this “standard” procedure too often does not meet any of these objectives. After spending a great deal of money, executive time, and management resources, the result may be simply a substantial write-off, an unhappy lender, and a ruined relationship with a lessee.

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