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On-Site Sales: What Lessor's Counsel Should Know

By Anthony L. Lamm

When equipment lessors evaluate the risks of underwriting lease transactions for manufacturing equipment, one of the primary considerations in the credit decision is the resale value of the equipment in the event of default. In preparing for this risk, a key component of an underwriter's evaluation must be how to access and market the equipment in the event of a default. Therefore, it is critical to look at every transaction from the perspective of how much money a piece of equipment will bring in a sale, if there is an established market for the particular equipment, and also, how and where the equipment can best be marketed and sold if a liquidation is necessary. An often-overlooked and significant factor in this analysis is whether the lessor will have unfettered access to remove the equipment to sell, refurbish, and/or prepare for liquidation at the location where it has been used.

If the lessee is cooperative and agrees to surrender possession of the equipment, there is said to be a “voluntary surrender” or a “friendly foreclosure.” In this amicable setting, the equipment lessor's counsel can focus on presale notices and negotiating terms for release and indemnity, insurance, an auctioneer's contract or the contract with a purchaser, and repayment of the deficiency by the lessee.

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