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MASTER LEASE PROGRAM
A Master Lease arrangement is a convenient tool for a public agency
("Agency") to finance a series of current and future capital acquisitions
("Equipment"). A Master Lease agreement establishes an "umbrella"
contract with general terms and conditions that apply to individual leases or schedules
that are annexed to the agreement from time to time. Depending on the form of the Master
Lease, the agreement may be annually renewable subject to supplementary credit extensions
or a onetime issuance of a pool of funds to satisfy acquisitions during a specific time
period.
There are two types of Master Leases-- the lease line of credit and the advance funded
lease. An explanation of each type follows:
Lease Line of Credit -- This form of Master Lease involves the issuance of a credit
commitment by Municipal Finance to fund a specified dollar amount of Equipment to be
ordered and/or accepted during a mutually agreeable time period. Individual leases are
funded either in total upon Equipment acceptance or via progress payments to the vendor or
the Agency. Costs to issue a Master Lease are usually absorbed in the lease rate of
interest. Capitalized interest and debt service reserves do not apply. The Master Lease
agreement specifies an initial fixed lease rate applicable to individual leases commencing
on or before a certain date. A model or formula to adjust the lease rate applicable to
subsequent lease schedules is included in the Master Lease agreement. A general
description of the Equipment covered by the agreement is also set forth in the Master
Lease agreement. Each individual lease is tailor-made with respect to amortization term,
prepayment options and any special provisions desirable for a particular item of
Equipment.
Advance Funded -- This form of Master Lease involves full funding of a
predetermined financing amount into escrow. Funding is predicated on projections of the
Agency's present and future Equipment requirements. The acquisition proceeds and interest
earnings thereon are available to pay for Equipment as acquired or to reimburse the Agency
for prior expenditures. The financing may also fund capitalized interest and/or debt
service reserves. Depending upon the financing size, a public issuance of certificates of
participation may be the preferable funding vehicle. All terms, conditions, rates,
prepayment features and special provisions are established at the time of advance funding.
Escrowed lease proceeds are subject to arbitrage regulations of the U.S. Department of
Treasury.
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