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23rd Annual New York AirFinance Conference : 

23rd Annual New York AirFinance Conference Use of SPC Financing Post-Enron John F. Pritchard Holland & Knight LLP

Why Use an SPE?: 

Why Use an SPE? Tax Neutrality Necessary to Structure Isolate Risk – Bankruptcy Remoteness Lease Structure with Pure Debt Registration of U.S. Aircraft Off-balance Sheet Treatment

Typical Structures Where SPE’s are Used: 

Typical Structures Where SPE’s are Used SPE can be a corporation, LLC, grantor trust or other limited purpose legal entity Synthetic Leases Sale/Lease Backs EETCs/Securitizations Leveraged Leases Other Structured Lease Financings

Desirable SPE Features: 

Desirable SPE Features Tax Neutral Local Taxes Payments in and out of SPE Bankruptcy Remote Stable Jurisdiction Dependable Legal System Excellent Counsel Available

Desirable SPE Features(continued): 

Desirable SPE Features (continued) Convenient Time Zone Prompt and Efficient Administration Reasonable Legal and Administration Fees and Costs No Unreasonable Regulatory Requirements

SPE Covenants & Negative Pledges: 

SPE Covenants & Negative Pledges Will not incur other indebtedness or encumbrance on the asset Has no prior business or asset Will not conduct other business or acquire other assets Will not merge, transfer substantially all its assets or create any subsidiaries Will not vary or waiver terms of any operative documents Will not pay dividends Will not file for bankruptcy or wind up his business Will not dispose of asset Will maintain separate accounts and records Servicing costs of SPE are non-recourse to SPE Will observe other restrictions on its activities Is not subject to stamp duties or other taxes

Post-Enron Developments: 

Post-Enron Developments FASB Interpretation 46 Requires consolidation of off-balance sheet variable interest entities (VIEs) with the Primary Beneficiary: look at decision making control ability of SPE to cover its “expected losses” who is primary beneficiary of residual values Exception FASB 140 Qualified Special Purpose Entities

Post-Enron Developments: 

SEC SARBANE OXLEY ACT Enhanced accountability of officers and directors, enhanced diligence and disclosure requirements Section 401(a) disclosure of off-balance sheet arrangements and material contractual obligations on or after December 15, 2003 Post-Enron Developments Post-Enron Developments

Post-Terrorism Developments: 

Post-Terrorism Developments PATRIOTS ACT List of Entities Know Your Customer