Leveraged Lease
A leveraged lease is a lease in which the lessor (DPP) purchases the underlying asset on credit. A leveraged lease, therefore, involves at least three parties: the lessor, the lessee, and one or more lenders. As the lessee pays the lessor monthly rental payments to lease the equipment, the lessor in turn pays its monthly payments to the lender.
The financing provided by the creditor is a non-recourse loan, meaning that the lessor, the DPP, is not ultimately responsible for repaying the loan to the lender should the lessee default. Though the lenders provide funds to the lessor, they must look to the credit of the lessee and the leased equipment for repayment in case of default. Thus, it is the lessee’s credit rating that will determine t