Does anybody out there care that the proposed accounting rules will cause all sale leasebacks (SLBs) with fixed price purchase options (FPPOs) to be accounted for as debt by lessees? Does anybody care that the proposed rules will also force ITC in leases to be recorded on the tax expense line — not as revenue? Does anybody care that leveraged lease accounting will be killed not only for tax leases but for leveraged real estate synthetic leases?

Those are the remaining advocacy issues for the industry, as we have won all the other important fights thanks to strong comment letters from the ELFA and me and you, a broad representation of U.S. lessors.

I took a quick look at the comment letters to the two exposure drafts (ED) to see what the lessor community response was. The first ED attracted 786 comment letters, of which 16 were from large U.S. lessors and 15 were from smaller U.S. lessors. In that first ED the boards specifically asked for comments on leveraged lease accounting and nine of the large lessors supported keeping it or at a minimum grandfathering existing leveraged leases.

At the time, FASB had only one board member in favor, but the six other members wanted to kill it and not grandfather existing deals. The second ED attracted 641 comment letters, 13 from large U.S. lessors and 26 from smaller U.S. lessors. Nine of the 13 large lessors supported keeping or grandfathering leveraged leases. I found only one letter from lessors asking for ITC to remain as an item of lease revenue. Kudos to all of you for fighting for what we feel is the “right” accounting without being self-serving. The door is still open on ITC but the leveraged lease issue is a done deal.

In watching FASB’s final deliberations on the agenda, ELFA noted that SLBs and leveraged leases were to be on FASB’s meeting agenda during the summer. In advance of the meetings, ELFA supported two coalitions to issue unsolicited comment letters. One coalition consisted of 11 railcar lessors and focused on the issue of the FASB forcing SLBs with FPPOs to be accounted for as a loan (read “debt”) and not a sale, leaving the asset on the lessee’s books. The other was a coalition of 16 companies, only seven of which are large ticket lessors and focused on SLB, leveraged lease and ITC accounting.

The intent of the comment letters was to get FASB to allow fair market value purchase options to not negate sale treatment in an SLB. Although they tentatively decided that non-bargain FPPOs negate sales treatment in SLBs, FASB asked ask their staff to do more work on “failed” sale leaseback accounting because the loan accounting does not appear to make sense. That is a partial success and I truly believe they would not have considered changing their position on purchase options in SLBs had they not gotten feedback. The issue is still open so unsolicited comment letters could make a difference.

On the leveraged lease issue they listened to the comment letter and unanimously voted to grandfather leveraged leases. In a surprisingly close 4-3 vote, FASB decided to eliminate leveraged lease accounting for leases executed after the transition date (likely to be 2018). No one expected three “yes” votes but I did lose a little piece of me watching only three hands go up. I can’t help but think that if more of the big lessors had signed on to the coalition letter, we might have gotten one more vote. They have not discussed the ITC issue and they may not bring it up for re-deliberation unless they hear comments from you, the public.

I cannot understand the reluctance of lessors to comment to FASB, especially on such key issues. We reached out to the lessors who had previously commented on leveraged leases but many declined to sign the coalition letter. One told me that the powers that be at his firm did not like the way the coalition letter was worded. I replied, why not write your own letter? There are no repercussions possible to a comment letter (it is not like you are commenting to the IRS or SEC). I hear phrases like, “Save your bullets” or, “Keep your powder dry,” and I wonder where it says that you cannot continue to comment. Most importantly: FASB does listen to and value feedback to help them make the right decisions. If they get no comment letters they naturally take that as meaning that they have made the right decisions.

Save that last bullet for yourself if your business declines.