A Lease Portfolio Planning Model

Full payout leasing, including leveraged leasing, is widely used to finance major capital investments. This is the type of leasing engaged in by banks and other financial institutions. From the lessor's perspective the profitability of a lease investment derives largely from the fact that the lease generates substantial tax shelter during the early years of the lease term. A given lease will be both a source as well as a use of tax shelter at different stages during the lease term, so careful planning is required to maximize profitability in a tax-constrained environment.

New England Merchants Leasing Corporation, a subsidiary of a bank holding company, recently completed developing a computer-based planning model to aid in the management of its overall portfolio, and to support the evaluation of specific investment proposals. The model has been successfully implemented and integrated into the management decision process, and is now the basis for all long range planning for a total portfolio in excess of $200 million.