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Toward a New Understanding of Leveraged Lease Profitability
By Edward P. Brennan
Summer 1984

Existing leveraged lease analytical methods and structuring techniques are premised upon the concept that a leveraged lease is a "unitary" opportunity. This concept, in the author's opinion, has resulted in a twenty-year history of confusion in measuring the profitability of a leveraged lease. The article reviews the history, development and inadequacy of the existing major analytical methods and structuring techniques, and proposes a new, simple and "foolproof" approach, the Binary Lease Profitability Index, for evaluating the profitability of a leveraged lease. The new approach is based upon perceiving the leveraged lease as presenting the investor with two distinct opportunities (hence, binary), an investment opportunity and a financing opportunity, which need to be evaluated separately.