mtuandrew wrote: ↑Wed Nov 13, 2019 3:49 pm
Considering that Philip Morris has not a chance in Hades of getting more money from these units through leasing and they’ll almost certainly be scrapped, what difference does their operational condition make? Amtrak would be doing them a favor by disassembling these units and having all the usable/sellable parts on pallets, ready to be put into shipping containers.
(Unless MARC decides to give them a second life)
I suspect Philip Morris Capital (who hasn't done a new lease since 2002) knows they are going to have an asset that is worthless at the end of term and wants to try to have Amtrak cover its residual position by claiming it is Amtrak's fault that the HHP-8s are worthless. An easy way to do that default them for failing to maintain the assets, which is a requirement of any lease.
These leases are tax plays by the lessor who needs the depreciation tied tax deductions. Leases held by entities like Philip Morris Capital have a return option at the end to retain the FMV status. Even though there is a return option, it is widely understood that the nobody thinks anyone is going to actually return the stuff at the end of term. When someone returns it, someone is going to take a loss. PMCC looked at their lease docs and realized that Amtrak was not keeping up on maintenance so it is time to sue them to force Amtrak to take the haircut.
This is why American banks don't like doing leases and price them accordingly. We do FMV leases all day long, but not on unique assets that have very speculative values or utility at the end of term.