Ice Fii

US Cross Border Leasing

- w Town Hall For Grefrath -

Contents

Contents II

Abbreviations III

List of Figures IV

1. Introduction & Challenge of the Case Study 1

2. Grefrath and its situation 2

2.1. The commune’s financial situation 2

2.2. The budget-hedging-concept 5

2.3. The necessity of a new town hall 9

3. CBL as a financial solution for Grefrath 12

3.1. Reasons for CBL-financing 12

3.2. Aspects of Law 13

3.2.1. Aspects Relating to Contract Law 13

3.2.2. Aspects Relating to Tax Law 19

3.3. Accounting Conventions 20

3.3.1. Accounting Principles in HGB 20

3.3.2. Accounting Principles in IAS 21

3.4. Rating dependences of CBL 22

3.5. Financing 26

3.5.1. Participated claim groups 26

3.5.2. The monetary stream in our example 27

3.5.3. Financial calculation 29

3.5.4. Benefit of financial calculation 32

3.6. Lasting effects of financing 34

3.6.1. For the communes 34

3.6.2. For the economy 39

3.6.3. For international dependences 43

3.6.4. For claim groups 48

4. Conclusion & Critical Reflection 53

List of Literature V

Affidavit VII

Abbreviations

BHC Budget-Hedging-Concept

CBL Cross Border Leasing

DCF Discounted Cash Flow

ebo early-buy-out-option

etc. etcetera

e.g. for example (abbr. of "exempli gratia" [Lat.])

HGB German Handelsgesetzbuch

IAS International Accounting Standards

IASB International Accounting Standards Board

IRS Internal Revenue Service

ltd limited; equal to German GmbH

NRW North Rhine Westphalia

OFD Oberfinanzdirection

PUA Payment Undertaking Agreement

SIC Standing Interpretation Committee

SPV Special Purpose Vehicle

sqm square meter

S&P Standard & Poor’s

US United States

List of Figures

Figure 3п*"1: Main important agreements of a CBL transaction 13

Figure 3п*"2: S&P; Correlation of Long and Short Term Ratings 23

Figure 3п*"3: S&P; Sovereign Ratings List (part of); February 20, 2004 25

Figure 3п*"4: S&P; Local and Regional Governments Ratings List (part of); February 20, 2004 25

Figure 3п*"5: money stream chart (according to kommunalkredit-advertisment) 28

1. Introduction & Challenge of the Case Study

Starting from the subject Multinational Business Finance this case study is going to demonstrate financing US-Cross Border Leasing (CBL). The CBL method of financing for communes has been in the visual focus of the public during the last years and this case study will be based on a municipal case and will be described by means of a real example. Today cash offices of communes are empty and the budgetary situation is really strained. The commune Grefrath is searching for a possibility of financing for a new town hall since a long time.

Starting with a description of the commune’s individual financial situation, the need of capital and a general overview about the spread of CBL contracts in Germany, this method of financing will be analyzed regarding its advantages and disadvantages as well as chances and risks for the commune.

It needs to be mentioned that a political resolution passed by the US government was adopted recently that will close the gap in the US tax law regulation for the future and entails that financing via CBL will be out of action in the future. CBL transactions became prohibited retroactively as of October 1, 2004, existing CBL contracts will retain their validity.

Independent of the recent change in the US tax law regulation and the new situation this case study will mainly concentrate on US-CBL, presuming that the analysis would have been made before the law became changed.

CBL вЂ" an innovative and economically interesting financing model or a risky and ethically dubiously source of income?

2. Grefrath and its situation

2.1. The commune’s financial situation

The commune Grefrath is located in the left Lower Rhine Region, district town Viersen and in the Towns Triangle Krefeld, MÐ"¶nchengladbach and the Dutch neighbour town Venlo. Grefrath is nationally known because of its famous ice sports stadium. The present commune Grefrath arose in 1970 by the merger of the communes Grefrath and Oedt, which have been autonomous up to that date. Grefrath is divided

into 4 places: Grefrath, Oedt, Vinkrath and MÐ"јlhausen.

Grefrath is documentary mentioned for the first time in 1177. In the 18th century Grefrath became a location of textile industry and up to 1975 more than 1200 employees were working in textile factories. In