WASHINGTON, D.C. – In the difficult business environment caused by the impact of COVID-19, many lessors and lenders are receiving requests from their customers for some form of payment accommodation. Navigating modification accounting, application of the Financial Accounting Standards Board’s (FASB) COVID-19 related relief and operational considerations when modifying contracts were among the topics addressed during the Equipment Leasing and Finance Association’s May 27 webinar, “Lease and Loan Modifications and Restructurings in the COVID-19 Environment.”

A total of 508 industry executives participated in the detailed online event presented by Mamta Shori, Chief Operating Officer, Wells Fargo Equipment Finance; Tim Kolber, Managing Director, National Accounting Office Services, Deloitte, LLP; and Shawn Halladay, Chief Financial and Operations Officer, The Pitney Bowes Bank and moderated by John Bober, IXL Lease Advisory Services, LLC and Chair of ELFA’s Financial Accounting Committee. They offered considerations and approaches to account for customer concessions and responded to participants’ questions.

As equipment finance companies provide their customers with the contract modifications critical to preserving their cash flow and their businesses, below are five highlights from the range of information presented during the webinar.

1. Businesses should decide what type of concessions they will provide and how. At the outset lessors should determine their approach to concessions. A broad-based offer to customers could result in a lot of extra work and a drop in cashflow for lessors. Whether offered or requested, lessors should determine the nature and structure of the change to lease payments, such as 30-, 45- or 90-day concession terms, and any other changes to the contract terms. Factors that might impact the decision to a lease concession include credit quality, current account status and overall history and customer relationship.


2. Providing concessions changes how to account for them. Under ASC 842, simple term extensions, changes in consideration or other payment restructures not contemplated in the original contract would qualify as a lease modification. Reassessment of lease classification would require updated fair value of equipment as of the effective date of the modification. Most equipment leases are considered non-cancellable and do not typically include force majeure clauses. It’s important to note that current fair values of equipment are not typically updated on a regular basis in leasing systems.


3. FASB acted expediently at the onset of the pandemic to provide relief. FASB’s board and staff convened and observed that companies were reaching out to their lessors and suppliers to ask for rent concessions and different payment structures. FASB issued a staff Q&A including of a series of four Q&As that effectively outline a framework in which certain relief can be provided. Broadly speaking, the relief will allow an organization without having to go through each of its leases to simply either account for the lease payment change as a modification or account for it using the alternative relief.


4. FASB’s relief entails two primary scoping criteria. To be considered under the scope of FASB relief, the concession must be related to the effects of the COVID-19 pandemic and it must result in total payments in the modified contract that are substantially the same as or less than total payments required by the original contract. The relief applies to both lessees and lessors equally and can be applied to current and future concessions, rent forgiveness and deferral scenarios, and rent deferral with term extension scenarios.


5. The relief is not an all-or-none requirement though companies must provide relief consistently to leases with similar characteristics. Reasonable judgment comes into play when categorizing how the relief will be applied, whether by type of concession, role in the arrangement (lessor or lessee) or underlying asset class.

The COVID-19 pandemic has had a pervasive impact on businesses throughout the U.S. and many lessors are, or will be, providing lease concessions to lessees for a significant number of lease contracts. As Tim Kolber noted, cash is king at this point because companies need to think of ways to preserve their organizations, pay their employees and “live to fight another day.”

Learn More

A recording of the webinar, webinar slides, and a handout, “FASB Staff Q&A” are available at www.elfaonline.org/events/2020/WW052720.

About ELFA Wednesday Webinars

The May 27 webinar was part of ELFA’s “Wednesday Webinar” series designed to help equipment finance professionals navigate the current market and regulatory landscape and anticipate the changing environment in the face of the COVID-19 pandemic. The free webinars include live Q&A sessions so participants can connect with experts and colleagues on the issues they are grappling with. To register for upcoming webinars or view recordings of past events, go to www.elfaonline.org/events/elearning/web-seminars.  

About ELFA
The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the nearly $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Its 575 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers. For more information, please visit www.elfaonline.org.

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Media/Press Contact: Amy Vogt, Vice President, Communications and Marketing, ELFA, 202-238-3438 or avogt@elfaonline.org