The Requirement
A City in Connecticut entered into an Energy Performance Agreement, the terms of which required that portions of the total price of the equipment be paid to the supplier prior to the Lessee's acceptance of the equipment. The actual equipment acceptance date, and thus lease commencement date, was projected to be seven months later.
The Parameters
Due to City Council approval requirements, the City needed to fix financing costs for both the seven month construction phase and the ensuing 10 year municipal lease agreement. In effect, the City was looking to pass off interest rate fluctuations to GE in order for it to fix its future (seven months out -- 10 year lease debt) financing costs upfront. This was also a period where on a day-to-day basis, the money markets were experiencing significant swings that made it difficult for anyone to "peg" where the cost of money would be in seven months. The traditional indexing to like-term Ts until fund or lease commencement date was not an alternative for the City. Additionally, City Resolutions were passed approving the lease and thereby allocating specific amounts to meet the city's financial obligations.
The GE Capital Solution
GE Capital satisfied the City's needs by offering a market competitive fixed interest rate for both the construction phase and the term of the lease agreement. For the City, this resulted in removing the interest rate fluctuation issue as well as being able to fix the financing costs.
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