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Sale-Leaseback Transactions in the 'Corporate Scandal' Era

By Jeffrey H. Newman and Mark Levenson

In the era following Enron, Worldcom, Tyco, IMClone and Martha Stewart, when fraudulent actions, or even alleged fraudulent actions, can cause significant stock market losses, those operating “on the edge,” if found guilty of “going over the edge,” may face a sentence that could include incarceration as well as economic punishment.

Since the corporate scandal trials almost always involve financial re-engineering, it is no surprise that these trials and the concomitant publicity would have an impact on sale-leaseback transactions (“SLTs”) and those planning such transactions. It thus should be expected that in the post-Enron era, all financial and accounting transactions will be examined with a heightened degree of scrutiny, particularly those with an aroma of fancy accounting. Corporate executives and outside advisers now know that it is much harder to obtain a free pass for bad accounting. With the stakes for advising aggressively on SLTs having been significantly raised, it follows that SLTs are now becoming increasingly more difficult and complicated to complete.

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