Leasing Equipment in Latin American Countries

American lessors continue to look for ways to expand their business, often turning to new products or structures. Savvy lenders also look to take their products to new markets, which are increasingly global. However, leasing equipment outside of the United States can present a number of issues for the U.S. lessor and its counsel. Preparation and an understanding of the foreign country's laws relating to equipment leasing are keys to success. Some of the most basic aspects to consider before leasing equipment to be located outside the United States to a foreign lessee include:

1) Does the jurisdiction recognize the concept of a lease?

2) How do we document the transaction?

3) Is there withholding tax on lease payments made to a U.S. lessor, or other tax or licensing requirements?

4) How do we establish our rights in the equipment as against third parties?

5) Will we be able to repossess the equipment in the event of a default?

This article focuses on Brazil, Colombia, Mexico, and Peru as examples in answering these basic questions and provides helpful advice for anyone considering a leasing transaction into these countries. Currently, the United States is expanding its trade agreements with Latin America resulting in significant commercial opportunities for lessors as these countries invest in developing their infrastructure and their economies. At the same time, Latin American countries looking to spur business development are accelerating privatization of many industries, including air transportation, ports, telecommunications, water, and power. The private sector is faced with the need for very significant levels of investment to upgrade terminals and plants as well as add new technology and facilities. Capital equipment is critical to completion of these projects.

The perspective below covers considerations for equipment in general. Note that other considerations could apply in the case of specialized assets such as aircraft, ships, or rolling stock.

Is a Lease of Personal Property Recognized in the Jurisdiction?

In the United States, a lease, whereby the owner of an asset can part with possession without loss of ownership and enforce a hell or high water payment obligation, is an accepted financing vehicle. In other parts of the world, this may not be the case. Although leasing is recognized in Peru, it is not a common form of financing. The hope is that the recent adoption of the Law of Movable Guaranties will encourage leasing by accelerating the process for lessors to regain control of leased assets upon default. Competent local counsel in all jurisdictions should be asked to address the consents, filings, and approvals that may be required. Of particular importance to a lessor is whether indemnities provided by the lessee and liquidated damages provisions typical in U.S. leases can be enforced as written.

Are There Any Formalities with Respect to Leasing or Lease Documentation to Consider?

Local counsel should always be consulted when planning a transaction in a foreign jurisdiction. There may be requirements for the lessor to become licensed prior to entering into the lease or to establish a presence in the country in order to enforce its rights in the future should the need arise. For its part, the lessee may need to obtain approval from a central bank or other government agency to incur obligations where money will leave the country. India is just one well-known example of such a requirement. Certified translation and 'stamping' may also be a necessary formality. Whether or not the jurisdiction is a signatory to the Hague Convention is an important element to consider at the time of execution of the lease. Following the rules for notarization and/or an apostille of all documentation destined to be delivered where the equipment will be located is key to any later judicial process to regain control over the assets should the lessee default under the lease.

With regard to certain specific Latin American jurisdictions, the following tips apply:

Brazil. A lease is not required to be prepared in the form of a public deed signed before a public notary. Unlike notaries in the United States, a public notary in Brazil (and other countries such as Mexico, Colombia, and Peru) has authority to attest to the authenticity of documentation. However, if it is executed in English, it will require translation from a certified Brazilian translator for its later registration. Also, should the lessor sign the agreement in the United States, its signature will require notarization, legalization by the Secretary of State where the lessor is located, and finally certification from the Brazilian Consulate assigned to the Lessor's jurisdiction.

Due to exchange controls and as part of the transaction, the lessee will be required to, in advance, secure a permit to send payments abroad issued by the Brazilian Central Bank. If the leased equipment will be coming from outside of Brazil, the lessee will also need to secure an Import License from the Brazilian Customs Agency. The license will contain information as to the reason for importation of the leased equipment, the name of the lessor, and the amounts of rent payments. As part of its permit issuance process, the Central Bank will request copies of this license and filings with the Customs authorities.

Colombia. In the case of aircraft, ships, or vehicles, the leases will require translation to Spanish by a certified Colombian translator for their filing with the appropriate registry. If the lease is signed in the United States, the lessor's signature will require notarization and, as Colombia is a member of the Hague Convention, only its apostille by the applicable Secretary of State.

Mexico. Equipment leases can be signed as private documents without the need for a public deed executed before a notary public. However, if the lessor executes the lease in the United States, it is recommended that its signature be notarized and apostilled by the applicable the Secretary of State for use in Mexico.

Peru. Since Peru is not a signatory of the Hague Convention, if the lessor signs the lease in the United States the agreement will require: 1) notarization, 2) legalization by the Secretary of State of the state where the lessor is located, 3) further certification by the U.S. State Department, and 4) final stamp certification by the Peruvian Consulate. The same process will apply for any document executed in the United States that the Peruvian registrar might request including any certificates of incumbency of the lessor.

The lease should be prepared as a public deed before a notary public to assist in any future actions to reclaim the leased assets, accelerating the process from potentially 5 years to approximately 1 year.

As part of the transaction, the lessor can request the lessee to designate a depositary of the leased equipment who, although not responsible for the lessee's performance under the lease, will be responsible for the leased assets and, in case of termination or default by the lessee, ensure they are delivered to the lessor or its representative. The depositary can be a member of the lessee's board of directors or its main shareholder. Criminal charges may be brought against the depositary if it fails to deliver the leased assets.

What Are the Tax Considerations?

Failure to consider local tax issues can quickly turn the economics of a transaction upside down. Pricing and structuring must take into account withholding tax, duties, income taxes, and even capital gains or other taxes due if the leased asset is ultimately sold, by way of exercise of a purchase option or the lessor's default remedies. As an example, in Colombia, equipment leases that do not contemplate a purchase option for the lessee can be subject to a heavy tax burden of 39.5%, which includes VAT and a remittances tax. Withholding may be required on rental payments sent to the United States in an amount dependent on the existence of any applicable tax treaty with the United States. Any transfer tax applicable upon a sale or exercise of the purchase option must be considered. The lease agreement must include a tax indemnity in favor of the lessor and a provision to 'gross up' payments to account for any required withholding.

How Can the Lessor Establish Its Property Rights Before Third Parties in the Country Where the Equipment Will Be Located?

Local counsel should be asked to instruct a lessor on the proper due diligence to perform to ascertain the existence of liens or other claims on assets of the lessee. A good understanding of the country's bankruptcy and insolvency laws is also valuable to comprehend the potential for competing claims and delay. The lessor most often establishes its claim on the assets by registering the lease with the appropriate government offices in the jurisdiction where the equipment will be located. For example:

Brazil. Equipment leases can be registered at the Registry of Deeds and Documents. In the case of ships, aircraft, or motor vehicles, additional registration will be required. The lease must be translated to Portuguese by a certified translator prior to its filing, and the registration process can take 1 to 2 days.

Colombia. Equipment leases are subject to registration only if the leased asset is a ship, aircraft, or motor vehicle. Due to foreign exchange controls, upon execution of any equipment lease, the lessee must report the transaction to the Central Bank through a filing at any local bank. The process is easy, takes a single day, and the lessee receives a proof of reporting that it will be required to show each time it purchases U.S. dollars to remit as rental payments.

Mexico. Only leases of aircraft, ships, and rolling stock are subject to registration.

Peru. Previously, only leases of ships or aircraft could be registered. Starting May 29, 2006, under the new Movable Guaranties Law, all equipment leases (including those of ships and aircraft) are subject to registration. The registration process can take approximately 35 days. During that time, the registrar has 10 calendar days to request clarification or comments on the agreements being filed.

How Does a Lessor Enforce Its Rights Upon Default?

How a lessor responds to a default situation is dependent on the local law of the jurisdiction involved. In many countries, the lessor does not have the same self-help remedies that can be exercised in the United States. Our sampling of four Latin American countries yields the differences outlined here:

Brazil. Upon default, the lessor or its representative (with the appropriate power of attorney duly translated, notarized, and consularized) must seek an injunction before the Brazilian courts to then be able to access the lessee's facilities and repossess the equipment. The process to obtain the injunction can take from 24 to 48 hours. No provision eliminating the injunction process can be inserted in the original lease agreement, as this procedure is not waivable.

Colombia. The lessor does not have any self-help remedies and thus must bring a Restitution of Tenancy Request before the Colombian courts. As in Brazil, this process cannot be waived by the lessee as part of the agreement and can take between 8 months to 1 year to resolve.

Mexico. No repossession of assets can take place without having undertaken a judicial process, which can take up to 1 year.

Peru. One of the goals of the new Law of Movable Guaranties is to accelerate and facilitate the process to regain control of leased assets. Therefore, upon default by the lessee, the lessor will have the right to repossess the equipment, utilizing self-help remedies without the need for a formal judicial process.

The lessor and its counsel should carefully consider whether its exercise of remedies can be facilitated by using a lease document governed by local law, or whether it prefers to obtain a judgment in a U.S. court and enforce that judgment in the jurisdiction where the equipment and/or lessor is located. In most instances, using the law of the jurisdiction where the equipment is located is recommended and believed to offer the fastest access to leased assets. While the choice of U.S. law would be upheld as a valid choice of law in any action in the courts of Brazil, Mexico, Peru, and Colombia, there may be delays or inconsistent interpretations. Further, Brazil, like many jurisdictions, will only uphold the choice of U.S. law so long as it does not offend Brazilian national sovereignty or public order in any way.

The alternate route, using U.S. law to govern the documents and obtaining a judgment in a U.S. court, may often result in delays due to very specific requirements and procedures to be followed. An overview of the four sample countries follows:

Brazil. Judgments rendered by foreign courts (including those of the United States) would be recognized and accepted by the courts of Brazil without retrial or examination of the merits of the case, but only after such foreign judgment is ratified by the Brazilian Superior Court of Justice. To be ratified by the Superior Court of Justice, a foreign judgment must: 1) comply with all formalities necessary for its enforcement under the laws of the place where it was rendered; 2) have been given by a competent court after proper service of process on the parties, or after sufficient evidence of the parties' absence has been given, as established pursuant to applicable law; 3) not be subject to appeal; 4) not offend Brazilian national sovereignty, public policy, and good morals; and 5) be duly authenticated by a competent Brazilian consulate and accompanied by a translation thereof into Portuguese made by a certified translator.

Peru. U.S. judgments are enforced through an 'exequatur' (enforcement order) process before the Peruvian courts, which follow similar considerations as in Brazilian courts.

Mexico. Although U.S. judgments can also be enforced through an exequatur (called 'Homologacion'), this can be a lengthy and rigid process involving, among other things, determination of proper jurisdiction in the original court, compliance with the notice requirements of both jurisdictions, and the character of the property interest at issue (real or personal). Thus, for practical purposes, it is suggested that the lease be documented and enforced under Mexican law.

Colombia. A U.S. judgment is enforceable in Colombia also through an exequatur process. The seven prerequisites for enforcing a judgment are that: 1) it does not implicate real property interests in goods located in Colombia; 2) it is not contrary to Colombian laws reflecting public policy (orden p'blico); 3) it complies with the foreign country's formalities of execution, authentication, and legalization; 4) it does not concern a matter within the exclusive jurisdiction of the Colombian courts; 5) its subject matter is not involved in any current proceeding or judgment in Colombia; 6) the judgment debtor has received the notice and opportunity to contest the claim required by the country of origin; and 7) the complainant complies with the procedural requirements of Article 695 of the Colombian Civil Procedure Code for seeking exequatur.

Final Thoughts

Expanding a leasing business into any foreign jurisdiction requires due diligence on the part of the lessor. The basic questions addressed in this article should be posed to competent local counsel and the answers carefully evaluated, giving consideration to the timing required to comply with all formalities for validity. If the lessor wishes to first 'test the waters,' or is not willing or planning to establish a presence in, or deal regularly with, the particular country, it may choose to structure the one-off transaction to avoid leaving the protection of the United States and its legal system. For example, the equipment could be leased to a U.S. entity if one exists, but permitted to be located offshore (perhaps with a subsidiary of the lessee). The U.S. lessee provides a letter of credit or other collateral in the United States to support its obligations under the lease. Guarantees by U.S. parent corporations may also be a desirable alternative. A direct loan to the U.S. company to finance the acquisition of equipment offshore is also possible. In all cases, the lessor's remedies are exercised in the United States. Whenever a lessor's remedies will be exercised outside of the United States, the lessor must carefully consider the time and expense that may be involved. Of course, the usual risks of foreign financing transactions apply, including foreign exchange or currency risk and political risk (including violence, war, and expropriation of assets), for which the lessor must turn to hedging and specialized insurance products such as those provided by the Overseas Private Investment Corp., a U.S. government agency.

Thorough planning and sound legal advice enable a lessor to identify and avoid problems in a foreign market. The rewards may be significant and justify the additional time and expense involved in documenting the lease.

Pamela J. Martinson (mailto:[email protected]) is a partner of the law firm of Bingham McCutchen LLP, resident in the firm's San Francisco and Silicon Valley offices, where she is a member of the Banking, Commercial and Structured Finance practice group. Erika de la Rosa ([email protected]) is a consultant in Bingham McCutchen's Latin American Practice Group. She focuses her practice on Latin American transactional work that includes mergers and acquisitions, equipment leasing (aircraft), and securitizations.

American lessors continue to look for ways to expand their business, often turning to new products or structures. Savvy lenders also look to take their products to new markets, which are increasingly global. However, leasing equipment outside of the United States can present a number of issues for the U.S. lessor and its counsel. Preparation and an understanding of the foreign country's laws relating to equipment leasing are keys to success. Some of the most basic aspects to consider before leasing equipment to be located outside the United States to a foreign lessee include:

1) Does the jurisdiction recognize the concept of a lease?

2) How do we document the transaction?

3) Is there withholding tax on lease payments made to a U.S. lessor, or other tax or licensing requirements?

4) How do we establish our rights in the equipment as against third parties?

5) Will we be able to repossess the equipment in the event of a default?

This article focuses on Brazil, Colombia, Mexico, and Peru as examples in answering these basic questions and provides helpful advice for anyone considering a leasing transaction into these countries. Currently, the United States is expanding its trade agreements with Latin America resulting in significant commercial opportunities for lessors as these countries invest in developing their infrastructure and their economies. At the same time, Latin American countries looking to spur business development are accelerating privatization of many industries, including air transportation, ports, telecommunications, water, and power. The private sector is faced with the need for very significant levels of investment to upgrade terminals and plants as well as add new technology and facilities. Capital equipment is critical to completion of these projects.

The perspective below covers considerations for equipment in general. Note that other considerations could apply in the case of specialized assets such as aircraft, ships, or rolling stock.

Is a Lease of Personal Property Recognized in the Jurisdiction?

In the United States, a lease, whereby the owner of an asset can part with possession without loss of ownership and enforce a hell or high water payment obligation, is an accepted financing vehicle. In other parts of the world, this may not be the case. Although leasing is recognized in Peru, it is not a common form of financing. The hope is that the recent adoption of the Law of Movable Guaranties will encourage leasing by accelerating the process for lessors to regain control of leased assets upon default. Competent local counsel in all jurisdictions should be asked to address the consents, filings, and approvals that may be required. Of particular importance to a lessor is whether indemnities provided by the lessee and liquidated damages provisions typical in U.S. leases can be enforced as written.

Are There Any Formalities with Respect to Leasing or Lease Documentation to Consider?

Local counsel should always be consulted when planning a transaction in a foreign jurisdiction. There may be requirements for the lessor to become licensed prior to entering into the lease or to establish a presence in the country in order to enforce its rights in the future should the need arise. For its part, the lessee may need to obtain approval from a central bank or other government agency to incur obligations where money will leave the country. India is just one well-known example of such a requirement. Certified translation and 'stamping' may also be a necessary formality. Whether or not the jurisdiction is a signatory to the Hague Convention is an important element to consider at the time of execution of the lease. Following the rules for notarization and/or an apostille of all documentation destined to be delivered where the equipment will be located is key to any later judicial process to regain control over the assets should the lessee default under the lease.

With regard to certain specific Latin American jurisdictions, the following tips apply:

Brazil. A lease is not required to be prepared in the form of a public deed signed before a public notary. Unlike notaries in the United States, a public notary in Brazil (and other countries such as Mexico, Colombia, and Peru) has authority to attest to the authenticity of documentation. However, if it is executed in English, it will require translation from a certified Brazilian translator for its later registration. Also, should the lessor sign the agreement in the United States, its signature will require notarization, legalization by the Secretary of State where the lessor is located, and finally certification from the Brazilian Consulate assigned to the Lessor's jurisdiction.

Due to exchange controls and as part of the transaction, the lessee will be required to, in advance, secure a permit to send payments abroad issued by the Brazilian Central Bank. If the leased equipment will be coming from outside of Brazil, the lessee will also need to secure an Import License from the Brazilian Customs Agency. The license will contain information as to the reason for importation of the leased equipment, the name of the lessor, and the amounts of rent payments. As part of its permit issuance process, the Central Bank will request copies of this license and filings with the Customs authorities.

Colombia. In the case of aircraft, ships, or vehicles, the leases will require translation to Spanish by a certified Colombian translator for their filing with the appropriate registry. If the lease is signed in the United States, the lessor's signature will require notarization and, as Colombia is a member of the Hague Convention, only its apostille by the applicable Secretary of State.

Mexico. Equipment leases can be signed as private documents without the need for a public deed executed before a notary public. However, if the lessor executes the lease in the United States, it is recommended that its signature be notarized and apostilled by the applicable the Secretary of State for use in Mexico.

Peru. Since Peru is not a signatory of the Hague Convention, if the lessor signs the lease in the United States the agreement will require: 1) notarization, 2) legalization by the Secretary of State of the state where the lessor is located, 3) further certification by the U.S. State Department, and 4) final stamp certification by the Peruvian Consulate. The same process will apply for any document executed in the United States that the Peruvian registrar might request including any certificates of incumbency of the lessor.

The lease should be prepared as a public deed before a notary public to assist in any future actions to reclaim the leased assets, accelerating the process from potentially 5 years to approximately 1 year.

As part of the transaction, the lessor can request the lessee to designate a depositary of the leased equipment who, although not responsible for the lessee's performance under the lease, will be responsible for the leased assets and, in case of termination or default by the lessee, ensure they are delivered to the lessor or its representative. The depositary can be a member of the lessee's board of directors or its main shareholder. Criminal charges may be brought against the depositary if it fails to deliver the leased assets.

What Are the Tax Considerations?

Failure to consider local tax issues can quickly turn the economics of a transaction upside down. Pricing and structuring must take into account withholding tax, duties, income taxes, and even capital gains or other taxes due if the leased asset is ultimately sold, by way of exercise of a purchase option or the lessor's default remedies. As an example, in Colombia, equipment leases that do not contemplate a purchase option for the lessee can be subject to a heavy tax burden of 39.5%, which includes VAT and a remittances tax. Withholding may be required on rental payments sent to the United States in an amount dependent on the existence of any applicable tax treaty with the United States. Any transfer tax applicable upon a sale or exercise of the purchase option must be considered. The lease agreement must include a tax indemnity in favor of the lessor and a provision to 'gross up' payments to account for any required withholding.

How Can the Lessor Establish Its Property Rights Before Third Parties in the Country Where the Equipment Will Be Located?

Local counsel should be asked to instruct a lessor on the proper due diligence to perform to ascertain the existence of liens or other claims on assets of the lessee. A good understanding of the country's bankruptcy and insolvency laws is also valuable to comprehend the potential for competing claims and delay. The lessor most often establishes its claim on the assets by registering the lease with the appropriate government offices in the jurisdiction where the equipment will be located. For example:

Brazil. Equipment leases can be registered at the Registry of Deeds and Documents. In the case of ships, aircraft, or motor vehicles, additional registration will be required. The lease must be translated to Portuguese by a certified translator prior to its filing, and the registration process can take 1 to 2 days.

Colombia. Equipment leases are subject to registration only if the leased asset is a ship, aircraft, or motor vehicle. Due to foreign exchange controls, upon execution of any equipment lease, the lessee must report the transaction to the Central Bank through a filing at any local bank. The process is easy, takes a single day, and the lessee receives a proof of reporting that it will be required to show each time it purchases U.S. dollars to remit as rental payments.

Mexico. Only leases of aircraft, ships, and rolling stock are subject to registration.

Peru. Previously, only leases of ships or aircraft could be registered. Starting May 29, 2006, under the new Movable Guaranties Law, all equipment leases (including those of ships and aircraft) are subject to registration. The registration process can take approximately 35 days. During that time, the registrar has 10 calendar days to request clarification or comments on the agreements being filed.

How Does a Lessor Enforce Its Rights Upon Default?

How a lessor responds to a default situation is dependent on the local law of the jurisdiction involved. In many countries, the lessor does not have the same self-help remedies that can be exercised in the United States. Our sampling of four Latin American countries yields the differences outlined here:

Brazil. Upon default, the lessor or its representative (with the appropriate power of attorney duly translated, notarized, and consularized) must seek an injunction before the Brazilian courts to then be able to access the lessee's facilities and repossess the equipment. The process to obtain the injunction can take from 24 to 48 hours. No provision eliminating the injunction process can be inserted in the original lease agreement, as this procedure is not waivable.

Colombia. The lessor does not have any self-help remedies and thus must bring a Restitution of Tenancy Request before the Colombian courts. As in Brazil, this process cannot be waived by the lessee as part of the agreement and can take between 8 months to 1 year to resolve.

Mexico. No repossession of assets can take place without having undertaken a judicial process, which can take up to 1 year.

Peru. One of the goals of the new Law of Movable Guaranties is to accelerate and facilitate the process to regain control of leased assets. Therefore, upon default by the lessee, the lessor will have the right to repossess the equipment, utilizing self-help remedies without the need for a formal judicial process.

The lessor and its counsel should carefully consider whether its exercise of remedies can be facilitated by using a lease document governed by local law, or whether it prefers to obtain a judgment in a U.S. court and enforce that judgment in the jurisdiction where the equipment and/or lessor is located. In most instances, using the law of the jurisdiction where the equipment is located is recommended and believed to offer the fastest access to leased assets. While the choice of U.S. law would be upheld as a valid choice of law in any action in the courts of Brazil, Mexico, Peru, and Colombia, there may be delays or inconsistent interpretations. Further, Brazil, like many jurisdictions, will only uphold the choice of U.S. law so long as it does not offend Brazilian national sovereignty or public order in any way.

The alternate route, using U.S. law to govern the documents and obtaining a judgment in a U.S. court, may often result in delays due to very specific requirements and procedures to be followed. An overview of the four sample countries follows:

Brazil. Judgments rendered by foreign courts (including those of the United States) would be recognized and accepted by the courts of Brazil without retrial or examination of the merits of the case, but only after such foreign judgment is ratified by the Brazilian Superior Court of Justice. To be ratified by the Superior Court of Justice, a foreign judgment must: 1) comply with all formalities necessary for its enforcement under the laws of the place where it was rendered; 2) have been given by a competent court after proper service of process on the parties, or after sufficient evidence of the parties' absence has been given, as established pursuant to applicable law; 3) not be subject to appeal; 4) not offend Brazilian national sovereignty, public policy, and good morals; and 5) be duly authenticated by a competent Brazilian consulate and accompanied by a translation thereof into Portuguese made by a certified translator.

Peru. U.S. judgments are enforced through an 'exequatur' (enforcement order) process before the Peruvian courts, which follow similar considerations as in Brazilian courts.

Mexico. Although U.S. judgments can also be enforced through an exequatur (called 'Homologacion'), this can be a lengthy and rigid process involving, among other things, determination of proper jurisdiction in the original court, compliance with the notice requirements of both jurisdictions, and the character of the property interest at issue (real or personal). Thus, for practical purposes, it is suggested that the lease be documented and enforced under Mexican law.

Colombia. A U.S. judgment is enforceable in Colombia also through an exequatur process. The seven prerequisites for enforcing a judgment are that: 1) it does not implicate real property interests in goods located in Colombia; 2) it is not contrary to Colombian laws reflecting public policy (orden p'blico); 3) it complies with the foreign country's formalities of execution, authentication, and legalization; 4) it does not concern a matter within the exclusive jurisdiction of the Colombian courts; 5) its subject matter is not involved in any current proceeding or judgment in Colombia; 6) the judgment debtor has received the notice and opportunity to contest the claim required by the country of origin; and 7) the complainant complies with the procedural requirements of Article 695 of the Colombian Civil Procedure Code for seeking exequatur.

Final Thoughts

Expanding a leasing business into any foreign jurisdiction requires due diligence on the part of the lessor. The basic questions addressed in this article should be posed to competent local counsel and the answers carefully evaluated, giving consideration to the timing required to comply with all formalities for validity. If the lessor wishes to first 'test the waters,' or is not willing or planning to establish a presence in, or deal regularly with, the particular country, it may choose to structure the one-off transaction to avoid leaving the protection of the United States and its legal system. For example, the equipment could be leased to a U.S. entity if one exists, but permitted to be located offshore (perhaps with a subsidiary of the lessee). The U.S. lessee provides a letter of credit or other collateral in the United States to support its obligations under the lease. Guarantees by U.S. parent corporations may also be a desirable alternative. A direct loan to the U.S. company to finance the acquisition of equipment offshore is also possible. In all cases, the lessor's remedies are exercised in the United States. Whenever a lessor's remedies will be exercised outside of the United States, the lessor must carefully consider the time and expense that may be involved. Of course, the usual risks of foreign financing transactions apply, including foreign exchange or currency risk and political risk (including violence, war, and expropriation of assets), for which the lessor must turn to hedging and specialized insurance products such as those provided by the Overseas Private Investment Corp., a U.S. government agency.

Thorough planning and sound legal advice enable a lessor to identify and avoid problems in a foreign market. The rewards may be significant and justify the additional time and expense involved in documenting the lease.

Pamela J. Martinson (mailto:[email protected]) is a partner of the law firm of Bingham McCutchen LLP, resident in the firm's San Francisco and Silicon Valley offices, where she is a member of the Banking, Commercial and Structured Finance practice group. Erika de la Rosa ([email protected]) is a consultant in Bingham McCutchen's Latin American Practice Group. She focuses her practice on Latin American transactional work that includes mergers and acquisitions, equipment leasing (aircraft), and securitizations.