Lease - End of Term Options

This topic provides the release highlights for Lease - End of Term Options.

Introduced the following List of new Placeholders:

Introduced the following fields in Collateral → Valuations tab (Origination / Servicing / Collateral Management) screen & collateral related web services.

Table 2-2 Placeholders

   
Residual Value (Book Value) Account Table → ACC_RESIDUAL_VAL_CUR
Residual Value (Market Value) Collateral Tab → Valuations Tab → Retail Amt (Current indicator = Y)
Depreciation (Market Value) Refer ACCOUNT_BALANCES_AMORTIZE → ABA_BAL minus ABA_BAL_EARNED

Changes to Lease Payoff Quote Transaction:

Currently, Lease Payoff Quote has the ability to generate payoff quote including information like With/Without Buyout + adhoc costs of termination, Outstanding dues etc.
  • This payoff quote transaction is enhanced to support generating payoff quote for other lease end of term options considering the collateral residual value (Market value) like:
    • Evergreen
    • Upgrade
Solution Approach:
  • To support this feature, introduced the following transaction parameters in the existing transaction (continue the sequence numbers of transaction parameters of Lease Payoff Quote).

Table 2-3 Solution Approach

     
Calculate Upgrade Refer lookup → YES_NO_CD If user provides the value of this parameter as Y, system calculates Upgrade value of asset.

Also, system validates that New Asset Value is greater than ZERO.
New Asset Value NA This field is only for that specific transaction (Not saved).
Residual Valuation Existing lookup → RESIDUAL_VALUATION_CD (RESIDUAL VALUATION CODES)
  • If the value selected is Contract Value, system considers book value of the asset.
  • If the value selected is Fair Market Value, system considers the market value of the asset.
Upgrade Fee NA -
Calculate Evergreen Refer lookup → YES_NO_CD

If user provides the value of this parameter as Y, system calculates Evergreen value of asset.

Also, system validates that Evergreen Renewal Cycle should be greater than ZERO.
Inflation Rate NA This field is only for that specific transaction Refers for calculation.
Evergreen Renewal Cycles NA

System checks the current billing cycle of the account to consider the value of renewal cycles.

Example: If the billing cycle of the account is Monthly, the input value given is considered as Monthly.

Table 2-4 Calculation

       
Estimated Upgrade Cost Estimated Upgrade Cost = (New Asset Value − Residual Value of Current Asset) + Upgrade Fee

Example:

New Asset Value: $50,000

Residual Value of Asset: $30,000

Upgrade Fee: $2,000

Upgrade Cost = (50,000 − 30,000) + 2,000 = 20,000 + 2,000 = 22,000

New Asset Value = Takes reference from txn parameter.

Residual value of Asset = Depending on txn parameter (Residual Valuation), if it is book value, refer 'Accounts' table or if it is Market value → Refer 'Collateral → Valuation' tab where current record = Y. If No valuation record is available; considers the book value.

Upgrade Fee: Takes reference from transaction parameter.

Estimated Evergreen Amt Estimated Evergreen Amt = Initial Lease Payment * (1+Inflation Rate) - Depreciation Adjustment

Example:

Initial Lease Payment: $500/month

Inflation Rate: 12% per year

Depreciation Value for cycle: $50/month

Assuming a one-year renewal:

Evergreen Lease Payment = 500 * (1+0.01) − 50 = (500 *1.03) − 50 = 451.25

Note: System annualizes the numbers to arrive the result.

Example: In above case, since billing cycle in Monthly, system converts inflation rate to monthly.

Initial Lease Payment = Takes reference from 'Accounts' table → Pmt Amt Cur.

Inflation Rate = Takes input from transaction parameters.

Depreciation Value = Refer ACCOUNT_BALANCES_AMORTIZE → ABA_BAL minus ABA_BAL_EARNED.

Evergreen Renewal Cycle = Takes reference from transaction parameter.

Outcome:
  • The system calculates and prints the Upgrade and Evergreen values, if user provides the required input in the Payoff quote transaction parameters.
    • In Payoff Quote, system refers the valuations from latest valuation record, where current indicator = Y, for current asset = Y.
    • In case of back dated payoff quote, system refers to corresponding valuation record, based on the date.
    • If certain value results in negative, system prints the ZERO value as result for Upgrade and Evergreen Options.

Figure 2-6 Presentation Example


Description of Figure 2-6 follows
Description of "Figure 2-6 Presentation Example"

In the above payoff quote, following additional changes are taken up:
  • The Residual Amount field is now labeled as RESIDUAL AMOUNT (BOOK VALUE).
  • Introduced new row RESIDUAL AMOUNT (MARKET VALUE), refer to Collateral → Valuations → Retail Value.
  • While calculating value for PAYOFF QUOTE (including residual amount), system refers either Residual Income Book Value or Market Value based on contract parameter → Residual valuation (under Residual Details' block).
  • If the 'Residual Valuation' is None/BV, refer Book Value, If its Market value, refers market value (Collateral → Valuations Tab → Retail Value or if no market value record is existing, system refers the book value.
  • In case of a back dated Payoff Quote, the system considers the Payoff Generate Date to refer the valuation dates in collateral screen.