Off-Balance Sheet Financing

Off-balance sheet financing structures debt or assets through unconsolidated entities, keeping liabilities off corporate balance sheets while accessing capital or controlling assets.


Off-Balance Sheet MethodMechanism
Operating lease (old rules)Rent vs own, lease not capitalized
Joint venture minority stakeLess than 50% ownership, not consolidated
Synthetic leaseStructured to be off-balance sheet for accounting
Sale-leasebackSell asset, lease back, generate cash
SPV/SPESpecial purpose vehicle holds debt
Limited partnership interestLP investment may not consolidate
MotivationsConsequences
Improve leverage ratiosLower reported debt-to-equity
Covenant complianceAvoid violating debt limits
Capital accessBorrow more than on-balance sheet limits
Regulatory arbitrageReduce regulatory capital requirements
Risk transferMove liabilities to unconsolidated entity
Disclosure riskMust still disclose in notes, investor scrutiny

Related Terms

SPV Sale and LeasebackSynthetic LeaseBalance Sheet ManagementAccounting Treatment

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