JOLCO: Japanese Operating Lease with Call Option
The Japanese lessor-owned lease structure: the investor tax depreciation basis, the lessee's call option, and how it differs from a KG or KS ship fund.
A Japanese Operating Lease with Call Option (JOLCO) is a lease-financing structure in which a Japanese lessor vehicle owns an asset, a ship or an aircraft, funded by Japanese equity investors and debt, and leases it to an operator that holds a call option to purchase the asset at a pre-agreed price at or before the end of the lease term.
The equity side is driven by tax depreciation available to the Japanese investors during the lease, which is what allows the structure to price competitively against a conventional loan. The operator side is driven by the call option, which restores ownership of the ship at a known price once the lease has run. In shipping the operating leg is normally documented as a bareboat charter party .
The full article will cover the structure and its parties, the tax basis on which the equity is raised, the typical term and advance rate, how the call option is priced and exercised, the accounting consequences for the lessee, and how a JOLCO differs from a straight sale and leaseback and from the German and Norwegian KG and KS ship funds it is routinely confused with.