By Tatyana Shumsky
Oct. 11, 2018
A change in how companies account for leases is threatening to upend corporate-loan agreements and prompting finance chiefs to search for solutions.
Next year, public companies will be required to report operating leases—for everything from office space to jet engines—as liabilities. An estimated $3.3 trillion in leases, currently buried in the footnotes of financial statements, are expected to find their way onto corporate balance sheets next year because of the change that goes into effect at the end of the year.
That will disturb corporate debt-to-earnings ratios, a metric lenders use to set loan covenants that protect against defaults. The new accounting method could trigger those covenants—even if nothing else about a company’s financials has changed—and erode the borrowing power of some companies.
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