The deterioration of the credit markets in the past year has generated added interest in sale/leaseback transactions - long accepted throughout the European markets as a well-perfected secured debt instrument. But in more complicated structures such as asset securitizations - where the waterfall and priority of the payments are embedded in the structure - the terms of the operating lease take on added significance, particularly when determining the debt ranking of the lessee.

A credit downgrade in such cases is not necessarily terminal, provided the company shows that whatever investments they are putting in at the moment will allow them to grow their operating cash flow base. But operating leases may act as an additional hurdle when lessees start to recover, and could slow down the waterfall debt repayments.

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