Equipment trust certificate
- Equipment trust certificate
An equipment trust certificate (ETC) is a financial security used in aircraft finance, most commonly to take advantage of tax benefits in North America.[Peter S. Morrell, "Airline Finance" (Ashgate, 1997), p. 153.] ]In a typical ETC transaction, a "trust certificate" is sold to investors in order to finance the purchase of an aircraft by a trust managed on the investors' behalf. The trust then leases the aircraft to an airline, and the trustee routes payments through the trust to the investors. Upon maturity of the note, the airline receives title to the aircraft.
The lease is not a "true" lease because the airline receives title at the end. Therefore, ETCs are a form of secured debt financing similar to a mortgage. Because the aircraft is not owned by the airline until maturity, the aircraft is not considered airline property for the purposes of bankruptcy; however, alternative forms of financing such as mortgage and securitization lead to the same result, making this a relatively minor advantage in comparison to the tax benefits.[Morrell, pp. 186-187.] ]An enhanced ETC, also known as a double ETC, is similar to a conventional ETC except that the security has been divided into two or more classes of securities, each with different payment priorities and asset claims. The more senior certificates (those with highest priority) have a higher credit rating and may obtain an investment grade rating for the particular issue. EETCs issues are similar to securitization transactions, except that ownership remains with a separate trust rather than the operator, which has different tax implications.
References
Wikimedia Foundation.
2010.
Look at other dictionaries:
equipment trust certificate — A type of security, generally issued by a railroad, to pay for new equipment. Title to the equipment, such as a locomotive, is held by a trustee until the notes are paid off. An equipment trust certificate is usually secured by a first claim on… … Black's law dictionary
equipment trust certificate — A type of security, generally issued by a railroad, to pay for new equipment. Title to the equipment, such as a locomotive, is held by a trustee until the notes are paid off. An equipment trust certificate is usually secured by a first claim on… … Black's law dictionary
Equipment Trust Certificate — A debt instrument that allows a company to take possession of an asset and pay for it over time. The debt issue is secured by the equipment or physical assets, as the title for the equipment is held in trust for the holders of the issue. When the … Investment dictionary
equipment trust certificate — noun : an interest in an equipment trust on which payments are made out of rentals received from lease of the equipment … Useful english dictionary
equipment trust certificate — In the USA, a document setting out the details of a loan used to fund the purchase of equipment. The holder of the certificate has a secured interest in the asset in the event of a corporate default … Accounting dictionary
equipment trust certificate — In the USA, a document setting out the details of a loan used to fund the purchase of equipment. The holder of the certificate has a secured interest in the asset in the event of a corporate default … Big dictionary of business and management
Trust Certificate — A bond or debt investment, usually in a public corporation, that is backed by other assets which serve a purpose similar to collateral. If the company experiences difficulty making payments, the assets may be seized or sold to help specific trust … Investment dictionary
trust certificate — noun : a certificate issued and sold as one of a series by the trustee of designated trust property (as an investment trust, railroad equipment, or business trust) legally held evidencing a specified fractional equitable or beneficial interest in … Useful english dictionary
equipment — equip·ment n: the implements used in an operation or activity; specif in the Uniform Commercial Code: goods that are bought for or used in a business enterprise or by a debtor which is a nonprofit organization or a government agency and that are… … Law dictionary
trust — A legal entity created by a grantor for the benefit of designated beneficiaries under the laws of the state and the valid trust instrument. The trustee holds a fiduciary responsibility to manage the trust s corpus assets and income for the… … Black's law dictionary
