Deal Modification - Changing Payments and Payment Terms
Events and changes may occur during the life of a lease that require deal modifications.
In these scenarios:
Shorten a lease term or reducing payment
Reduce a payment for an existing term
Increase payment for an existing term
Extending a term or decreasing a payment
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Shortening Lease Term/Reducing Payment
Scenario: Renegotiated a lease to shorten the term from 48 to 36 months and reduce the monthly payment amount e.g. from $950 to $850.
In this scenario there are two changes that need to be captured in the modification. Follow the steps below to make all necessary updates and book the modified deal.
Step |
Action: Modify deal |
|---|---|
1 |
Search for deal using the Top Search Bar and Deal #. |
2 |
From the Left NavBar, hover over Record Event. Hover over Record contract modification and then Record reduction in term. This will take you to the Modify Deal workspace. |
3 |
On Terms tile of Modification workspace, change the # of Monthly Payments to reflect a reduction of 12 months from the remaining term. Example: If you have 25 months left of payments on the original lease and you are reducing the term by 12 months, you would enter 13 for the number of monthly payments that remain for the shortened lease term. |
4 |
Calculate the new LRF based on the reduced payment and populate the LRF field with that number. When you tab out of the field the payment amount should change to the desired amount. |
5 |
Since all original EOT options are removed from the modified deal, all options must be added with an accurate effective month, according to the term of the new modified deal. To do this, click the Mid-Term/EOT button and add the correct options. Remember, enter all options available per the contract, not just the Reasonably Certain option.
Note: If you are not changing your reasonably certain EOT option, you may look in the Existing Terms section to see which option was originally reasonably certain.
|
6 |
Go to the Summary tile and verify all information is accurate. |
7 |
Verify the Reasonably Certain EOT Option is correct in the After Modification column. This drop-down will now reflect the newly added Reasonably Certain options only. If there are multiple RC options, the system will default to select the option with the latest effective month. |
8 |
Enter your Reasonably Certain Holding Period in the After Modification column. Please note, this should respect the remaining term for the modified deal. |
9 |
Enter the appropriate Date of Modification. This should be the first day of a payment period and will be the new Lease Start Date of the modified deal. It cannot be the lease start date of the original lease, nor can it be a date in the future. |
10 |
Enter any relevant comments. |
11 |
Click Record Modification. |
12 |
Click Okay on the warning box telling you a new deal will be created and the original deal will remain active until you classify and book the new, modified deal. |
13 |
You will be taken to the Accounting Classification workspace. |
14 |
In the Reclassify Effective drop-down, select the Modification Date and click Refresh Classification. |
15 |
Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information. |
16 |
Click Save Account Classification. |
17 |
Go to Deal History from Left NavBar. |
18 |
On the Next Steps tile, click the Book button to book the modified deal. |
19 |
Verify the correct Ledger Date. The drop-down will include applicable dates based on the Date of Modification and open periods. Please note the Date of Modification cannot be changed once the modification has been saved. |
20 |
The appropriate ledgers are pre-populated from the original deal and must be used to book the modified deal to maintain the linkage. Please note, the modified deal must be booked to the same ledgers the original deal was booked. When a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification. |
21 |
Verify the correct option is selected for Expected Disposition. If you were unable to select the correct RC Option in the Modify Deal workspace, you may do so now. |
22 |
Verify the correct Expected Holding Period is entered, change as necessary. |
23 |
Verify the correct IBR is populating. If you would like the system to use the default IBR according to remaining term, country, and Lessee, click Use Default IBR. |
24 |
Click the Book button. |
25 |
You will be taken to Deal Summary. Once the booking is complete, you should click Deal Summary on the Left NavBar again to refresh/reload the page. Now you should see the ledgers and all relevant information for the modified deal. |
Reducing Payment for Existing Term
Scenario: Renegotiated a lease to decrease the payment for the remaining term.
A deal modification should only be done if, in your professional judgment, the decrease in payment constitutes a material renegotiation of the lease.
Step |
Action: Modify deal |
|---|---|
1 |
Search for deal using the Top Search Bar and Deal #. |
2 |
From the Left NavBar, hover over Record Event. Since we are dealing with payments, hover over Record Payment and then Change a payment. Since you’ve indicated that this is a material renegotiation, you’ll click on Record payment change with contract renegotiation. This will take you to the Modify Deal workspace. |
3 |
On the Terms tile of the Modify Deal workspace, check the # of Payments field. Regardless of the modifications you are making, the number of payments may need to be adjusted based on your intended date of modification. The remaining term is calculated based on the current date (or system date). It is important to verify this is correct based on your intended date of modification. If the payment anniversary date has passed in the current month, then the remaining term starts with the next payment. |
4 |
On Terms tile of Modification workspace, calculate the new LRF based on the reduced payment and populate the LRF field with that number. When you tab out of the field the payment amount should change to the desired amount. |
5 |
Since all original EOT options are removed from the modified deal, all options must be added with an accurate effective month, according to the term of the new modified deal. To do this, click the Mid-Term/EOT button and add the correct options. Remember, enter all options available per the contract, not just the Reasonably Certain option.
Note: If you are not changing your reasonably certain EOT option, you may look in the Existing Terms section to see which option was originally reasonably certain.
|
6 |
Go to the Summary tile and verify all information is accurate. |
7 |
Verify the Reasonably Certain EOT Option is correct in the After Modification column. This drop-down will now reflect the newly added Reasonably Certain options only. If there are multiple RC options, the system will default to select the option with the latest effective month. |
8 |
Enter your Reasonably Certain Holding Period in the After Modification column. Please note, this should respect the remaining term for the modified deal. |
9 |
Enter the appropriate Date of Modification. This should be the first day of a payment period and will be the new Lease Start Date of the modified deal. It cannot be the lease start date of the original lease, nor can it be a date in the future. |
10 |
Enter any relevant comments. |
11 |
Click Record Modification. |
12 |
Click Okay on the warning box telling you a new deal will be created and the original deal will remain active until you classify and book the new, modified deal. |
13 |
You will be taken to the Accounting Classification workspace. |
14 |
In the Reclassify Effective drop-down, select the Modification Date and click Refresh Classification. |
15 |
Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information. |
16 |
Click Save Account Classification. |
17 |
Go to Deal History from Left NavBar. |
18 |
On the Next Steps tile, click the Book button to book the modified deal. |
19 |
Verify the correct Ledger Date. The drop-down will include applicable dates based on the Date of Modification and open periods. Please note the Date of Modification cannot be changed once the modification has been saved. |
20 |
The appropriate ledgers are pre-populated from the original deal and must be used to book the modified deal to maintain the linkage. Please note, the modified deal must be booked to the same ledgers the original deal was booked. When a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification. |
21 |
Verify the correct option is selected for Expected Disposition. If you were unable to select the correct RC Option in the Modify Deal workspace, you may do so now. |
22 |
Verify the correct Expected Holding Period is entered, change as necessary. |
23 |
Verify the correct IBR is populating. If you would like the system to use the default IBR according to remaining term, country, and Lessee, click Use Default IBR. |
24 |
Click the Book button. |
25 |
You will be taken to Deal Summary. Once the booking is complete, you should click Deal Summary on the Left NavBar again to refresh/reload the page. Now you should see the ledgers and all relevant information for the modified deal. |
Increasing Payment for Existing Term
Scenario: Renegotiated a lease to increase the payment for the remaining term.
A deal modification should only be done if, in your professional judgment, the increase in payment constitutes a material renegotiation of the lease.
Step |
Action: Modify deal |
|---|---|
1 |
Search for the deal using the Top Search Bar and Deal #. |
2 |
From the Left NavBar, hover over Record Event. Since we are dealing with payments, hover over Record Payment and then Change a payment. Since you’ve indicated that this is a material renegotiation, you’ll click on Record payment change with contract renegotiation. This will take you to the Modify Deal workspace. |
3 |
On the Terms tile of the Modify Deal workspace, check the # of Payments field. Regardless of the modifications you are making, the number of payments may need to be adjusted based on your intended date of modification. The remaining term is calculated based on the current date (or system date). It is important to verify this is correct based on your intended date of modification. If the payment anniversary date has passed in the current month, then the remaining term starts with the next payment. |
4 |
On Terms tile of Modification workspace, calculate the new LRF based on the increased payment and populate the LRF field with that number. When you tab out of the field the payment amount should change to the desired amount. |
5 |
Since all original EOT options are removed from the modified deal, all options must be added with an accurate effective month, according to the term of the new modified deal. To do this, click the Mid-Term/EOT button and add the correct options. Remember, enter all options available per the contract, not just the Reasonably Certain option.
Note: If you are not changing your reasonably certain EOT option, you may look in the Existing Terms section to see which option was originally reasonably certain.
|
6 |
Go to the Summary tile and verify all information is accurate. |
7 |
Verify the Reasonably Certain EOT Option is correct in the After Modification column. This drop-down will now reflect the newly added Reasonably Certain options only. If there are multiple RC options, the system will default to select the option with the latest effective month. |
8 |
Enter your Reasonably Certain Holding Period in the After Modification column. Please note, this should respect the remaining term for the modified deal. |
9 |
Enter the appropriate Date of Modification. This should be the first day of a payment period and will be the new Lease Start Date of the modified deal. It cannot be the lease start date of the original lease, nor can it be a date in the future. |
10 |
Enter any relevant comments. |
11 |
Click Record Modification. |
12 |
Click Okay on the warning box telling you a new deal will be created and the original deal will remain active until you classify and book the new, modified deal. |
13 |
You will be taken to the Accounting Classification workspace. |
14 |
In the Reclassify Effective drop-down, select the Modification Date and click Refresh Classification. |
15 |
Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information. |
16 |
Click Save Account Classification. |
17 |
Go to Deal History from Left NavBar. |
18 |
On the Next Steps tile, click the Book button to book the modified deal. |
19 |
Verify the correct Ledger Date. The drop-down will include applicable dates based on the Date of Modification and open periods. Please note the Date of Modification cannot be changed once the modification has been saved. |
20 |
The appropriate ledgers are pre-populated from the original deal and must be used to book the modified deal to maintain the linkage. Please note, the modified deal must be booked to the same ledgers the original deal was booked. When a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification. |
21 |
Verify the correct option is selected for Expected Disposition, change as necessary. |
22 |
Verify the correct option is selected for Expected Disposition. If you were unable to select the correct RC Option in the Modify Deal workspace, you may do so now. |
23 |
Verify the correct IBR is populating. If you would like the system to use the default IBR according to remaining term, country, and Lessee, click Use Default IBR. |
24 |
Click the Book button. |
25 |
You will be taken to Deal Summary. Once the booking is complete, you should click Deal Summary on the Left NavBar again to refresh/reload the page. Now you should see the ledgers and all relevant information for the modified deal. |
Extending Term/Decreasing Payment
Scenario: Lessee extends a lease for an additional 12 months and decreases the payment.
In this scenario, you should evaluate the specifics of the situation. It could be a renewal to extend the term and decrease the renewal payment. If the renewal was not Reasonably Certain, the deal will be remeasured when you record the renewal. Suppose the renewal was Reasonably Certain, but you are changing the payment amount originally indicated. In that case, the system will also automatically remeasure the deal due to the change in estimate of the payment. A deal modification is only required if, in your professional judgment, this change constitutes a true material renegotiation of the lease or if it occurs mid-term.
Recording a renewal
Step |
Action: Recording a partial asset event |
|---|---|
1 |
Search for the deal using the Top Search Bar and Deal #. |
2 |
From the Left NavBar, hover over Record Event. Hover over Exercise lease renewal/extension and then Record contractual renewal and then select the appropriate renewal option. This will take you to the Record Asset Event workspace. |
3 |
Select the asset that you want to renew. |
4 |
The Renewal Option from the Asset Event drop-down will be pre-selected. |
5 |
Change Ledger Date to appropriate fiscal month/year. |
6 |
Change First day of Renewal Date to appropriate date. It should be the day after the last day of the original term. |
7 |
Enter the decreased renewal payment amount. |
8 |
Enter any relevant comments related to the renewal. |
9 |
Click Save. |
Modifying the deal to extend the term and change the payment amount
Step |
Action: Modify deal |
|---|---|
1 |
Search for the deal using the Top Search Bar and Deal #. |
2 |
From the Left NavBar, hover over Record Event. Since we are dealing with payments, hover over Record Payment and then Change a payment. Since you’ve indicated that this is a material renegotiation, you’ll click on Record payment change with contract renegotiation. This will take you to the Modify Deal workspace. |
3 |
On Terms tile of Modification workspace, change the # of Monthly Payments to reflect an increase of 12 months from the remaining term. Example: If you have 25 months left of payments on the original lease and you are increasing the term by 12 months, you would enter 37 for the number of monthly payments that remain for the extended lease term. |
4 |
Calculate the new LRF based on the reduced payment and populate the LRF field with that number. When you tab out of the field the payment amount should change to the desired amount. |
5 |
Since all original EOT options are removed from the modified deal, all options must be added with an accurate effective month, according to the term of the new modified deal. To do this, click the Mid-Term/EOT button and add the correct options. Remember, enter all options available per the contract, not just the Reasonably Certain option.
Note: If you are not changing your reasonably certain EOT option, you may look in the Existing Terms section to see which option was originally reasonably certain.
|
6 |
Go to the Summary tile and verify all information is accurate. |
7 |
Verify the Reasonably Certain EOT Option is correct in the After Modification column. This drop-down will now reflect the newly added Reasonably Certain options only. If there are multiple RC options, the system will default to select the option with the latest effective month. |
8 |
Enter your Reasonably Certain Holding Period in the After Modification column. Please note, this should respect the remaining term for the modified deal. |
9 |
Enter the appropriate Date of Modification. This should be the first day of a payment period and will be the new Lease Start Date of the modified deal. This cannot be the lease start date of the original lease, nor can it be a date in the future. |
10 |
Enter any relevant comments. |
11 |
Click Record Modification. |
12 |
Click Okay on the warning box telling you a new deal will be created and the original deal will remain active until you classify and book the new, modified deal. |
13 |
You will be taken to the Accounting Classification workspace. |
14 |
In the Reclassify Effective drop-down, select the Modification Date and click Refresh Classification. |
15 |
Verify all information is correct. You may expand the Analysis by Category and Deal Characteristics sections for more information. |
16 |
Click Save Account Classification. |
17 |
Go to Deal History from Left NavBar. |
18 |
On the Next Steps tile, click the Book button to book the modified deal. |
19 |
Verify the correct Ledger Date. The drop-down will include applicable dates based on the Date of Modification and open periods. Please note the Date of Modification cannot be changed once the modification has been saved. |
20 |
The appropriate ledgers are pre-populated from the original deal and must be used to book the modified deal to maintain the linkage. Please note, the modified deal must be booked to the same ledgers the original deal was booked. When a lease is booked to a different ledger, this must be entered as a brand-new lease, not a modification. |
21 |
Verify the correct option is selected for Expected Disposition. If you were unable to select the correct RC Option in the Modify Deal workspace, you may do so now. |
22 |
Verify the correct Expected Holding Period is entered, change as necessary. |
23 |
Verify the correct IBR is populating. If you would like the system to use the default IBR according to remaining term, country, and Lessee, click Use Default IBR. |
24 |
Click the Book button. |
25 |
You will be taken to Deal Summary. Once the booking is complete, you should click Deal Summary on the Left NavBar again to refresh/reload the page. Now you should see the ledgers and all relevant information for the modified deal. |