How would you structure a sale-and-leaseback for emergency liquidity?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A sale-and-leaseback raises cash by selling an owned asset (typically real estate or key equipment) and simultaneously leasing it back so operations continue uninterrupted. Steps: (1) identify suitable owned assets with clear market value; (2) get an independent valuation; (3) find a buyer (a real-estate fund, a leasing company, or a specialist sale-leaseback investor); (4) negotiate the sale price — in a distressed, speed-driven situation expect roughly 80-90% of open-market value as the discount for certainty and speed; and (5) agree the lease terms (often a 10-15 year lease) — rent, indexation, repair obligations, and renewal options. Accounting: under IFRS 16 the seller-lessee recognizes a right-of-use asset and a lease liability and only books the gain/loss relating to the rights transferred to the buyer. The key warnings: it converts a one-off cash inflow into a long-term fixed rental obligation (raising the operating cost base and reducing flexibility), so it's only sensible when the asset has clear value and the liquidity need is genuinely urgent.
WHAT INTERVIEWERS LISTEN FOR
- ✓Sell an owned asset and lease it back to keep operating; raises immediate cash
- ✓Steps: identify asset → independent valuation → find buyer → price (~80-90% in distress) → lease terms (10-15yr)
- ✓IFRS 16: recognize right-of-use asset + lease liability; gain/loss only on rights transferred
- ✓Trade-off: long-term fixed rent raises cost base and cuts flexibility
COMMON MISTAKES
- ✗Assuming a 100%-of-market-value sale
- ✗Ignoring the increase in future fixed costs / lost flexibility
- ✗Omitting the IFRS 16 lease accounting
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