Correctional Facility Financing

Glossary

Annual Cancellation & Voter Approval: U. S. States, Territories, municipalities, and local governments are granted the option to cancel the lease, due to lack of appropriations, at the end of each of the Lessee's fiscal years. This clause normally exempts the lease from voter approval. If the lease is canceled, you lose the use of the property. There are no other financial penalties; however, the Lessee for a limited period of time may not lease or purchase substitute property for the property returned. (This cancellation clause is not available to not-for-profit organizations.)

Default by Lessee/Lessee: Default by the Lessee/lessee includes nonpayment of the lease payments or not complying with the terms of the lease agreement. If the Lessee defaults, all of the remaining payments become immediately due and payable. Possession of the leased property must be returned to MCM at the Lessee's expense and may be sold or leased by MCM to someone else. The Lessee must pay any deficit remaining after the sale or lease of the property. We may also enforce our rights in court. A cancellation of the lease agreement by the Lessee per its annual cancellation right will not constitute an event of default.

General Provisions: The lease agreement is a financing or capital lease; that is, at the end of the lease, the government entity (The Lessee) owns the leased property without further payments. The leased property must be used as part of the Lessee's governmental or not-for-profit function.

Length of the Lease: The Lessee selects a repayment period, expressed in months. The maximum period is, however, limited to the useful economic life of the leased property.

Obligation to Pay: The lease agreement requires the Lessee to pay unconditionally, unless the lease is canceled as described above. The lease payment is due regardless of whether or not the leased property is in working condition or performs the tasks it was acquired to perform. MCM does not warranty or guarantee the leased property, its operation or serviceability. Lease payments may not be reduced or eliminated due to a problem with the leased property or for any other reasons.

Operating Costs & Insurance: All operating costs of the leased property such as maintenance, insurance, taxes, utilities and fuel must be paid by the Lessee. In many states, the leased property is exempt from real and personal property taxes. Lessees that self-insure are not required to carry insurance on the leased property, but must agree to replace the leased property if it is destroyed. Before the lease is funded, Lessees not self-insuring must provide MCM with a certificate of insurance demonstrating that the leased property is insured.

Payments: The lease is payable in monthly installments. Each payment is comprised of principal and interest components, which are itemized by month in the lease agreement. The total amount of the payment is the same amount each month. Title to leased Property: During the lease, title to the leased property is held in the Lessee's name and the Lessee agrees to return the title to the property to MCM if it defaults or cancels the lease. The Lessee must grant MCM a security interest in the leased property, normally evidenced by a mortgage financing statement filed with the U.S. state or territory where the property is located. The Lessee must pay any liens placed on the leased property by someone else.

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