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GE Capital and Castle Harbour

GE Capital and Castle Harbour. A Tangled Web. Motivating Factors. Poor performance of airline industry Weak secondary market Credit rating/debt ratio Retention of interest in aircraft Tax savings. $530M in Aircraft, $258M in Debt, $22M in Rec., $296M in Cash, $0 in Stock.

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GE Capital and Castle Harbour

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  1. GE Capital and Castle Harbour A Tangled Web

  2. Motivating Factors • Poor performance of airline industry • Weak secondary market • Credit rating/debt ratio • Retention of interest in aircraft • Tax savings

  3. $530M in Aircraft, $258M in Debt, $22M in Rec., $296M in Cash, $0 in Stock Deal Structure GECC TIFD III - E TIFD III - M TIFD IV GE Capital AG ING Bank N.V. Rabo Merchant Bank N.V. Castle Harbour Leasing GE Capital Summer Street - 1 LLC Castle Harbour (Organized as Partnership) $50M + $67.5M Cash

  4. Cash Flows GECC Cash to GECC Subs No taxes CHL buys GECC Commercial Paper Interest is tax deductible Under-the-table cash payments Castle Harbour Leasing GECC Subsidiaries Cash in/out No taxes Asset step up Cash to CHL No taxes Castle Harbour Dutch Banks Cash in/out No taxes Aircraft Lease Payments

  5. Sample Year Operations

  6. End Results • GECC was able to re-depreciate its aircraft • The gain on the disposition of the aircraft was not taxed • GECC was able to save about $62M in taxes • Litigation is ongoing, as the IRS plans to appeal its recent loss on the case

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