Listen to a Business English Dialogue About Equipment trust certificate
Claire: Hi Emma, have you ever heard of equipment trust certificates?
Emma: Hi Claire, yes, I’ve heard about them. They’re financial instruments used to finance the purchase of equipment, like airplanes or railroad cars.
Claire: Exactly! They’re like bonds backed by the equipment itself. Companies issue them to raise funds for purchasing expensive equipment. Do you know how equipment trust certificates work?
Emma: Yes, Claire. Investors buy these certificates, and the issuer uses the proceeds to purchase the equipment. The issuer then leases the equipment to generate revenue to repay the investors.
Claire: That’s correct! The lease payments made by the operator of the equipment, like an airline or a railroad company, are used to pay interest to the certificate holders. Have you heard about any advantages or benefits of investing in equipment trust certificates?
Emma: Yes, Claire. One advantage is that they typically offer higher yields compared to other types of fixed-income investments because they’re backed by tangible assets.
Claire: Absolutely, Emma. Another benefit is that they provide diversification to an investment portfolio since they’re not directly tied to the performance of the stock market. Have you come across any risks associated with investing in equipment trust certificates?
Emma: Yes, Claire. One risk is that if the operator defaults on lease payments, it could affect the issuer’s ability to repay investors, leading to a loss of income or capital.
Claire: That’s right! Another risk is that changes in the market demand for the equipment or technological advancements could affect the value of the underlying assets. Have you learned about any variations or structures of equipment trust certificates?
Emma: Yes, Claire. There are different types, like pass-through certificates and pay-through certificates, each with its own features and payment structures tailored to the needs of the issuer and investors.
Claire: Exactly! These variations allow issuers to customize the terms of the certificates based on factors like the equipment type, lease duration, and market conditions. Thank you for sharing your insights on equipment trust certificates, Emma!
Emma: You’re welcome, Claire. It’s fascinating to learn about how financial instruments like equipment trust certificates play a role in financing infrastructure and transportation projects.