New Accounting May Prompt Shift to Short-Term Leases, Fitch Says

Accounting changes that would require companies to report more of their leases as assets and liabilities may encourage businesses to structure shorter-term rental agreements that could hamper the ability of lessors to predict cash flows, according to Fitch Ratings.

“Companies may push for more short-term leases to avoid putting them into the accounts,” John Boulton, an analyst at Fitch in London, wrote today in a report. While any ratings impact would probably be “minimal” because analysts already treat off-balance-sheet leases largely as debt obligations, a shift to short-term contracts “would be credit negative for lessors,” he wrote.