Not-for-profit healthcare and higher education – US – New accounting standard for operating leases is credit neutral

Source: Rita Sverdlik, Lisa Martin, Lisa Goldstein, Diane F. Viacava, Susan I Fitzgerald, Kendra M. Smith, Moody’s, Sector Comment, January 23, 2019
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New guidance from the Financial Accounting Standards Board (FASB) related to operating leases took effect January 1. Under the new standard, issuers will include the net present value (NPV) of operating leases on the balance sheet. This change does not affect issuers’ credit quality because our assessments already consider operating leases in a manner similar to the new FASB standard. However, in a few limited circumstances, the accounting change will affect issuers’ compliance with financial covenants in bond and bank agreements and temporarily elevate credit risk.