Japanese operating lease with call option

A JOLCO, the Japanese operating lease with call option, is a cross-border lease in which Japanese equity investors fund part of an asset purchase through a special-purpose company, lease it to an operator, and give the lessee an option to buy the asset at a fixed price during the term. The Japanese investors take accelerated tax depreciation, sharing the benefit with the lessee through a lower lease cost; senior bank debt funds the balance. Widely used for aircraft and applied to ships, it requires the option to be genuinely optional for the lease to keep operating-lease and tax treatment in Japan. It cuts the lessee’s effective financing cost.