hard · Corporate Credit Analysis cap-structure

Which statement best captures the analytically correct treatment and its effect on leverage comparability?

1. The 8x-rent multiple is preferable because it is a widely used, rating-agency-standardized convention, and for escalating leases it conservatively overstates the true obligation relative to PV, making leverage look worse and therefore safer to underwrite
2. Both capitalization methods are mathematically equivalent in present-value terms regardless of the rent payment profile, so the analyst's choice of method only affects reported EBITDAR add-backs and never changes the computed adjusted-debt leverage figure itself
3. The PV-of-commitments approach is more defensible because it reflects the actual time-profile of payments; an 8x multiple applied to a low current rent in a back-loaded lease can materially understate the true obligation, distorting cross-issuer leverage comparisons
4. Capitalizing the operating lease double-counts the underlying obligation because the leased asset itself is already carried off-balance-sheet under the lessee's accounting treatment, so adjusted debt should add only the drawn revolver and exclude the lease liability entirely

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