hard · Corporate Credit Analysis

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

1. The 8x-rent multiple is preferable because it is rating-agency standardized, and for escalating leases it conservatively overstates the obligation relative to PV, making leverage look worse and thus safer to underwrite
2. Both methods are equivalent in present-value terms for any rent profile, so the choice only affects EBITDAR add-backs and not the computed adjusted-debt figure
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 lease double-counts the obligation because the leased asset is off-balance-sheet, so adjusted debt should add only the revolver and exclude the lease entirely to avoid overstating leverage

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