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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/14/19 Atel 14, LLC 10-Q 9/30/19 69:7.7M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size 1: 10-Q Quarterly Report HTML 714K 2: EX-31.1 Certification -- §302 - SOA'02 HTML 30K 3: EX-31.2 Certification -- §302 - SOA'02 HTML 30K 4: EX-32.1 Certification -- §906 - SOA'02 HTML 24K 5: EX-32.2 Certification -- §906 - SOA'02 HTML 24K 17: R1 Document and Entity Information HTML 48K 51: R2 Balance Sheets HTML 86K 61: R3 Statements of Operations HTML 99K 34: R4 Statements of Changes in Members' Capital HTML 45K 16: R5 Statements of Changes in Members' Capital HTML 24K (Parenthetical) 50: R6 Statements of Cash Flows HTML 121K 58: R7 Organization and Limited Liability Company Matters HTML 27K 37: R8 Summary of Significant Accounting Policies HTML 62K 14: R9 Notes Receivable, Net HTML 48K 20: R10 Allowance for Credit Losses HTML 172K 27: R11 Equipment Under Operating Leases, Net HTML 171K 66: R12 Related Party Transactions HTML 55K 42: R13 Non-Recourse Debt HTML 60K 19: R14 Senior Long-Term Debt HTML 23K 26: R15 Borrowing Facilities HTML 45K 65: R16 Commitments HTML 23K 41: R17 Members' Capital HTML 52K 21: R18 Fair Value Measurements HTML 326K 25: R19 Summary of Significant Accounting Policies HTML 98K (Policy) 60: R20 Notes Receivable, Net (Tables) HTML 43K 52: R21 Allowance for Credit Losses (Tables) HTML 174K 18: R22 Equipment Under Operating Leases, Net (Tables) HTML 170K 36: R23 Related Party Transactions (Tables) HTML 52K 59: R24 Non-Recourse Debt (Tables) HTML 56K 49: R25 Borrowing Facilities (Tables) HTML 41K 15: R26 Members' Capital (Tables) HTML 53K 35: R27 Fair Value Measurements (Tables) HTML 331K 57: R28 Organization and Limited Liability Company Matters HTML 44K (Narrative) (Details) 53: R29 Summary of Significant Accounting Policies HTML 66K (Narrative) (Details) 39: R30 Notes Receivable, Net (Narrative) (Details) HTML 33K 62: R31 Notes Receivable, Net (Schedule of Notes HTML 35K Receivable on Non-Accrual Status) (Details) 28: R32 Allowance for Credit Losses (Narrative) (Details) HTML 23K 22: R33 Allowance for Credit Losses (Activity in Allowance HTML 34K for Doubtful Accounts) (Details) 40: R34 Allowance for Credit Losses (Financing Receivables HTML 33K by Credit Quality Indicator and by Class) (Details) 63: R35 Allowance for Credit Losses (Net Investment in HTML 38K Financing Receivables by Age) (Details) 29: R36 Equipment Under Operating Leases, Net (Narrative) HTML 38K (Details) 23: R37 Equipment Under Operating Leases, Net (Investment HTML 38K in Leases) (Details) 38: R38 Equipment Under Operating Leases, Net (Property on HTML 60K Operating Leases) (Details) 64: R39 Equipment Under Operating Leases, Net (Future HTML 36K Minimum Lease Payments Receivable) (Details) 47: R40 Equipment Under Operating Leases, Net (Schedule of HTML 48K Useful Lives of Lease Assets) (Details) 54: R41 Related Party Transactions (Managing Member and/or HTML 28K Affiliates Earned Commissions and Billed for Reimbursements Pursuant to Operating Agreement) (Details) 31: R42 Non-Recourse Debt (Narrative) (Details) HTML 37K 12: R43 Non-Recourse Debt (Future Minimum Payments of HTML 70K Non-Recourse Debt) (Details) 48: R44 Senior Long-Term Debt (Narrative) (Details) HTML 38K 55: R45 Borrowing Facilities (Narrative) (Details) HTML 32K 32: R46 Borrowings Facilities (Borrowings Under Facility) HTML 32K (Details) 13: R47 Commitments (Narrative) (Details) HTML 22K 46: R48 Members' Capital (Narrative) (Details) HTML 36K 56: R49 Members' Capital (Distributions to Other Members) HTML 31K (Details) 69: R50 Fair Value Measurements (Narrative) (Details) HTML 30K 45: R51 Fair Value Measurements (Fair Value, Warrants HTML 27K Measured on Recurring Basis) (Details) 24: R52 Fair Value Measurements (Fair Value, Investment HTML 26K Securities Measured on Recurring Basis) (Details) 30: R53 Fair Value Measurements (Fair Value Measurement of HTML 28K Impaired Assets at Fair Value on Non-Recurring Basis) (Details) 68: R54 Fair Value Measurements (Summary of Valuation HTML 62K Techniques and Significant Unobservable Inputs Used) (Details) 44: R55 Fair Value Measurements (Estimated Fair Values of HTML 60K Financial Instruments) (Details) 67: XML IDEA XML File -- Filing Summary XML 127K 43: EXCEL IDEA Workbook of Financial Reports XLSX 74K 6: EX-101.INS XBRL Instance -- atel-20190930 XML 2.28M 8: EX-101.CAL XBRL Calculations -- atel-20190930_cal XML 186K 9: EX-101.DEF XBRL Definitions -- atel-20190930_def XML 422K 10: EX-101.LAB XBRL Labels -- atel-20190930_lab XML 843K 11: EX-101.PRE XBRL Presentations -- atel-20190930_pre XML 731K 7: EX-101.SCH XBRL Schema -- atel-20190930 XSD 153K 33: ZIP XBRL Zipped Folder -- 0001558370-19-010977-xbrl Zip 143K
atel14_Current_Folio_10Q |
Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 2019
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from to
Commission File number 000‑54356
ATEL 14, LLC
(Exact name of registrant as specified in its charter)
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California |
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26‑4695354 |
(State or other jurisdiction of |
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(I. R. S. Employer |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)
Registrant’s telephone number, including area code (415) 989‑8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Trading Symbol |
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Name of each exchange on which registered: |
N/A |
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N/A |
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N/A |
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☒ |
Smaller reporting company ☒ |
Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒
The number of Limited Liability Company Units outstanding as of October 31, 2019 was 8,246,919.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL 14, LLC
2
Item 1. Financial Statements (Unaudited).
ATEL 14, LLC
SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(In Thousands)
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September 30, |
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2018 |
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(Unaudited) |
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||
ASSETS |
|
|
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|
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Cash and cash equivalents |
|
$ |
2,696 |
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$ |
1,056 |
Accounts receivable, net |
|
|
49 |
|
|
152 |
Notes receivable, net |
|
|
17 |
|
|
70 |
Investment in securities |
|
|
98 |
|
|
112 |
Warrants, fair value |
|
|
239 |
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|
229 |
Equipment under operating leases, net |
|
|
15,096 |
|
|
19,684 |
Prepaid expenses and other assets |
|
|
82 |
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|
83 |
Total assets |
|
$ |
18,277 |
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$ |
21,386 |
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|
LIABILITIES AND MEMBERS’ CAPITAL |
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Accounts payable and accrued liabilities: |
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Managing Member |
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$ |
— |
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$ |
2 |
Affiliates |
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58 |
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|
11 |
Other |
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|
215 |
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|
678 |
Non-recourse debt |
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|
4,337 |
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|
996 |
Senior long-term debt |
|
|
— |
|
|
2,068 |
Credit facility |
|
|
— |
|
|
1,200 |
Unearned operating lease income |
|
|
37 |
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|
26 |
Unearned interest income |
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17 |
|
|
70 |
Total liabilities |
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4,664 |
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5,051 |
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|
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Commitments and contingencies |
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|
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|
|
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Members’ capital: |
|
|
|
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|
|
Managing Member |
|
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— |
|
|
— |
Other Members |
|
|
13,613 |
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|
16,335 |
Total Members’ capital |
|
|
13,613 |
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|
16,335 |
Total liabilities and Members’ capital |
|
$ |
18,277 |
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$ |
21,386 |
See accompanying notes.
3
ATEL 14, LLC
FOR THE THREE AND NINE MONTHS ENDED
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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2018 |
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2019 |
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2018 |
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Revenues: |
|
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|
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|
Leasing and lending activities: |
|
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|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
760 |
|
$ |
1,560 |
|
$ |
2,624 |
|
$ |
4,818 |
|
Direct financing leases |
|
|
— |
|
|
1 |
|
|
— |
|
|
4 |
|
Interest on notes receivable |
|
|
17 |
|
|
17 |
|
|
52 |
|
|
37 |
|
(Loss) gain on sales of operating lease assets and early termination of notes receivable |
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|
(283) |
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|
39 |
|
|
141 |
|
|
188 |
|
Unrealized gain on fair value adjustment for warrants |
|
|
25 |
|
|
10 |
|
|
10 |
|
|
20 |
|
Unrealized (loss) gain on fair value adjustment for investments in securities |
|
|
(7) |
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|
(8) |
|
|
(14) |
|
|
12 |
|
Other |
|
|
4 |
|
|
8 |
|
|
477 |
|
|
152 |
|
Total revenues |
|
|
516 |
|
|
1,627 |
|
|
3,290 |
|
|
5,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of operating lease assets |
|
|
501 |
|
|
764 |
|
|
1,683 |
|
|
2,428 |
|
Asset management fees to Managing Member |
|
|
42 |
|
|
67 |
|
|
131 |
|
|
215 |
|
Cost reimbursements to Managing Member and/or affiliates |
|
|
124 |
|
|
140 |
|
|
390 |
|
|
561 |
|
Reversal of credit losses |
|
|
(5) |
|
|
(1) |
|
|
— |
|
|
(14) |
|
Impairment losses on investment in securities |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
|
Impairment losses on equipment |
|
|
— |
|
|
— |
|
|
801 |
|
|
— |
|
Amortization of initial direct costs |
|
|
1 |
|
|
— |
|
|
1 |
|
|
6 |
|
Interest expense |
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|
38 |
|
|
50 |
|
|
104 |
|
|
176 |
|
Professional fees |
|
|
41 |
|
|
21 |
|
|
165 |
|
|
118 |
|
Outside services |
|
|
28 |
|
|
27 |
|
|
71 |
|
|
86 |
|
Taxes on income and franchise fees |
|
|
37 |
|
|
24 |
|
|
117 |
|
|
72 |
|
Bank charges |
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|
2 |
|
|
31 |
|
|
7 |
|
|
92 |
|
Storage fees |
|
|
43 |
|
|
— |
|
|
93 |
|
|
— |
|
Railcar maintenance |
|
|
45 |
|
|
25 |
|
|
99 |
|
|
118 |
|
Freight and shipping |
|
|
1 |
|
|
— |
|
|
25 |
|
|
— |
|
Other |
|
|
32 |
|
|
59 |
|
|
95 |
|
|
141 |
|
Total expenses |
|
|
930 |
|
|
1,207 |
|
|
3,782 |
|
|
4,016 |
|
Net (loss) income |
|
$ |
(414) |
|
$ |
420 |
|
$ |
(492) |
|
$ |
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Managing Member |
|
$ |
— |
|
$ |
— |
|
$ |
167 |
|
$ |
— |
|
Other Members |
|
|
(414) |
|
|
420 |
|
|
(659) |
|
|
1,215 |
|
|
|
$ |
(414) |
|
$ |
420 |
|
$ |
(492) |
|
$ |
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per Limited Liability Company Unit (Other Members) |
|
$ |
(0.05) |
|
$ |
0.05 |
|
$ |
(0.08) |
|
$ |
0.15 |
|
Weighted average number of Units outstanding |
|
|
8,246,919 |
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|
8,246,919 |
|
|
8,246,919 |
|
|
8,249,089 |
|
See accompanying notes.
4
ATEL 14, LLC
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE THREE AND NINE MONTHS ENDED
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
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Amount |
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|
||||
|
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Other |
|
Managing |
|
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||
|
Units |
|
Members |
|
Member |
|
Total |
||||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
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Balance June 30, 2019 |
|
8,246,919 |
|
$ |
14,027 |
|
$ |
— |
|
$ |
14,027 |
Net loss |
|
— |
|
|
(414) |
|
|
— |
|
|
(414) |
Balance September 30, 2019 |
|
8,246,919 |
|
$ |
13,613 |
|
$ |
— |
|
$ |
13,613 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
|
8,246,919 |
|
$ |
16,335 |
|
$ |
— |
|
$ |
16,335 |
Distributions to Other Members ($0.25 per Unit) |
|
— |
|
|
(2,063) |
|
|
— |
|
|
(2,063) |
Distributions to Managing Member |
|
— |
|
|
— |
|
|
(167) |
|
|
(167) |
Net (loss) income |
|
— |
|
|
(659) |
|
|
167 |
|
|
(492) |
Balance September 30, 2019 |
|
8,246,919 |
|
$ |
13,613 |
|
$ |
— |
|
$ |
13,613 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2018 |
|
8,246,919 |
|
$ |
15,693 |
|
$ |
— |
|
$ |
15,693 |
Net income |
|
— |
|
|
420 |
|
|
— |
|
|
420 |
Balance September 30, 2018 |
|
8,246,919 |
|
$ |
16,113 |
|
$ |
— |
|
$ |
16,113 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017 |
|
8,257,599 |
|
$ |
14,924 |
|
$ |
— |
|
$ |
14,924 |
Repurchase of Units |
|
(10,680) |
|
|
(21) |
|
|
— |
|
|
(21) |
Distributions to Other Members ($0 per Unit) |
|
— |
|
|
(5) |
|
|
— |
|
|
(5) |
Net income |
|
— |
|
|
1,215 |
|
|
— |
|
|
1,215 |
Balance September 30, 2018 |
|
8,246,919 |
|
$ |
16,113 |
|
$ |
— |
|
$ |
16,113 |
See accompanying notes.
5
ATEL 14, LLC
FOR THE THREE AND NINE MONTHS ENDED
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
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September 30, |
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|||||||||
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2018 |
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2019 |
|
2018 |
|
|||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(414) |
|
$ |
420 |
|
$ |
(492) |
|
$ |
1,215 |
|
Adjustment to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sales of operating lease assets and early termination of notes receivable |
|
|
283 |
|
|
(39) |
|
|
(141) |
|
|
(188) |
|
Depreciation of operating lease assets |
|
|
501 |
|
|
764 |
|
|
1,683 |
|
|
2,428 |
|
Amortization of initial direct costs |
|
|
1 |
|
|
— |
|
|
1 |
|
|
6 |
|
Reversal of credit losses |
|
|
(5) |
|
|
(1) |
|
|
— |
|
|
(14) |
|
Impairment losses on investment in securities |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
|
Impairment losses on equipment |
|
|
— |
|
|
— |
|
|
801 |
|
|
— |
|
Unrealized gain on fair value adjustment for warrants |
|
|
(25) |
|
|
(10) |
|
|
(10) |
|
|
(20) |
|
Unrealized loss (gain) on fair value adjustment for marketable securities |
|
|
7 |
|
|
8 |
|
|
14 |
|
|
(12) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2) |
|
|
(34) |
|
|
103 |
|
|
(20) |
|
Prepaid expenses and other assets |
|
|
(18) |
|
|
7 |
|
|
1 |
|
|
(23) |
|
Due from Managing Member and affiliates |
|
|
(9) |
|
|
(160) |
|
|
— |
|
|
(160) |
|
Accounts payable, Managing Member and affiliates |
|
|
45 |
|
|
134 |
|
|
45 |
|
|
(45) |
|
Other accounts payable and accruals |
|
|
(144) |
|
|
(71) |
|
|
(463) |
|
|
(135) |
|
Unearned operating lease income |
|
|
(9) |
|
|
6 |
|
|
11 |
|
|
(21) |
|
Net cash provided by operating activities |
|
|
211 |
|
|
1,024 |
|
|
1,553 |
|
|
3,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of securities |
|
|
— |
|
|
— |
|
|
— |
|
|
(2) |
|
Proceeds from sales of operating lease assets and early termination of notes receivable |
|
|
911 |
|
|
86 |
|
|
2,244 |
|
|
487 |
|
Principal payments received on direct financing leases |
|
|
— |
|
|
5 |
|
|
— |
|
|
15 |
|
Principal payments received on notes receivable |
|
|
— |
|
|
1 |
|
|
— |
|
|
16 |
|
Net cash provided by investing activities |
|
|
911 |
|
|
92 |
|
|
2,244 |
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments under non-recourse debt |
|
|
(379) |
|
|
(777) |
|
|
(1,283) |
|
|
(2,452) |
|
Borrowings under non-recourse debt |
|
|
— |
|
|
— |
|
|
4,624 |
|
|
— |
|
Repayments under senior long term debt |
|
|
— |
|
|
— |
|
|
(2,068) |
|
|
— |
|
Repayments under credit facility |
|
|
— |
|
|
(750) |
|
|
(1,200) |
|
|
(750) |
|
Distributions to Other Members |
|
|
— |
|
|
— |
|
|
(2,063) |
|
|
(802) |
|
Distributions to Managing Member |
|
|
— |
|
|
— |
|
|
(167) |
|
|
(65) |
|
Repurchase of Units |
|
|
— |
|
|
— |
|
|
— |
|
|
(21) |
|
Net cash used in financing activities |
|
|
(379) |
|
|
(1,527) |
|
|
(2,157) |
|
|
(4,090) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
743 |
|
|
(411) |
|
|
1,640 |
|
|
(546) |
|
Cash and cash equivalents at beginning of period |
|
|
1,953 |
|
|
1,131 |
|
|
1,056 |
|
|
1,266 |
|
Cash and cash equivalents at end of period |
|
$ |
2,696 |
|
$ |
720 |
|
$ |
2,696 |
|
$ |
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
67 |
|
$ |
30 |
|
$ |
101 |
|
$ |
116 |
|
Cash paid during the period for taxes |
|
$ |
— |
|
$ |
— |
|
$ |
166 |
|
$ |
55 |
|
See accompanying notes.
6
1. Organization and Limited Liability Company matters:
ATEL 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability company. Prior to May 9, 2011, the Manager was named ATEL Associates 14, LLC. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group. The Fund may continue until December 31, 2030. Contributions in the amount of $500 were received as of May 8, 2009, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
As of September 30, 2019, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $83.5 million (inclusive of the $500 initial Member’s capital investment) have been received. As of the same date, 8,246,919 Units were issued and outstanding.
The Company is governed by the ATEL 14, LLC amended and restated limited liability company operating agreement dated October 7, 2009 (the “Operating Agreement”). On January 1, 2018, the Company commenced liquidation phase activities pursuant to the guidelines of the operating agreement. Pursuant to the terms of the Operating Agreement, the Managing Member and/or its affiliates receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 6). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of the Managing Member.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10‑K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10‑Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature.
Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying unaudited financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after September 30, 2019, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements, or adjustments thereto.
7
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes, and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.
Segment reporting:
The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The primary geographic region in which the Company seeks leasing opportunities is North America. For the three and nine months ended September 30, 2019 and 2018, and as of September 30, 2019 and December 31, 2018, all of the Company’s operating revenues and long-lived assets relate to customers domiciled in the United States.
Accounts receivable
Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.
Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.
Financing receivables
In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.
8
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
The Fund’s investment in direct financing leases are included in other assets, with related revenues reflected on the statement of operations under other revenues. Direct financing lease amounts, and related disclosures, are immaterial as of and for the quarter ended September 30, 2019 and 2018.
The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.
Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants in connection with its lending arrangements.
Purchased securities
The Company’s purchased securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The Company’s purchased securities that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company had $98 thousand and $112 thousand of purchased securities at September 30, 2019 and December 31, 2018, respectively. Fair value adjustments for unrealized losses of $7 thousand and $8 thousand were recorded during the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, fair value adjustments recorded resulted in an unrealized loss of $14 thousand and an unrealized gain of $12 thousand, respectively.
Warrants
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. During the respective nine months ended September 30, 2019 and 2018, the Company recorded unrealized gains of $10 thousand and $20 thousand, respectively, to adjust its warrants to fair value. For the three month periods ended September 30, 2019 and 2018, the Company recorded unrealized gains of $25 thousand and $10 thousand, respectively.
9
As of September 30, 2019 and December 31, 2018, the estimated fair value of the Company’s portfolio of warrants were $239 thousand and $229 thousand, respectively. There were no exercises of warrants, net or otherwise, during the three and nine months ended September 30, 2019 and 2018.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating and direct financing lease receivables, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Company’s cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from in various industries, related to equipment on operating leases.
Equipment under operating leases, net and related revenue recognition:
Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 360‑10‑35‑3, over the periods of the lease terms contained in each asset’s respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360‑10‑35‑43).
The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.
Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet. Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, revenues are recognized on a cash basis.
10
Initial direct costs:
With the adoption of ASU No. 2016-02 certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. In 2018 and prior, the Company capitalized initial direct costs (“IDC”) associated with the origination of lease assets. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease basis based on actual contract term using a straight-line method for operating leases. Upon disposal of the underlying lease assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.
Per Unit data:
The Company issues only one class of Units, none of which are considered dilutive. Net (loss) income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
Fair Value:
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.
The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral, and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
11
Recent Accounting Pronouncements:
In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors. In March 2019, the FASB issued ASU No. 2019-01, Leases: Codification Improvements. Collectively referred to hereafter as ASU No. 2016-02, these standards set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract to control an asset (i.e., lessees and lessors). The Company does not have any non-cancelable leases where it is a lessee.
ASU No. 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. These standards were effective as of January 1, 2019. Upon adoption, the Company applied the package of practical expedients that has allowed us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Furthermore, the Company applied the optional transition method in ASU No. 2018-11, which has allowed the Company to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the adoption period, although the Company did not have an adjustment. Additionally, the Company’s leases met the criteria in ASU No. 2018-11 to not separate non-lease components from the related lease component; therefore, the accounting for these leases remained largely unchanged from the previous standard.
The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in the Company’s financial statements. Upon adoption, (i) amounts previously recognized as lessee reimbursements and other income, for the three months ended September 30, 2019, have been classified as lease or financing income, (ii) allowances for bad debts are now recognized as a direct reduction of operating lease income, and (iii) certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. Subsequent to January 1, 2019, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in our financial statements and prior periods are not reclassified to conform to the current presentation.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
12
In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new current expected credit losses (CECL) impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326; however, it will be applicable to the Companies note receivables and direct financing leases, if any. The effective date and transition requirements in this Update are the same as the effective dates and transition requirements in Update 2016-13, as amended by this Update, which is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. Management is currently evaluating the impact of this standard on the financial statements and related disclosure requirements.
On August 15, 2019 the FASB issued a proposed ASU that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective dates for both leases and hedging to fiscal periods beginning after December 15, 2020, and interim periods withi fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019.
3. Notes receivable, net:
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. The notes are generally secured by the equipment financed. As of September 30, 2019, the original terms of the notes receivable are from 84 to 90 months and have interest rates ranging from 16.91% to 18% per annum. The notes had net outstanding balances of $17 thousand and $70 thousand at September 30, 2019 and December 31, 2018, respectively. All of the notes mature in 2020.
13
As of September 30, 2019, two of the Company’s notes receivable previously on non-accrual status as of December 31, 2018 were removed from said status. Details are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
Notes receivable |
|
|
|
|
|
Non-accrual |
|
|
|
|
|
|
|
||
Number of notes |
|
|
2 |
|
|
Net investment value |
|
$ |
15 |
|
|
Annual interest rate |
|
|
18 |
% |
|
Fair value adjustments |
|
$ |
15 |
|
|
Fair value amount |
|
$ |
— |
|
|
Interest income not recorded relative to original terms |
|
$ |
8 |
|
|
4. Allowance for credit losses:
The Company’s allowance for credit losses are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for |
|
Valuation Adjustments on |
|
|
|
||
|
|
Doubtful |
|
Financing |
|
|
|
||
|
|
Accounts |
|
Receivables |
|
|
|
||
|
|
Operating |
|
Notes |
|
Total Allowance |
|||
|
|
Leases |
|
Receivable |
|
for Credit Losses |
|||
Balance December 31, 2017 |
|
$ |
— |
|
$ |
15 |
|
$ |
15 |
Reversal of provision for credit losses |
|
|
1 |
|
|
(15) |
|
|
(14) |
Balance September 30, 2018 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
Provision for credit losses |
|
|
— |
|
|
— |
|
|
— |
Balance September 30, 2019 |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.
14
Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.
Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
At September 30, 2019, and December 31, 2018, the Company’s investment in notes receivables by credit quality indicator and by class of notes receivables are as follows (excludes initial direct costs) (in thousands):
|
|
|
|
|
|
|
|
|
Notes Receivable |
||||
|
|
September 30, |
|
|||
|
|
|
2018 |
|||
Pass |
|
$ |
17 |
|
$ |
— |
Special mention |
|
|
— |
|
|
70 |
Substandard |
|
|
— |
|
|
— |
Doubtful |
|
|
— |
|
|
— |
Total |
|
$ |
17 |
|
$ |
70 |
At September 30, 2019 and December 31, 2018, the investment in financing receivables is aged as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
Total |
|
Investment>90 |
|||
|
|
31-60 Days |
|
61-90 Days |
|
Than |
|
Total |
|
|
|
|
Notes |
|
Days and |
||||||
|
Past Due |
|
Past Due |
|
90 Days |
|
Past Due |
|
Current |
|
Receivables |
|
Accruing |
||||||||
Notes receivable |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
17 |
|
$ |
17 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
|
|
|
|
|
|
|
|
|
Greater |
|
|
|
|
|
|
|
Total |
|
Investment>90 |
|||
|
|
31-60 Days |
|
61-90 Days |
|
Than |
|
Total |
|
|
|
|
Notes |
|
Days and |
||||||
|
Past Due |
|
Past Due |
|
90 Days |
|
Past Due |
|
Current |
|
Receivables |
|
Accruing |
||||||||
Notes receivable |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
70 |
|
$ |
70 |
|
$ |
— |
At December 31, 2018, the Company had two notes receivable which were on non-accrual status (See Note 3). These same notes were removed from non-accrual status as of September 30, 2019.
15
5. Equipment under operating leases, net:
The Company’s equipment under operating leases consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation/ |
|
|
|
|
|
|
|
|
|
Reclassifications, |
|
Amortization |
|
|
|
||
|
|
Balance |
|
Improvements/ |
|
Expense or |
|
Balance |
||||
|
|
December 31, |
|
Dispositions and |
|
Amortization |
|
|||||
|
|
|
Impairment Losses |
|
of Leases |
|
2019 |
|||||
Equipment under operating leases, net |
|
$ |
17,005 |
|
$ |
(3,416) |
|
$ |
(1,683) |
|
$ |
11,906 |
Assets held for sale or lease, net |
|
|
2,677 |
|
|
512 |
|
|
— |
|
|
3,189 |
Initial direct costs, net of accumulated amortization of $8 at September 30, 2019 and $9 at December 31, 2018 |
|
|
2 |
|
|
— |
|
|
(1) |
|
|
1 |
Total |
|
$ |
19,684 |
|
$ |
(2,904) |
|
$ |
(1,684) |
|
$ |
15,096 |
Impairment of equipment under operating leases, net
Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.
As a result of these reviews, the Company recorded no impairment losses on equipment for the three months ended September 30, 2019 and $801 thousand for the nine months ended September 30, 2019. There were no impairment losses for the three and nine months ended September 30, 2018.
The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $501 thousand and $764 thousand for the respective three months ended September 30, 2019 and 2018. Depreciation for the the nine months ended September 30, 2019 and 2018 totaled $1.7 million and $2.4 million, respectively.
IDC amortization expense related to operating leases totaled $1 thousand for the three months ended September 30, 2019. There was no such expense for the three months ended Septmber 30, 2018. For the respective nine months ended September 30, 2019 and 2018, $1 thousand and $6 thousand of IDC amortization were recorded.
16
Operating leases:
Property on operating leases consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
Balance |
||
|
|
December 31, |
|
|
|
|
Reclassifications |
|
||||
|
|
|
Additions |
|
or Dispositions |
|
2019 |
|||||
Marine vessel |
|
$ |
19,410 |
|
$ |
— |
|
$ |
— |
|
$ |
19,410 |
Transportation, rail |
|
|
5,823 |
|
|
— |
|
|
(1,781) |
|
|
4,042 |
Transportation |
|
|
7,467 |
|
|
— |
|
|
(7,259) |
|
|
208 |
Manufacturing |
|
|
6,317 |
|
|
— |
|
|
(1,026) |
|
|
5,291 |
Materials handling |
|
|
1,399 |
|
|
— |
|
|
(892) |
|
|
507 |
Construction |
|
|
919 |
|
|
— |
|
|
— |
|
|
919 |
Agriculture |
|
|
542 |
|
|
— |
|
|
— |
|
|
542 |
Air support equipment |
|
|
120 |
|
|
— |
|
|
(80) |
|
|
40 |
Other |
|
|
83 |
|
|
— |
|
|
(83) |
|
|
— |
|
|
|
42,080 |
|
|
— |
|
|
(11,121) |
|
|
30,959 |
Less accumulated depreciation |
|
|
(25,075) |
|
|
(1,683) |
|
|
7,705 |
|
|
(19,053) |
Total |
|
$ |
17,005 |
|
$ |
(1,683) |
|
$ |
(3,416) |
|
$ |
11,906 |
The average estimated residual value for assets on operating leases was 25% and 38% of the assets’ original cost at September 30, 2019 and December 31, 2018, respectively. There were no operating leases in non-accrual status at both September 30, 2019 and December 31, 2018.
All of the Company’s lease asset purchases and capital improvements were made during the years from 2009 through 2015.
At September 30, 2019, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):
|
|
|
|
|
|
Operating |
|
|
|
Leases |
|
Three months ending December 31, 2019 |
|
$ |
491 |
Year ending December 31, 2020 |
|
|
1,558 |
2021 |
|
|
1,266 |
2022 |
|
|
1,180 |
2023 |
|
|
1,164 |
2024 |
|
|
211 |
|
|
$ |
5,870 |
17
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 2019, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):
|
|
|
Equipment category |
|
Useful Life |
Transportation, rail |
|
35 - 50 |
Marine vessel |
|
20 - 30 |
Air support equipment |
|
15 - 20 |
Manufacturing |
|
10 -15 |
Agriculture |
|
7 - 10 |
Construction |
|
7 - 10 |
Materials handling |
|
7 - 10 |
Transportation |
|
7 - 10 |
6. Related party transactions:
The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel, and lease and equipment documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments.
Each of ATEL Financial Services, LLC (“AFS”) and ATEL Leasing Corporation (“ALC”) is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.
The Managing Member and/or affiliates earned fees and billed for reimbursements of costs and expenses, pursuant to the Operating Agreement, during the three and nine months ended September 30, 2019 and 2018 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
|
|||||||||
|
|
|
2018 |
|
2019 |
|
2018 |
|
|||||
Administrative costs reimbursed to Managing Member and/or affiliates |
|
$ |
124 |
|
$ |
140 |
|
$ |
390 |
|
$ |
561 |
|
Asset management fees to Managing Member |
|
|
42 |
|
|
67 |
|
|
131 |
|
|
215 |
|
|
|
$ |
166 |
|
$ |
207 |
|
$ |
521 |
|
$ |
776 |
|
18
7. Non-recourse debt:
At September 30, 2019, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 2.27% to 3.40% per annum. The notes are secured by assignments of lease payments and pledges of assets used to secure the notes. At September 30, 2019, gross operating lease rentals totaled $4.7 million over the remaining lease terms.
Approximately 98% of this amount relates to a loan for a vessel rented to Halliburton that was previously categorized as senior long-term debt (see Note 8). In May 2019, this loan was renegotiated into non-recourse debt. The carrying value of the pledged assets is $10.1 million. The vessel note matures in February 2024 with the remaining notes maturing at various dates through 2019.
The non-recourse debt does not contain any material financial covenants. The debt is secured by a specific lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.
Future minimum payments of non-recourse debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
Interest |
|
Total |
|||
Three months ending December 31, 2019 |
|
$ |
314 |
|
$ |
36 |
|
$ |
350 |
Year ending December 31, 2020 |
|
|
914 |
|
|
123 |
|
|
1,037 |
2021 |
|
|
946 |
|
|
91 |
|
|
1,037 |
2022 |
|
|
979 |
|
|
58 |
|
|
1,037 |
2023 |
|
|
1,012 |
|
|
25 |
|
|
1,037 |
2024 |
|
|
172 |
|
|
— |
|
|
172 |
|
|
$ |
4,337 |
|
$ |
333 |
|
$ |
4,670 |
|
|
|
|
|
|
|
|
|
|
8. Senior long-term debt:
As of December 31, 2018, $2.1 million of senior long-term debt consisted of a note payable to a lender. Such debt was utilized during the fourth quarter of 2013 to partially fund the marine vessel and related bareboat charter purchased by the Fund and its affiliate, ATEL 15, LLC. The note bore interest at a fixed-rate of 3.5% per annum, to accrue in arrears on a monthly basis. On May 20, 2019, a non-recourse promissory note approximating $9.2 million was executed for the Fund and ATEL 15, LLC, the proceeds of which were split equally and were used to pay off the senior long-term debt which was initially used to purchase the marine vessel and related “bareboat charter”. The rate on this new note is 3.4%. The non-recourse promissory note is to be serviced by the cash flows generated under a renewed “bareboat charter”.
19
9. Borrowing facilities:
The Company was party, with ATEL Capital Group and certain subsidiaries and affiliated funds, in a $75 million revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders that expired on September 30, 2019. The joint Credit Facility was comprised of a working capital facility, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”), the Company and affiliates, and a venture facility. As of March 31, 2019 the Fund no longer participated in the Warehouse Facility. During the second quarter of 2019, the Company repaid its amounts of outstanding borrowings under the Credit Facility and made no additional borrowings. It will not participate in any negotiated extension or renewal of the Credit Facility, which is to take effect without interruption of the syndicate’s support and is anticipated to be for a two-year term.
The lending syndicate providing the Credit Facility has a blanket lien on all of the participant’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.
As of September 30, 2019 and December 31, 2018, the total ATEL Capital Group and subsidiaries and affiliated funds borrowings under the Credit Facility were as follows (in thousands):
|
|
|
|
|
|
|
|
|
September 30, |
|
|||
|
|
|
2018 |
|||
Total available under the financing arrangement |
|
$ |
75,000 |
|
$ |
75,000 |
Amount borrowed by the Company under the acquisition facility |
|
|
— |
|
|
(1,200) |
Amount borrowed by affiliated partnerships and limited liability companies under the venture, acquisition, and warehouse facilities |
|
|
(865) |
|
|
(910) |
Total remaining available under the venture, acquisition and warehouse facilities |
|
$ |
74,135 |
|
$ |
72,890 |
The Company and its affiliates paid an annual commitment fee to have access to this line of credit.
As of September 30, 2019, the Company’s commitment to debt covenants expired with its removal from participation in the Credit Facility. The Company was in compliance with all material financial covenants, and with all other material conditions of the Credit Facility during the tenure of participation.
Fee and interest terms
The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1‑, 2‑, 3‑ or 6‑month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. The Company’s outstanding balance under the Acquisition Facility was $1.2 million as of December 31, 2018. There was no outstanding balance at September 30, 2019.
10. Commitments:
At September 30, 2019, there were no commitments to purchase lease assets and to fund investments in notes receivable.
20
11. Members’ capital:
A total of 8,246,919 Units were issued and outstanding at both September 30, 2019 and December 31, 2018. These amounts included the 50 Units issued to the initial member (Managing Member). The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.
Distributions to the Other Members for the three and nine months ended September 30, 2019 and 2018 were as follows (in thousands except Units and per Unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
|
|||||||||
|
|
|
2018 |
|
2019 |
|
2018 |
|
|||||
Distributions declared |
|
$ |
— |
|
$ |
— |
|
$ |
2,063 |
|
$ |
5 |
|
Weighted average number of Units outstanding |
|
|
8,246,919 |
|
|
8,246,919 |
|
|
8,246,919 |
|
|
8,249,089 |
|
Weighted average distributions per Unit |
|
$ |
— |
|
$ |
— |
|
$ |
0.25 |
|
$ |
— |
|
12. Fair value measurements:
Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
At September 30, 2019 and December 31, 2018, the Company’s investment in securities registered for public sale and warrants were measured on a recurring basis. In addition, at September 30, 2019 and December 31, 2018, certain equipment under operating leases were measured on a non-recurring basis.
Warrants (recurring)
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, time to maturity, and a risk free interest rate for the term(s) of the warrant exercise(s). As of September 30, 2019 and December 31, 2018, the calculated fair value of the Fund’s warrant portfolio approximated $239 thousand and $229 thousand, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.
The fair value of warrants that were accounted for on a recurring basis for the three months and nine months ended September 30, 2019 and 2018 classified as Level 3 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
|
|||||||||
|
|
|
2018 |
|
2019 |
|
2018 |
|
|||||
Fair value of warrants at beginning of period |
|
$ |
214 |
|
$ |
242 |
|
$ |
229 |
|
$ |
232 |
|
Unrealized gain on fair value adjustment for warrants |
|
|
25 |
|
|
10 |
|
|
10 |
|
|
20 |
|
Fair value of warrants at end of period |
|
$ |
239 |
|
$ |
252 |
|
$ |
239 |
|
$ |
252 |
|
21
Investment securities (recurring)
The Company’s investment securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations.
The fair value of investment securities that were accounted for on a recurring basis as of the three and nine months ended September 30, 2019 and 2018 classified as Level 1 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
|||||||||
|
|
|
2018 |
|
2019 |
|
2018 |
|||||
Fair value of securities at beginning of period |
|
$ |
20 |
|
$ |
41 |
|
$ |
27 |
|
$ |
21 |
Unrealized (loss) gain on fair value of securities |
|
|
(7) |
|
|
(8) |
|
|
(14) |
|
|
12 |
Fair value of investment securities at end of period |
|
$ |
13 |
|
$ |
33 |
|
$ |
13 |
|
$ |
33 |
Impaired lease and off-lease equipment (non-recurring)
At September 30, 2019 and December 31, 2018, the Company deemed certain off lease equipment (assets) to be impaired and recorded $801 thousand and $4 thousand, respectively, of fair value adjustments to reduce the cost basis of the equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
|
September 30, |
|
Estimated |
|
Estimated |
|
Estimated |
||||
|
2019 |
|
Fair Value |
|
Fair Value |
|
Fair Value |
||||
Assets measured at fair value on a non-recurring basis (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Impaired lease and off-lease equipment |
$ |
112 |
|
$ |
— |
|
$ |
|
|
$ |
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
|
December 31, |
|
Estimated |
|
Estimated |
|
Estimated |
||||
|
2018 |
|
Fair Value |
|
Fair Value |
|
Fair Value |
||||
Assets measured at fair value on a non-recurring basis (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Impaired lease and off-lease equipment |
$ |
4 |
|
$ |
— |
|
$ |
— |
|
$ |
4 |
Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets were classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.
22
The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation/adjustments categorized as Level 3 in the fair value hierarchy at September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
Valuation |
|
Valuation |
|
Unobservable |
|
Range of |
Name |
|
Frequency |
|
Technique |
|
Inputs |
|
Input Values |
Warrants |
|
Recurring |
|
Black-Scholes formulation |
|
Stock price |
|
$0.12 - $12.92 |
|
|
|
|
|
|
Exercise price |
|
$0.1 - $160.05 |
|
|
|
|
|
|
Time to maturity (in years) |
|
1.24 - 6.33 |
|
|
|
|
|
|
Risk-free interest rate |
|
1.56% - 2.44% |
|
|
|
|
|
|
Annualized volatility |
|
43.40% - 117.54% |
|
|
|
|
|
|
|
|
|
Off-lease equipment |
|
Non-recurring |
|
Market Approach |
|
Third Party Agents' Pricing |
|
$0 - $8,000 |
|
|
|
|
|
|
Quotes - per equipment |
|
(total of $112,000) |
|
|
|
|
|
|
Equipment Condition |
|
Poor to Average |
|
|
|
|
|
|
|
|
|
|
|
Valuation |
|
Valuation |
|
Unobservable |
|
Range of |
Name |
|
Frequency |
|
Technique |
|
Inputs |
|
Input Values |
Warrants |
|
Recurring |
|
Black-Scholes formulation |
|
Stock price |
|
$0.00 - $9.98 |
|
|
|
|
|
|
Exercise price |
|
$0.1 - $1,000.00 |
|
|
|
|
|
|
Time to maturity (in years) |
|
1.62 - 7.08 |
|
|
|
|
|
|
Risk-free interest rate |
|
2.46% - 2.59% |
|
|
|
|
|
|
Annualized volatility |
|
47.58% - 91.94% |
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.
The Company determines the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash and cash equivalents
The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
Notes receivable
The fair value of the Company’s notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.
23
Non-recourse debt and Senior long-term debt
The fair value of the Company’s non-recourse and senior long-term debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.
Credit facility
The credit facility includes the outstanding amounts on the Company’s credit facility. The carrying amount of these variable rate obligations approximate fair value based on current borrowing rates for similar types of borrowings.
Commitments and Contingencies
Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.
The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2019 |
|||||||||||||
|
|
Carrying Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,696 |
|
$ |
2,696 |
|
$ |
— |
|
$ |
— |
|
$ |
2,696 |
Notes receivable |
|
|
17 |
|
|
— |
|
|
— |
|
|
17 |
|
|
17 |
Investment in securities |
|
|
13 |
|
|
13 |
|
|
— |
|
|
— |
|
|
13 |
Warrants, fair value |
|
|
239 |
|
|
— |
|
|
— |
|
|
239 |
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse debt |
|
|
4,337 |
|
|
— |
|
|
— |
|
|
4,343 |
|
|
4,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 |
|||||||||||||
|
|
Carrying Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,056 |
|
$ |
1,056 |
|
$ |
— |
|
$ |
— |
|
$ |
1,056 |
Notes receivable |
|
|
70 |
|
|
— |
|
|
— |
|
|
63 |
|
|
63 |
Investment in securities |
|
|
27 |
|
|
27 |
|
|
— |
|
|
— |
|
|
27 |
Warrants, fair value |
|
|
229 |
|
|
— |
|
|
— |
|
|
229 |
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse debt |
|
|
996 |
|
|
— |
|
|
— |
|
|
991 |
|
|
991 |
Senior long-term debt |
|
|
2,068 |
|
|
— |
|
|
— |
|
|
2,456 |
|
|
2,456 |
Acquisition credit facility |
|
|
1,200 |
|
|
— |
|
|
— |
|
|
1,200 |
|
|
1,200 |
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities.
The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member.
Results of Operations
The Fund had net losses of $414 thousand and $492 thousand for the respective three and nine month periods ended September 30, 2019.
Total revenues for the quarter were $516 thousand and $3.3 million for the year-to-date. Such revenues were from operating lease rents, gains on sales of operating lease assets and income for deferred maintenance. Operating lease rents for the quarter were $760 thousand and $2.6 million for the year-to-date period. Compared to prior periods, revenues have been declining which is indicative of a Fund in its liquidating stage where lease assets are sold as lease commitments end. A loss of $283 thousand on sale of operating lease assets was recorded for the three month period ended September 30, 2019 while a gain of $141 thousand was recorded for the nine month period ended September 30, 2019. Income from deferred maintenance totaled $473 thousand for the nine month period ended September 30, 2019, all of which was recorded in the second quarter of 2019.
Total operating expenses for the quarter were $930 thousand and a cumulative $3.8 million for the year-to-date. The main components of such operating expenses were from depreciation and impairment of operating lease assets, cost reimbursements to managing member and/or affiliates, taxes on income and franchise fees and professional fees and outside services.
Depreciation and impairment of operating lease assets for the quarter was $501 thousand and $2.5 million for the year-to-date period. The year-to-date amount includes $801 thousand of impairment to residual values of both on-lease and off-lease equipment; subsequent to the expiration of the respective lease contracts. Overall the depreciation of operating lease assets is decreasing year by year, which is consistent with Fund in its liquidating stage where lease assets are sold as lease commitments end.
Cost reimbursements to Managing Member and/or affiliates of $124 thousand and $390 thousand for the respective three and nine month periods ended September 30, 2019 have also been decreasing when compared to prior periods, which is consistent with a fund in its liquidating stage and is reflective of consistent baseline allocations of common costs among the Fund and its affiliates.
25
Cash balances increased during the respective quarterly and year-to-date periods by $743 thousand and $1.6 million. This was mainly the result of the aforementioned items of net (loss) income, depreciation and impairment of operating lease assets, a special distribution of $2.2 million during the second quarter and gain on sales of lease assets augmented by the proceeds from sales of lease assets of $911 thousand and $2.2 million during the respective quarter and year-to-date periods.
Other major cash flows for the nine month period ended September 30, 2019, were due to the renegotiating of the senior debt amount of $2 million to a non–recourse loan of $4.6 million, offset in part by the repayment of the credit facility.
Capital Resources and Liquidity
At September 30, 2019 and December 31, 2018, the Company’s cash and cash equivalents totaled $2.7 million and $1.1 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The Company currently believes it has adequate reserves available to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. The Managing Member envisions no such requirements for operating purposes.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
|
|||||||||
|
|
|
2018 |
|
2019 |
|
2018 |
|
|||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
211 |
|
$ |
1,024 |
|
$ |
1,553 |
|
$ |
3,028 |
|
Investing activities |
|
|
911 |
|
|
92 |
|
|
2,244 |
|
|
516 |
|
Financing activities |
|
|
(379) |
|
|
(1,527) |
|
|
(2,157) |
|
|
(4,090) |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
743 |
|
$ |
(411) |
|
$ |
1,640 |
|
$ |
(546) |
|
Compliance with covenants
The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all applicable covenants under the Credit Facility as of September 30, 2019. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.
Material financial covenants
Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies.
As of September 30, 2019, the material financial covenants are summarized as follows:
Minimum Tangible Net Worth: $10.0 million
Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1
Collateral Value: Collateral value under the Warehouse Facility must be no less than the outstanding borrowings under that facility EBITDA to Interest Ratio: Not to be less than 2 to 1 for the four fiscal quarters just ended.
26
“EBITDA” is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. “Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting there from (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under accounting principles generally accepted in the United States of America (“GAAP”), and after certain other adjustments permitted under the agreements.
The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the Credit Facility. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as calculated per the Credit Facility agreement of $13.65 million, 0.32 to 1, and 16.32 to 1, respectively, as of September 30, 2019. As such, as of September 30, 2019, the Company was in compliance with all such material financial covenants.
Reconciliation to GAAP of EBITDA
For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.
The following is a reconciliation of net (loss) income to EBITDA, as defined in the loan agreement, for the twelve months ended September 30, 2019 (in thousands):
|
|
|
|
Tangible Net Worth |
|
$ |
13,650 |
Total Debt |
|
|
4,337 |
|
|
|
|
Net loss - GAAP basis |
|
|
(225) |
Interest expense |
|
|
149 |
Depreciation and amortization |
|
|
2,461 |
Amortization of initial direct costs |
|
|
1 |
Impairment losses |
|
|
4 |
Provision for losses on investment in securities |
|
|
19 |
Unrealized gain on fair value adjustment for warrants |
|
|
21 |
Principal payments received on direct financing leases |
|
|
3 |
EBITDA (for Credit Facility financial covenant calculation only) |
|
$ |
2,433 |
For detailed information on the Company’s debt obligations, see Notes 7 through 9 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).
Distributions
The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of December 2009. The monthly distributions were discontinued in 2018 as the Company entered its liquidation phase. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Managing Member.
27
Cash Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the ATEL 14, LLC Prospectus dated October 7, 2009 (“Prospectus”) under “Income, Losses and Distributions – Reinvestment.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.
Cash distributions were based on current and anticipated gross revenues from the leases and loans acquired. During the Fund’s acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund’s actual and anticipated gross revenues to be generated from the binding initial terms of the leases and loans acquired.
The following table summarizes distribution activity for the Fund from inception through September 30, 2019 (in thousands except for Units and Per Unit Data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Weighted |
|
|
|
|
|
Return of |
|
|
|
Distribution |
|
|
|
Total |
|
|
|
Distribution |
|
Average Units |
||||
Distribution Period (1) |
|
Paid |
|
Capital |
|
|
|
of Income |
|
|
|
Distribution |
|
|
|
per Unit (2) |
|
Outstanding (3) |
||||
Monthly and quarterly distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2009 - Feb 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Distribution of escrow interest) |
|
Jan - Mar 2010 |
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
|
|
$ |
— |
|
n/a |
Dec 2009 - Dec 2010 |
|
Jan 2010 - Jan 2011 |
|
|
2,003 |
|
|
|
|
— |
|
|
|
|
2,003 |
|
|
|
|
0.90 |
|
2,214,171 |
Jan 2011 - Nov 2011 |
|
Feb - Dec 2011 |
|
|
4,855 |
|
|
|
|
— |
|
|
|
|
4,855 |
|
|
|
|
0.87 |
|
5,597,722 |
Dec 2011 - Nov 2012 |
|
Jan - Dec 2012 |
|
|
7,562 |
|
|
|
|
— |
|
|
|
|
7,562 |
|
|
|
|
0.90 |
|
8,400,238 |
Dec 2012 - Nov 2013 |
|
Jan - Dec 2013 |
|
|
7,550 |
|
|
|
|
— |
|
|
|
|
7,550 |
|
|
|
|
0.90 |
|
8,389,923 |
Dec 2013 - Nov 2014 |
|
Jan - Dec 2014 |
|
|
7,548 |
|
|
|
|
— |
|
|
|
|
7,548 |
|
|
|
|
0.90 |
|
8,386,015 |
Dec 2014 - Nov 2015 |
|
Jan - Dec 2015 |
|
|
7,535 |
|
|
|
|
— |
|
|
|
|
7,535 |
|
|
|
|
0.90 |
|
8,378,495 |
Dec 2015 - Nov 2016 |
|
Jan - Dec 2016 |
|
|
7,507 |
|
|
|
|
— |
|
|
|
|
7,507 |
|
|
|
|
0.90 |
|
8,355,428 |
Dec 2016 – Nov 2017 |
|
Jan - Dec 2017 |
|
|
7,429 |
|
|
|
|
— |
|
|
|
|
7,429 |
|
|
|
|
0.90 |
|
8,293,381 |
Oct 2017 – Jan 2018 |
|
Jan - Jun 2018 |
|
|
5 |
|
|
|
|
— |
|
|
|
|
5 |
|
|
|
|
— |
|
8,266,986 |
Dec 2017 – Feb 2018 |
|
Jan - Jun 2018 |
|
|
797 |
|
|
|
|
— |
|
|
|
|
797 |
|
|
|
|
0.10 |
|
8,260,392 |
Jan 2017 – Jan 2018 |
|
Jan - Dec 2018 |
|
|
7 |
|
|
|
|
— |
|
|
|
|
7 |
|
|
|
|
— |
|
8,286,793 |
Jan 2019 – Jun 2019 |
|
Jan - Jun 2019 |
|
|
2,063 |
|
|
|
|
167 |
|
|
|
|
2,230 |
|
|
|
|
0.27 |
|
8,246,919 |
|
|
|
|
$ |
54,861 |
|
|
|
$ |
167 |
|
|
|
$ |
55,028 |
|
|
|
$ |
7.54 |
|
|
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and loan payments received |
|
|
|
$ |
54,861 |
|
100.00 |
% |
$ |
— |
|
0.00 |
% |
$ |
55,028 |
|
100.00 |
% |
|
|
|
|
Interest income |
|
|
|
|
— |
|
0.00 |
% |
|
— |
|
0.00 |
% |
|
— |
|
0.00 |
% |
|
|
|
|
Debt against non-cancellable firm term payments on leases and loans |
|
|
|
|
— |
|
0.00 |
% |
|
— |
|
0.00 |
% |
|
— |
|
0.00 |
% |
|
|
|
|
|
|
|
|
$ |
54,861 |
|
100.00 |
% |
$ |
— |
|
0.00 |
% |
$ |
55,028 |
|
100.00 |
% |
|
|
|
|
(1) |
Investors may elect to receive their distributions either monthly or quarterly (See "Timing and Method of Distributions" on Page 73 of the Prospectus). |
(2) |
Total distributions per Unit represents the per Unit distribution rate for those units which were outstanding for all of the applicable period. |
(3) |
Balances shown represent weighted average units for the year ended December 31, 2010, the periods from January 1 — November 30, 2011, December 1, 2011 — November 30, 2012, December 1, 2012 — November 30, 2013, December 1, 2013 — November 30, 2014, December 1, 2014 — November 30, 2015, December 31, 2015 to November 30, 2016, December 31, 2016 to November 30, 2017, and December 31, 2017 to February 28, 2018, January 1, 2018-December 31, 2018, and January 1, 2019- June 30, 2019 respectively. |
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At September 30, 2019, there were no commitments to purchase lease assets and to fund investments in notes receivable.
Off-Balance Sheet Transactions
None.
28
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Note 2 Summary of Significant Accounting Policies.
Significant Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Company’s significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to the Company’s significant accounting policies since December 31, 2018.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control
There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.
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In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
None.
(a) |
Documents filed as a part of this report |
1. |
Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
2. |
Other Exhibits |
31.1 |
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31.2 |
Rule 13a‑14(a)/15d‑14(a) Certification of Paritosh K. Choksi |
32.1 |
Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash |
32.2 |
Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi |
101.INS |
XBRL Instance Document |
101.SCH |
XBRL Taxonomy Extension Schema Document |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 13, 2019
ATEL 14, LLC
(Registrant)
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By: |
ATEL Managing Member, LLC |
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Managing Member of Registrant
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By: |
/s/ Dean L. Cash |
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Chairman of the Board, President and Chief Executive Officer of ATEL Managing Member, LLC (Managing Member) |
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By: |
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Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Managing Member, LLC (Managing Member) |
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By: |
/s/ Samuel Schussler |
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Senior Vice President and Chief Accounting Officer of ATEL Managing Member, LLC (Managing Member) |
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31
This ‘10-Q’ Filing | Date | Other Filings | ||
---|---|---|---|---|
12/31/30 | ||||
12/15/22 | ||||
12/15/21 | ||||
12/31/20 | ||||
12/15/20 | ||||
12/31/19 | 10-K | |||
12/15/19 | ||||
Filed on: | 11/14/19 | |||
11/13/19 | ||||
10/31/19 | ||||
10/16/19 | ||||
For Period end: | 9/30/19 | |||
8/15/19 | ||||
6/30/19 | 10-Q | |||
5/20/19 | ||||
3/31/19 | 10-Q | |||
1/1/19 | ||||
12/31/18 | 10-K | |||
12/15/18 | ||||
9/30/18 | 10-Q | |||
6/30/18 | 10-Q | |||
2/28/18 | ||||
1/1/18 | ||||
12/31/17 | 10-K | |||
11/30/17 | ||||
12/31/16 | 10-K | |||
11/30/16 | ||||
12/31/15 | 10-K | |||
11/30/15 | ||||
12/1/14 | ||||
11/30/14 | ||||
12/1/13 | ||||
11/30/13 | ||||
12/1/12 | ||||
11/30/12 | ||||
12/1/11 | ||||
11/30/11 | ||||
5/9/11 | ||||
12/31/10 | 10-K | |||
10/7/09 | EFFECT | |||
5/8/09 | ||||
4/1/09 | ||||
List all Filings |