LAW OFFICES OF
DERENTHAL & DANNHAUSER LLP
ONE POST STREET, SUITE 575
SAN FRANCISCO, CALIFORNIA 94104
(415) 981-4844
FACSIMILE: (415) 981-4840
March 11, 2005
BY FACSIMILE AND OVERNIGHT DELIVERY
Mr. Andrew Schoeffler
Division of Corporation Finance, Mail Stop 4-4
Securities and Exchange Commission
450 Fifth Street. N.W.
Washington, D.C. 20549
Facsimile: 202-942-9531
Re: ATEL Capital Equipment Fund XI, LLC
Registration Statement on Form S-1
SEC File No. 333-120276
Dear Mr. Schoeffler:
We are responding supplementally to comments on pre-effective amendment
no. 3 to the registration statement on Form S-1 as set forth in Ms. Long's
letter dated March 8, 2005. The numbered responses below correspond to the
numbered comments in the letter. As we discussed by telephone, we are responding
to these comments supplementally in order to permit the filing of pre-effective
amendment no. 4 to the registration statement with changes that you have
confirmed are acceptable. In that way, we would hope to request acceleration of
effectiveness concurrently or promptly following that amendment.
1. As we discussed by telephone, we will review the entire prospectus
to assure that all type sizes and styles are consistent and in compliance with
the legibility and readability guidelines of the "plain English" rules and
related releases. We further undertake to provide the staff with a proof of the
typeset prospectus when it is prepared after the effective date in order to
permit a review of the actual type and format to be used in the final
prospectus.
2. We attach marked pages of the prospectus from the cover page, and
from the prospectus disclosure under the captions "Summary," "Risk Factors" and
"Prior Performance Summary" showing the changes we propose to make to the
prospectus to be filed with pre-effective amendment no. 4.
Mr. Andrew Schoeffler
March 11, 2005
Page 2
3. We have been advised that the auditors are in discussions with the
staff concerning the language to be included in the audit report. The amendment
will include a revised audit report with any changes determined by the staff and
auditors to be appropriate.
We will respond to comments 4, 5 and 6 on the supplemental sales
material under separate cover. We will include complete copies of the materials
reflecting all changes to date from the initial filing. The revised materials
will reflect the cover page bullet point risk factor as finally determined on
your review of the enclosed pages.
Please contact me with any further questions or comments you may have
concerning this filing, and, if these proposed changes are acceptable, to advise
us that we are clear to file the final pre effective amendment and request
acceleration of effectiveness.
Very truly yours,
Paul J. Derenthal
cc: Mr. Paritosh Choksi
Ms. Elif Kuvvetli
Mr. Donald Carpenter
Mr. Hubert Ban
Ms. Pamela A. Long
Ms. Meagan Caldwell
ATEL
CAPITAL EQUIPMENT FUND XI, LLC
Limited Liability Company Units
ATEL Capital Equipment Fund XI, LLC will buy a diversified portfolio of
primarily low-technology equipment leased to corporations. ATEL Financial
Services, LLC is the Fund's Manager. The Fund will collect lease payments and
eventually sell the equipment. Its objective will be to distribute to investors
the lease payments and sales proceeds remaining after it pays its expenses and
fees. The Fund intends to use approximately 87% of the capital it raises from
the sale of Units to purchase its investments in equipment. At least an
additional one-half of one percent of its initial capital will be held as
capital reserves. Of the remaining capital, 9% will be used to pay selling
commissions and up to 3.5% will be used to pay other offering and organization
expenses.
A PURCHASE OF UNITS INVOLVES SIGNIFICANT RISKS. See "Risk Factors" on page 9.
Risks include:
o Most of the Fund's distributions will be, and most of the prior ATEL programs'
distributions have been, a return of capital;
o Economic recession and changes in general economic conditions, including,
fluctuations in demand for equipment, lease rates, and interest rates may, and
in certain past programs have, resulted in delays in investment and
reinvestment, delays in leasing, re-leasing and disposition of equipment, and
reduced returns on invested capital;
o The Fund's performance is subject to risks relating to lessee defaults;
The Fund's performance is subject to risks relating to the value of equipment
at the end of its leases;
o The Fund will borrow to buy equipment and, if Fund revenues are
insufficient to repay borrowed funds, the Fund could incur a loss of equipment
used as collateral;
o No market exists for the Units, and an investor may be unable to sell his
Units or able to sell the Units only at a significant discount;
o Except as may be set forth in a supplement to this Prospectus, the Fund has
not specified any of its equipment investments, so that investors cannot
evaluate the risks or potential returns from such investments;
o Investors must rely on ATEL to manage the Fund; and
o The Fund will pay ATEL substantial fees.
o The Fund does not guarantee its distributions or the return of investors'
capital.
The Fund is offering a total of 15,000,000 of its Units of limited liability
company interest for a price of $10 per Unit. An investor must purchase a
minimum of 500 Units. No Units will be sold unless a minimum of $1,200,000 in
cash is received within one year from the start of the offering. If the minimum
funding is achieved, the offering will continue until the earlier of sale of all
15,000,000 Units or ________, 2007 (a date two years from the date of this
Prospectus), unless the offering is terminated earlier in the discretion of the
Manager. The Fund will deposit its subscriptions in a bank escrow account until
that amount is received. Upon the earlier of termination of the offering or
satisfaction of the escrow condition, any interest which accrues on funds held
in escrow will be distributed to subscribers and allocated among them on the
basis of the respective amounts of the subscriptions and the number of days that
such amounts were on deposit in the escrow account. Rejected subscriptions will
be returned without interest or reduction within 30 days of receipt. The
offering will be made by unaffiliated broker dealers in a selling group managed
by ATEL Securities Corporation, a broker dealer affiliated with the Manager,
acting as Dealer Manager. The brokers selling the Units are not required to sell
any specific number of Units, but will use their best efforts to sell Units.
1
SUMMARY OF THE OFFERING
This summary outlines the main points of the offering. The summary does not
replace the more detailed information found in the remainder of this Prospectus.
All prospective investors are urged to read this Prospectus in its entirety.
The Fund: The Fund is a California limited liability company, which intends
to invest in a variety of types of equipment and to lease the equipment to
corporations. The Fund expects to acquire mostly low-technology equipment such
as the basic equipment used by companies in the manufacturing, mining and
transportation industries. The portfolio will also include some more
high-technology equipment, such as communications equipment, medical equipment
and office equipment. The Fund will seek to buy equipment and leases that will
produce lease payments and eventual sales prices that will provide a favorable
return on its investments and cash distributions to its investors. The Fund's
equipment will primarily be leased to major publicly owned corporations. Some of
its equipment investments will finance capital equipment for other public and
private companies, including emerging growth companies. In some of these
investments, the Fund may acquire equity interests and warrants and rights to
purchase equity interests in these companies.
Management: The Manager of the Fund is ATEL Financial Services, LLC. ATEL
and its family of related ATEL companies will provide various services to the
Fund, including asset management and company administration. ATEL will be
responsible for supervising all of the Fund's business and affairs. ATEL will
act as a fiduciary to the Fund, and, consequently, is required to exercise good
faith and integrity in all dealings with respect to Fund affairs. The Fund will
have no direct employees, though it will reimburse the Manager and its
affiliates for the cost of their personnel engaged in the business of the Fund.
The Manager and its Affiliates will make all business decisions on behalf of the
Fund. The offices of the Fund and ATEL are located at 600 California Street, 6th
Floor, San Francisco, California 94108, and its telephone numbers are (415)
989-8800 and (800) 543-ATEL (2835).
Risk Factors: An investment in Units involves risks, including the
following:
-- Most of the Fund's distributions will be, and most of the prior ATEL
programs' distributions have been, a return of capital. The portion of
total distributions that will be a return of capital and the portion
that will be investment income at the end of the Fund will depend on a
number of factors in the Fund's operations, and cannot be determined
until all of its equipment is sold and an investor can compare the
total amount of all cash distributions to the total capital invested.
In this regard, investors should note that prior completed ATEL
programs have made aggregate distributions over the course of their
eight to ten year terms in amounts equal to 100% of investors' capital
plus additional returns on invested capital equal to from 21% to 32%
of investors' capital (not annually, but over their entire terms).
-- The Fund's performance will be subject to risks relating to changes in
general economic conditions, including fluctuations in demand for
equipment, lease rates and interest rates. These changes may, and in
certain past programs have, resulted in delays in investment and
reinvestment, delays in leasing, re-leasing and disposition of
equipment, and reduced returns on invested capital. The success of the
Fund will be subject to these risks inherent in the equipment leasing
business that may adversely affect the ability of the Fund to acquire,
lease and sell equipment, and to finance its portfolio, on terms which
will permit it to generate profitable rates of return for investors.
-- The Fund's performance is subject to risks relating to lessee
defaults. The Fund may be harmed if a lessee defaults on its lease and
the Fund is unable to collect the lease revenue anticipated from the
defaulted leases.
-- The Fund's performance is subject to risks relating to the value of
equipment at the end of its leases. In negotiating leases, the Manager
will assume a value for the equipment at the end of the lease. The
Fund cannot assure that its value assumptions will be accurate or that
the equipment will not lose value more rapidly than anticipated.
-- The Fund will borrow to buy equipment investments and, if Fund
revenues are insufficient to repay borrowed funds, the Fund could
incur a loss of equipment used as collateral. The Fund can expect to
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-- Status of Units. Under the Operating Agreement, each Unit will be fully
paid and nonassessable and all Units have equal voting and other
rights, except there are limitations on the voting of Units held by
ATEL.
-- Term and Dissolution. The Fund intends to begin selling its assets and
distributing all available cash to its Members beginning after the end
of the sixth full year following the end of the offering, with the
final distribution expected approximately ten to eleven years after the
termination of the offering. In any event, the Fund must end no later
than December 31, 2025.
-- Books of Account and Records. ATEL is responsible under the Operating
Agreement for keeping books of account and records of the Fund showing
all of the contributions to the capital of the Fund and all of the
expenses and transactions of the Fund. These books of account and
records will be kept at the principal place of business of the Fund in
the State of California, and each Member and his authorized
representatives shall have, at all times during reasonable business
hours, free access to and the right to inspect and copy at their
expense the books of the Fund, and each Member shall have the right to
compel the Fund to deliver copies of certain of these records on
demand.
-- Indemnification of ATEL. The Operating Agreement provides that ATEL and
its related companies who perform services for the Fund will be
indemnified against certain liabilities.
Plan of Distribution: The Units will be offered through ATEL Securities
Corporation, the dealer manager, who will organize a group of other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD").
Until subscriptions for a total of 120,000 Units are received and accepted,
all offering proceeds will be deposited in an escrow account. Upon receipt and
acceptance of subscriptions to a minimum of 120,000 Units, the subscription
proceeds will be released to the Fund. The offering will terminate not later
than two years from the date of this Prospectus.
Glossary: See the definitions listed in "Glossary" below for a complete
list of defined terms used in this Prospectus and the Operating Agreement.
RISK FACTORS
The purchase of Units involves various risks. Therefore, investors should
consider the following material risk factors before making a decision to
purchase Units.
Most of the Fund's distributions from lease revenues are expected to be a
return of capital. The portion of total distributions that will be a return of
capital and the portion that will be investment income at the end of the Fund
will depend on a number of factors in the Fund's operations, and cannot be
determined until all of its equipment is sold and an investor can compare the
total amount of all cash distributions to the total capital invested. In this
regard, investors should note that prior completed ATEL programs have made
aggregate distributions over the course of their eight to ten year terms in
amounts equal to 100% of investors' capital plus additional returns on invested
capital equal to from 21% to 32% of investors' capital (not annually, but over
their entire terms).
The success of the Fund will be subject to risks inherent in the equipment
leasing business that may adversely affect the ability of the Fund to acquire,
lease and sell equipment, and to finance its portfolio, on terms which will
permit it to generate profitable rates of return for investors. A number
economic conditions and market factors could threaten the Fund's ability to
operate profitably. These include:
-- changes in economic conditions, including fluctuations in demand
for equipment, lease rates, interest rates and inflation rates,
-- the timing of purchases and the ability to forecast technological
advances for equipment,
-- technological and economic obsolescence, and
10
-- increases in Fund expenses (including labor, energy, taxes and
insurance expenses).
Fluctuations in demand for equipment may affect the ability of a leasing program
to invest its capital in a timely manner. Equipment lessors experienced a more
difficult market in which to make suitable investments during recent periods of
reduced growth and recession in the U.S. economy as a result of the softening
demand for capital equipment during these periods. Adverse economic conditions
during 1999 through 2003 affected the timing and terms of leasing, remarketing
and re-leasing efforts by certain of the prior ATEL programs. An extended
remarketing cycle and lower lease rates have limited the ability of certain of
these programs, which, like the Fund, require minimum distributions to investors
prior to reinvestment of cash flow, to generate sufficient cash flow to permit
such reinvestment of cash flow in significant amounts. Economic recession
resulting in lower levels of capital expenditure by businesses may result in
more used equipment becoming available on the market and downward pressure on
prices and lease rates due to excess inventory. Recent periods of low interest
rates exerted downward pressure on lease rates and resulted in less demand for
lease financing. There can be no assurance as to what future developments may
occur in the economy in general or in the demand for equipment and lease
financing in particular.
The Fund may be harmed if a lessee defaults on its lease and the Fund is
unable to collect the lease revenue anticipated from the defaulted leases. If a
lessee does not make lease payments to the Fund when they are due under its
lease or violates the terms of its lease contract in another important way, the
Fund may be forced to cancel the lease and recover the equipment. The Fund may
do this at a time when the Manager may be unable to arrange for a new lease or
the sale of such equipment right away. The Fund would then lose the expected
lease revenues and might not be able to recover the entire amount of its
original investment. If a lessee files for protection under the bankruptcy laws,
the Fund may experience difficulties and delays in recovering the equipment from
the defaulting lessee. The equipment may be returned in poor condition and the
Fund may be unable to enforce important lease provisions against an insolvent
lessee, including the contract provisions that require the lessee to return the
equipment in good condition. In some cases, a lessee's deteriorating financial
condition may make trying to recover what the lessee owes the Fund impractical.
The costs of recovering equipment upon a lessee's default, enforcing the
lessee's obligations under the lease, and transporting, storing, repairing and
finding a new lessee or purchaser for the equipment may be high and may affect
the Fund's profits.
The amount of the Fund's profit will depend in part on the value of its
equipment when the leases end. In general, leased equipment loses value over a
lease term. In negotiating leases, the Manager will assume a value for the
equipment at the end of the lease. The Manager will seek lease payments plus
equipment value at the end of the lease which is enough to return the Fund's
investment in the equipment and provide a profit. The value of the equipment at
the end of a lease will depend on a number of factors, including:
-- the condition of the equipment;
-- the cost of similar new equipment;
-- the supply of and demand for similar equipment; and
-- whether the equipment has become obsolete.
The Fund cannot assure that its value assumptions will be accurate or that the
equipment will not lose value more rapidly than anticipated.
The Fund will borrow to buy equipment and will bear the risks of borrowing,
including the potential loss of equipment used as collateral for fund debt in
the event the Fund is unable to satisfy its debt obligations. The Fund will
borrow to finance the acquisition of its portfolio. The Fund expects to borrow a
total amount equal to 50% of the aggregate cost of its equipment, the maximum
permitted under the Operating Agreement, regardless of the amount of equity
capital raised from the sale of Units. The Fund can expect to make a profit on
equipment purchased with debt only if the equipment produces more than enough
cash from lease payments and sales price to pay the principal and interest on
the debt, recover the purchase price and cover fees and other operating
expenses.
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Through September 30 2004, ACEF X had made cash distributions to its investors
in the aggregate amount of $95.09 per $1,000 invested. All of this amount
represents return of capital. See Table III - "Operating Results of Prior
Programs" in Exhibit A for further information concerning such distributions.
See Table V - "Acquisition of Equipment by Prior Programs" in Exhibit A
for further information concerning the types of equipment acquired by ACEF IX.
See Table VI - "Sales or Disposals of Equipment" in Exhibit A for further
information concerning the equipment disposed of by ACEF X.
As discussed elsewhere in this Prospectus, fluctuations in demand for
equipment may affect the ability of a leasing program to invest its capital in a
timely manner. ACEF IX is in the process of leveraging its gross offering
proceeds for the purchase of its initial equipment portfolio. ACEF X is in the
process of committing the balance of its gross offering proceeds to its initial
equipment portfolio. Equipment lessors experienced a more difficult market in
which to make suitable investments during recent periods of reduced growth and
recession in the U.S. economy as a result of the softening demand for capital
equipment during these periods. Delays in investment may have a negative impact
on ACEF IX and ACEF X. The Manager believes that it has identified industry
segments, lease markets and potential transaction structures that will permit
ACEF IX and ACEF X to fully pursue their investment objectives.
Each of the Prior Programs has had, as an investment objective, the
reinvestment of cash flow after payment of debt service and certain minimum
distributions. Reinvestment is intended to increase the size, diversification
and return on their equipment portfolios. Adverse economic conditions during
1999 through 2003 affected the timing and terms of remarketing and re-leasing
efforts by these Prior Programs. An extended remarketing cycle and lower lease
rates have limited the ability of ACDF V, ACDF VI, ACEF VII and ACEF VIII to
generate sufficient cash flow to permit significant reinvestment. In the future,
adverse conditions in the general economy and equipment demand may also result
in delays in leasing, re-leasing and disposition of equipment, and in reduced
returns on invested capital. Factors which have in the recent past adversely
affected the leasing market include: economic recession resulting in lower
levels of capital expenditure by businesses; economic conditions have resulted
in more used equipment becoming available on the market in turn resulting in
downward pressure on prices and lease rates due to excess inventory; and,
finally, the lowest interest rates in forty years have exerted downward pressure
on lease rates and resulted in less demand for lease financing. In any event,
there can be no assurance as to what future developments may occur in the
economy in general or in the demand for equipment and lease financing in
particular.
As of September 30, 2004, the Prior Programs have acquired equipment
with a total purchase cost of approximately $1.34 billion during a period of
over 18 years since the date the first Prior Program commenced operations.
Aggregate losses from material lessee defaults on these transactions have been
approximately $7 million, or approximately 0.53% of the assets acquired,
substantially less than the amount assumed by the Manager and its Affiliates in
structuring these portfolios as the losses to be anticipated in the ordinary
course of leasing business. There is no identifiable trend in the frequency or
amount of lessee defaults experienced by prior programs.
The Prior Programs have investment objectives that are similar to those of
the Fund. The factors considered by the Manager in determining that the
investment objectives of the prior programs were similar to those of the Fund
include the types of equipment to be acquired, the structure of the leases to
such equipment, the credit criteria for lessees, the intended investment cycles,
the reinvestment policies and the investment goals of each program. Therefore,
all of the information set forth in the tables included in Exhibit A -- "Prior
Performance Information" may be deemed to relate to programs with investment
objectives similar to those of the Fund.
In Tables I through III, information is presented with respect to all Prior
Programs sponsored by the Manager and its Affiliates that completed their
offerings of interests within the five-year period ended December 31, 2003,
except that ACDF X had not completed its offering as of that date, so the
tabular information concerning ACDF X does not reflect results of an operating
period after completion of its funding. Table IV includes information concerning
the three Prior Programs that had completed their respective operations as of
September 30, 2004. Table V includes information regarding all acquisitions of
equipment by the three most recently formed Prior Programs. Table VI includes
information regarding all dispositions of equipment by Prior Programs during the
five year period ended September 30, 2004.
55