[GRAPHIC ATEL
OMITTED] CAPITAL GROUP
August 3, 2009
BY EDGAR AND OVERNIGHT DELIVERY
Mr. Rufus Decker
Accounting Branch Chief
Division of Corporation Finance, Mail Stop 4631
Securities and Exchange Commission
450 Fifth Street. N.W.
Washington, D.C. 20549-4631
Re: ATEL Capital Equipment Fund XI, LLC (the "Company" or "registrant")
Form 10-K for the fiscal year ended December 31, 2008
Form 10-Q for the period ended March 31, 2009
SEC File No. 0-51858
Dear Mr. Decker:
This letter is in response to your letter dated July 14, 2009, addressed to
me as Chief Financial Officer of the above-referenced Company, regarding the
referenced reports.
The Company's supplemental responses to the comments in your letter are set
forth below, with captions and numbered responses keyed to the captions and
numbered comments in your letter.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
General
1. The supplemental responses include the Company's proposed revisions to be
made to future filings. Subject to the Staff's concurrence with the
adequacy of the proposed revisions in response to its comments, all such
revisions will be included in future filings as appropriate.
Management's Discussion and Analysis
Results of Operations, page 10
2. The registrant will consider presenting its utilization percentages for
assets under lease in a similar manner to the presentation included on page
12 of the Form 10-K for the year ended December 31, 2008 for ATEL Capital
600 California Street, 6th Floor, San Francisco, CA 94108
Main 415.989.8800 Facsimile 415.989.3796 www.atel.com
Mr. Rufus Decker
August 3, 2009
Page 2
Equipment Fund X, LLC, and will also consider discussing any significant
changes from period to period.
Financial Statements
Notes to Financial Statements
Note 2, Summary of Significant Accounting Policies
Equipment on Operating Leases and Related Revenue Recognition, page 20
3. The registrant's leased equipment is primarily leased under triple net
leases under which the lessee bears all of the maintenance costs. As a
result, the actual equipment maintenance charges incurred by the registrant
in 2008 and 2007 have not been significant. As a consequence, the
registrant has not recognized the expense until it was fixed and/or
determinable, which is generally upon receipt of the related third party
invoice. The full year maintenance expenses have not exceeded $250 in
either 2008 or 2007.
Note 4, Notes Receivable, Net, page 25, and Note 6, Investment in Equipment and
Leases, page 27
4. For Notes Receivable, Net, the registrant's footnote disclosure will be
revised to include quantification of the amount of notes receivable in
non-accrual status as of the end of each period presented, as indicated pro
forma below (as appropriate for each period):
"The Company has various notes receivable from borrowers who have financed
the purchase of equipment through the Company. The terms of the notes
receivable are 24 to 120 months and bear interest at rates ranging from
___% to ___%. The notes are secured by the equipment financed.
At December 31, 200y, the Company recorded an impairment provision totaling
$____ related to ___ notes receivable, ___ of which remained in the
portfolio as of December 31, 200y.
The amount of notes receivable, net, in non-accrual status as at December
31, 200z and 200y totaled $________ and $__________. There were no
additional impaired notes at December 31, 200x.
For direct financing leases, the registrant's footnote will be revised to
include tabular disclosure of such leases placed in non-accrual status as
of the end of each period presented, as indicated pro forma below (as
appropriate for each period):
Mr. Rufus Decker
August 3, 2009
Page 3
Direct financing leases:
As of December 31, 200y, investment in direct financing leases consists of
manufacturing equipment. The following lists the components of the Company's
investment in direct financing leases as of December 31, 200y and 200x (in
thousands):
200y 200x
------------ -------------
Total minimum lease payments receivable $ 1,647 $ 299
Estimated residual values of leased
equipment (unguaranteed) 75 615
------------ -------------
Investment in direct financing leases 1,722 914
Less unearned income (1,092) (89)
------------ -------------
Net investment in direct financing leases $ 630 $ 825
============ =============
Net investment in direct financing leases
placed in non-accrual status $ XXXX $ XXXX
============ =============
Note 5, Allowance for Credit Losses, page 26
5. This will confirm that a new cost basis is assigned by the registrant for
any assets for which an impairment loss is recorded and that impairment
losses are not reversed, in accordance with SFAS 144.
Note 8, Non-Recourse Debt, page 29, and Note 9, Borrowing Facilities, page 30
6. The non-recourse note payable referred to in Note 8 of the registrant's
Form 10-K does not contain any material financial covenant. The note is
secured by a lien granted by the registrant to the non-recourse lender on
(and only on) the discounted lease transaction. The lender has recourse
only to the following collateral: the specific 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 this
specific security and the registrant does not guarantee (nor is the
registrant otherwise contractually responsible for) the payment of
non-recourse note as a general obligation or liability of the registrant.
Although the registrant does not have any direct general liability in
connection with the non-recourse note apart from the security granted, the
registrant is directly and generally liable and responsible for certain
representations, warranties, and covenants made to the lender, such as
warranties as to genuineness of the transaction parties' signatures, as to
the genuineness of the lease chattel paper or the transaction as a whole,
or as to the registrant'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 the such industry as being
consistent with a non-recourse discount financing obligation. Accordingly,
as there are no financial covenants or ratios imposed on the registrant in
connection with this non-recourse obligation, the registrant has determined
Mr. Rufus Decker
August 3, 2009
Page 4
that there are no material covenants with respect to the non-recourse note
that warrant footnote disclosure.
With respect to the Note 9 regarding the borrowing facilities, the
registrant proposes to add the following disclosure, as appropriate, to its
future reports under "Management's Discussion and Analysis - Capital
Resources and Liquidity," and will consider expanded footnote disclosure to
address these issues, again as appropriate:
"Revolving credit facility
The Company participates with AFS and certain of its affiliates in a
revolving credit facility (the "Credit Facility") comprised of a working
capital facility to AFS, an acquisition facility (the "Acquisition
Facility") and a warehouse facility (the "Warehouse Facility") to AFS, the
Company and affiliates, and a venture facility available to an affiliate,
with a syndicate of financial institutions.
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 and affiliates
were in compliance with all covenants under the Credit Facility as of
December 31, 200x. 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. The material financial covenants
are summarized as follows:
Minimum Tangible Net Worth: $________
Leverage Ratio (leverage to Tangible Net Worth): ___%
Collateral Value: Collateral value under the Warehouse Facility must
exceed outstanding borrowings under that facility.
EBITDA to Interest Ratio: Not less than [2 to 1] for the four fiscal
quarters just ended.
"EBITDA" is defined under the Credit Facility as, for the relevant period
of time (1) gross revenues (including but not limited to interest income
and all rents from leases) for such period minus (2) expenses deducted in
Mr. Rufus Decker
August 3, 2009
Page 5
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 therefrom (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 GAAP, (U.S
Generally Accepted Accounting Principles) 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. For the period ended December 31, 200x, the Company's
Tangible Net Worth requirement under the Credit Facility was [$15,000,000]
the permitted maximum leverage ratio was [1.25], and the required minimum
interest coverage ratio (EBITDA/interest expense) was [2.00]. The Company
was in compliance with each these financial covenants with a minimum
Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as
calculated per the Credit Facility agreement of $_________, 0.xx, and x.xx,
respectively, for the same period ended December 31, 200x. As such, as of
December 31, 200x, the Company and its affiliates were in compliance with
all such material financial covenants.
Reconciliation to GAAP of EBITDA
For purposes of compliance with the Credit Facility covenants, the Company
uses a financial calculation of EBITDA, as defined therein, which is a
non-GAAP financial performance measure. The EBITDA is utilized by the
Company to calculate its debt covenant ratios
The following is a reconciliation of EBITDA to net income for the period
ended December 31, 200x ($'s in thousands):
Net income (loss) - GAAP basis $ (x,xxx)
Interest expense x,xxx
Depreciation and amortization xx,xxx
Amortization of initial direct costs xxx
Reversal of provision for doubtful accounts (x)
Provision for losses on notes receivable xxx
Change in fair value of interest rate swap contracts x,xxx
Payments received on direct finance leases x,xxx
Payments received on notes receivables x,xxx
Amortization of unearned income on direct finance leases (xxx)
Amortization of unearned income on notes receivables (xxx)
EBITDA $ xx,xxx]
Mr. Rufus Decker
August 3, 2009
Page 6
Events of default, cross-defaults, recourse and security
The terms of the Credit Facility include standard events of default by the
Company which, if not cured within applicable grace periods, could give
lenders remedies against the Company, including the acceleration of all
outstanding borrowings and a demand for repayment in advance of their
stated maturity. If a breach of any material term of the Credit Facility
should occur, the lenders may, at their option, increase borrowing rates,
accelerate the obligations in advance of their stated maturities, terminate
the facility, and exercise rights of collection available to them under the
express terms of the facility, or by operation of law. The lenders also
retain the discretion to waive a violation of any covenant at the Company's
request.
The Company is currently in compliance with its obligations under the
Credit Facility. In the event of a technical default (e.g., the failure to
timely file a required report, or a one-time breach of a financial
covenant), the Company believes it has ample time to request and be granted
a waiver by the lenders, or, alternatively, cure the default under the
existing provisions of its debt agreements, including, if necessary,
arranging for additional capital from alternate sources to satisfy
outstanding obligations.
The lending syndicate providing the Credit Facility has a blanket lien on
all of the Company's assets as collateral for any and all borrowings under
the Acquisition Facility, and on a pro-rata basis under the Warehouse
Facility.
The Acquisition Facility is generally recourse solely to the Company, and
is not cross-defaulted to any other obligations of affiliated companies
under the Credit Facility, except as described in this paragraph. The
Credit Facility is cross-defaulted to a default in the payment of any debt
(other than non-recourse debt) or any other agreement or condition beyond
the period of grace (not exceeding 30 days), the effect of which would
entitle the lender under such agreement to accelerate the obligations prior
to their stated maturity in an individual or aggregate principal amount in
excess of [fifteen] percent ([15]%) of the Company's consolidated Tangible
Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company
under the Credit Facility."
Exhibit 31
7. We note the missing references in the introductory portions of paragraphs 4
and 5 to "internal control over financial reporting." The registrant made
the correct certification in its subsequent quarterly report on Form 10-Q
for the first quarter of 2009, and will make certain that the correct
certifications are filed with each of its future periodic reports. The
staff has directed that the registrant file an amended Form 10-K for the
Mr. Rufus Decker
August 3, 2009
Page 7
year ended December 31, 2008, to replace the current Exhibits 31 with new
and updated Exhibits 31 with the corrected references in the introductory
paragraphs to those two items. The registrant requests that its undertaking
to provide the corrected certifications in all future filings be deemed to
satisfy this comment without the need to file an amended Form 10-K.
The registrant would point out that, while the introductory portions of
paragraphs 4 and 5 omit the required reference to "internal control over
financial reporting," the substantive portions of those paragraphs, items
4(b) and 4(d), and items 5(a) and 5(b), do contain the required references
to internal control over financial reporting. The officers have therefore
already certified in the Form 10-K to the design of such controls, the
disclosure of any material changes to such controls in the report, and
disclosure of any deficiencies or material weaknesses in such controls, or
fraud by any person with a significant role in such control, to the
auditors and audit committee. The registrant would further note that its
subsequent quarterly report on Form 10-Q includes the complete and correct
certifications for the quarter ended March 31, 2009.
The registrant would therefore assert that its responsible officers have
made the substantive certifications for the year ended December 31, 2008,
have made updated certifications as of the subsequent first quarter ended
March 31, 2009, and will make them as of the quarter ended June 30, 2009
and every subsequent period. The registrant believes that the potential
cost and delay in its current periodic reporting that would result from
preparing and filing an amended report for the purpose of correcting the
introductory portions of the paragraphs should therefore outweigh any
benefit to public disclosure that might be deemed necessary under these
circumstances.
As the staff is aware, the registrant and five of its affiliates are
subject to this same comment, so insistence upon an amended Form 10-K would
mean the registrant's management would be required to prepare six amended
10-Ks, while at the same time preparing those same six registrants'
periodic reports for the quarter ended June 30, 2009, adding to the cost
and potentially delaying completion of reporting for the current period. As
correcting these certifications would be the only reason for such
amendments to the 10-Ks, the registrant hereby requests that the staff
concur that this comment is satisfied with the registrant's undertaking to
make certain that the correct certifications continue to be provided in all
subsequent periodic reports.
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2009
Mr. Rufus Decker
August 3, 2009
Page 8
General
8. The responsive changes proposed with respect to future annual reports on
Form 10-K will, upon Staff confirmation of our proposed responses, be
similarly addressed in all future interim reports.
Note 11, Subsequent Event, page 16
9. In determining that no adjustments needed to be recorded related to this
lessee (Chrysler), the Company first took into consideration that the
lessee's contractual payments were current through March 31, 2009 (and up
through the date of the Form 10-Q filing) and that the residual values of
the underlying assets were not deemed to be impaired. The Company also
received strong indications from the bankruptcy trustee that lead it to
believe that all of the lease obligations would be affirmed by the lessee
or its successor. Further, lease payments with respect to this lessee are
assigned to a third party lender as security for a loan (March 31, 2009
balance $1.098 million) that is non-recourse to the Company.
At March 31, 2009 total exposure of all ATEL related affiliates (including
the Company) to this lessee approximates $3.1 million.*
Total Exposure to Chrysler Obligations under Lease Contracts
at March 31, 2009
($ amounts in thousands)
Chrysler
Obligations under
lease contracts ** Total Assets Exposure %
------------------- ------------------- -----------------------------------------
($ amounts in thousands) Gross Net (of Non-Recourse Debt)
----------------------------------------- -----------------------------------------
ATEL Financial Services, LLC $ - $ 31,617 0.00% 0.00%
ATEL Capital Equipment Fund IX, L.L.C. 564 45,685 1.23% 1.23%
ATEL Capital Equipment Fund X, L.L.C. 1,335 105,379 1.27% 1.27%
ATEL Capital Equipment Fund XI, L.L.C. 1,215 43,022 2.82% 0.28%
------------------- ------------------- -----------------------------------------
$ 3,114 $ 225,703 1.38% 0.90%
=================== =================== =========================================
* The lease payments with respect to ATEL Capital Equipment Fund XI, L.L.C. are assigned to a third party lender as security for a
loan that is non-recourse to the Company.
** expiring through June 2011
* * * *
The Company, in connection with the staff's review of the above referenced
filing and its responses to staff comments, hereby acknowledges that:
o should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
Mr. Rufus Decker
August 3, 2009
Page 9
o the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the Company from its full responsibility for the adequacy and
accuracy of the disclosure in the filing; and
o the Company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
Please contact the undersigned with any further comments or questions
concerning the Company's reports.
Very truly yours,
/s/ PARITOSH K. CHOKSI
By: Paritosh K. Choksi
Chief Financial Officer
ATEL Capital Equipment Fund XI, LLC
cc: Ms. Nudrat Salik
Staff Accountant
Division of Corporation Finance, Mail Stop 4631
Securities and Exchange Commission
Paul J. Derenthal, Esq.
Mr. Samuel Schussler
Mr. Tullus Miller