I’m going to be upfront- this situation is no where near my circle of competence, so take what I say with a grain of salt. That said, it looked pretty compelling when I stumbled on it, so I thought I’d share it with readers who are interested in special situations or have an interest in them.Atel Cash Distribution is a partnership that basically engages in equipment leasing. The company is structured as a partnership and is currently in its liquidation phase and will liquidate all of its assets by December 2013, in addition to distributing any and all of its income to shareholders.
Book value of ~37 cents is much higher than today’s price 20 cents. Because all of the equipment was acquired between 1993 to 2004, book value is likely not a reflection of the underlying equipment value. I have no insights into the value of this equipment (most of it is for transportation, mining, or oil and gas equipment). These seem like items that would retain significant residual value (more so than their depreciated value), but again, I have no insights. The company does mention in their 10-K that the value of their equipment should INCREASE with inflation (see page 9).
The company paid distributions of 5 cents in 2009, 8 cents in 2008, and 5 cents in 2007 and has generated ~7.3 cents in operating cash flow in the first nine months of 2010 (so this year’s distribution should also come in around 5-8 cents). All of the company’s equipment are on long term leases, so their cash flows are relatively stable until the equipment comes off of lease, at which time the company will sell the equipment and return that cash to shareholders.
Note- It sounds like the distributions qualify as return of capital, not dividends, which could make the company interesting from a tax perspective.
My take- this seems like a great special situation opp. Given that the company will liquidate and distribute proceeds to shareholders by December 2013, a significant catalyst is in place and you can easily figure out your IRR in several scenarios. When you look at the current cash flows and then add in the book value of the company (which, again, could be substantially understated), its hard not to come up with an ultimate distribution value of 45-50cents per share, and quite possibly much more. Versus a current share price of 20 cents, that’s a lot of upside. Again, this business / situation isn’t in my circle, so I’m staying away from it, but it is definitely worth a look.
If any readers have any thoughts or experience with this type of situation, I’d love to hear them, either on here or through email.
The two main risks – book value is actually overstated, which results in distributions coming out significantly less than anticipated (could also be caused by selling into a weak economy). I don’t think this is too big a risk, but it is a possibility. Main risk- the stock has almost no liquidity. It could be very difficult to get your hands on shares at a price that makes sense.
Bringing you the content on this site involves a significant amount of time and effort. If you like my work, please support my site by shopping at amazon.com! Doing so costs you nothing (the prices are the same as if you went to amazon directly) but results in referral fees for me that I use to support my site.
The content contained in this blog represents only the opinions of its author(s). I may hold long or short positions in securities mentioned in the blog. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author(s).