A well-known name in the equipment leasing industry, ATEL Capital Group has built its empire on what it calls the “Three Pillars of Success”. ATEL Securities Corporation, an affiliate of ATEL Capital Group, sponsors one of the company’s currently open funds, ATEL 16.
Diversified by asset class, lessee, industry and geography ATEL 16 is reliant on the Three Pillars for its success.
The first pillar involves leasing the right equipment.
ATEL 16 focuses on leasing equipment such as material handling, manufacturing lines, construction equipment and railcars. Jim Kamradt, Executive V.P., National Sales Manager at ACS explains that assets must be business-necessary and low-obsolescence. “Using computers as an example…they are certainly business-necessary, but they do not have a low-obsolescence quality. This makes them unattractive to ATEL 16 because we are looking to maximize potential returns to investors,” he stated.
At the end of a five year lease, a computer would have also reached the end of its useful life while a more typical ATEL asset, such as a forklift, would still be useful. “The longer the useful life of an asset, the more ways ATEL can generate money from it,” continued Mr. Kamradt.
Typically, at the end of a lease, ATEL has a number of options. It can renew the current lessee’s lease for the equipment, sell it to the lessee, place it with another lessee, or sell it on the secondary market. “The fact that ATEL has experienced over a 90% retention rate, indicating lessees continue to lease or to purchase an asset, is testament to our historic ability to pick the right assets for the right lessee,” Mr. Kamradt added.
ATEL’s second pillar makes selecting the right companies a priority.
Credit quality is of the utmost importance to ATEL and it is written into ATEL 16’s prospectus that at least 75% of the portfolio must be leased to Investment Grade or High Quality Corporate Credits. “The reason credit quality is so important,” continues Mr. Kamradt, “is that it reduces the number of moving parts in portfolio management. ATEL’s public leasing programs have not experienced a default loss since 2008 and our historic loss rate dating back to 1986 is 0.037%.”
The third pillar ATEL utilizes has to do with correctly structuring and balancing leases to protect investors. It ensures that leases have priority in ATEL’s capital structure and if a lessee goes bankrupt or becomes insolvent, ATEL may recover its equipment or have the lease enforced.
Since equipment is worth more “in place” than on the secondary market, selecting the right equipment and the right lessee allows ATEL to maximize asset retention. According to Mr. Kamradt, “Quality assets matched with what is essentially an investment grade portfolio of lessees, combined with the tax-advantaged nature of equipment leasing makes ATEL 16 a compelling opportunity for advisors looking for superior risk adjusted rewards in a complimentary investment.”
Mr. Kamradt concludes, “It’s not a mistake that ATEL is among the longest tenured sponsors because unlike many of our former competitors, we never varied from our commitment to these three pillars. We haven’t sought alpha at the expense of beta…we never went down market on credit quality, we continue to stay abreast of the equipment markets and we are conservative in our use of leverage.”