0001140361-12-047094.txt : 20121114 0001140361-12-047094.hdr.sgml : 20121114 20121114121458 ACCESSION NUMBER: 0001140361-12-047094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20121114 DATE AS OF CHANGE: 20121114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEAF Equipment Leasing Income Fund III, L.P. CENTRAL INDEX KEY: 0001376074 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 205455968 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53174 FILM NUMBER: 121202396 BUSINESS ADDRESS: STREET 1: 110 S. POPLAR STREET, SUITE 101 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 800-819-5556 MAIL ADDRESS: STREET 1: 110 S. POPLAR STREET, SUITE 101 CITY: WILMINGTON STATE: DE ZIP: 19801 10-Q 1 form10q.htm LEAF EQUIPMENT LEASING INCOME FUND III LP 10-Q 9-30-2012 form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
 
OR
 
¨
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 000-53174
 

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
(Exact Name of Registrant as Specified in Its Charter)
 

 
Delaware
 
20-5455968
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
110 South Poplar Street, Suite 101, Wilmington Delaware 19801
(Address of principal executive offices) (Zip Code)
 
(800) 819-5556
(Registrant’s telephone number, including area code)
 
Indicate by 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.    x  Yes     ¨  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted 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 and post such files).    x 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  o
 
Accelerated filer
¨
       
Non-accelerated filer    o
(Do not check if a smaller reporting company)
Smaller Reporting Company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
¨ Yes     x No
 
There is no public market for the Registrant’s securities.
 


 
1

 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
ON FORM 10-Q

PART I
FINANCIAL INFORMATION
PAGE
ITEM 1.
3
  3
  4
  5
  6
  7
ITEM 2.
14
ITEM 3.
21
ITEM 4.
21
     
PART II
OTHER INFORMATION
 
ITEM 6.
22
     
23

 
2

 
PART I. FINANCIAL INFORMATION
 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands)

   
September 30, 2012
       
   
(Unaudited)
   
December 31, 2011
 
ASSETS
           
Cash
  $ 8     $ 154  
Restricted cash
    6,374       11,250  
Accounts receivable
    28       60  
Investment in leases and loans, net
    41,919       84,367  
Deferred financing costs, net
    379       1,584  
Investment in affiliated leasing partnerships
    331       786  
Other assets
    2       158  
Total assets
  $ 49,041     $ 98,359  
                 
LIABILITIES AND PARTNERS’ DEFICIT
               
Liabilities:
               
Debt
  $ 43,316     $ 88,235  
Accounts payable and accrued expenses
    676       733  
Other liabilities
    444       511  
Due to affiliates
    16,144       15,645  
Total liabilities
    60,580       105,124  
                 
Commitments and contingencies (Note 10)
               
                 
Partners’ Deficit:
               
General partner
    (1,154 )     (1,107 )
Limited partners
    (10,385 )     (5,658 )
Total partners’ deficit
    (11,539 )     (6,765 )
Total liabilities and partners' deficit
  $ 49,041     $ 98,359  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands, except unit and per unit data)
(Unaudited)

   
Three Months Ended
September 30,
   
Nine Months Ended
 September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Interest on equipment financings
  $ 1,218     $ 2,656     $ 4,469     $ 9,757  
Rental income
    286       762       1,128       2,694  
Gain/(loss) on sale of equipment and lease dispositions, net
    96       187       (157 )     322  
Other income
    223       420       834       1,315  
      1,823       4,025       6,274       14,088  
                                 
Expenses:
                               
Interest expense
    1,030       2,111       4,503       7,429  
Depreciation on operating leases
    217       598       843       2,071  
Provision for credit losses
    988       1,353       2,097       7,787  
General and administrative expenses
    171       290       841       1,201  
Administrative expenses reimbursed to affiliate
    127       375       489       1,200  
      2,533       4,727       8,773       19,688  
Loss before equity in loss of affiliate and impairment on investment in affiliate
    (710 )     (702 )     (2,499 )     (5,600 )
Equity in loss of affiliate
    (12 )     (18 )     (27 )     (64 )
Impairment on investment in affiliate
    -       -       (428 )     -  
Net loss
  $ (722 )   $ (720 )   $ (2,954 )   $ (5,664 )
Net loss allocated to limited partners
  $ (715 )   $ (713 )   $ (2,924 )   $ (5,607 )
Weighted average number of limited partner units outstanding during the period
    1,195,631       1,195,631       1,195,631       1,195,631  
Net loss per weighted average limited partner unit
  $ (0.60 )   $ (0.60 )   $ (2.45 )   $ (4.69 )

The accompanying notes are an integral part of these consolidated financial statements.
 
 
4


LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands except unit data)
(Unaudited)

                   
   
General
   
Limited Partners
   
Total
 
   
Partner Amount
   
Units
   
Amount
   
Partners' Deficit
 
Balance, January 1, 2012
  $ (1,107 )     1,195,631     $ (5,658 )   $ (6,765 )
Cash distributions paid
    (17 )     -       (1,803 )     (1,820 )
Net loss
    (30 )     -       (2,924 )     (2,954 )
Balance, September 30, 2012
  $ (1,154 )     1,195,631     $ (10,385 )   $ (11,539 )

The accompanying notes are an integral part of this consolidated financial statement.
 
 
5

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
(In thousands)
(Unaudited)

   
Nine Months Ended September 30,
 
Cash flows from operating activities:
 
2012
   
2011
 
Net loss
  $ (2,954 )   $ (5,664 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Loss/(gain) on sale of equipment and lease dispositions, net
    157       (322 )
Equity in loss of affiliate
    27       64  
Impairment on investment in affiliate
    428       -  
Depreciation on operating leases
    843       2,071  
Provision for credit losses
    2,097       7,787  
Amortization of deferred charges and discount on debt
    2,719       4,536  
Changes in operating assets and liabilities:
               
Accounts receivable
    32       43  
Other assets
    156       25  
Accounts payable and accrued expenses and other liabilities
    (124 )     (31 )
Due to affiliates
    499       (1,795 )
Net cash provided by operating activities
    3,880       6,714  
                 
Cash flows from investing activities:
               
Purchases of leases and loans
    (1,192 )     -  
Proceeds from leases and loans
    40,979       72,046  
Security deposits returned
    (436 )     (486 )
Net cash provided by investing activities
    39,351       71,560  
                 
Cash flows from financing activities:
               
Repayment of debt
    (46,429 )     (78,128 )
Repayment of note payable
    -       (813 )
Decrease in restricted cash
    4,876       2,329  
Increase in deferred financing costs
    (4 )     (5 )
Cash distributions to partners
    (1,820 )     (1,812 )
Net cash used in financing activities
    (43,377 )     (78,429 )
                 
Decrease in cash
    (146 )     (155 )
Cash, beginning of period
    154       526  
Cash, end of period
  $ 8     $ 371  
                 
Cash paid for interest
  $ 1,808     $ 2,938  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
6

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
September 30 2012
(Unaudited)
 
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
 
LEAF Equipment Leasing Income Fund III, L.P. (“LEAF III”  or the “Fund”) is a Delaware limited partnership formed on May 16, 2006 by its General Partner, LEAF Asset Management, LLC (the “General Partner”), which manages the Fund. The General Partner is a Delaware limited liability company, and a subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of April 24, 2008, the Fund raised $120.0 million by selling 1.2 million of its limited partner units. It commenced operations in March 2007.
 
The Fund is expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund’s leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the liquidation period, the Fund expects to continue to return capital to its partners as those leases and loans mature. All of the Fund’s leases and loans mature by the end of 2018. The Fund expects to enter its liquidation period beginning in April 2013. Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement (“the Partnership Agreement”).
 
The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily from LEAF Financial Corporation (“LEAF Financial”), an affiliate of its General Partner and a subsidiary of RAI. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.
 
In addition to its 1% general partnership interest, the General Partner has also invested $1.3 million for a 1.3% limited partnership interest in the Fund.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiaries LEAF III C SPE, LLC, and LEAF Receivables Funding 5, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.
 
The Fund owns approximately a 4% ownership interest in LEAF Funding, LLC (“Funding LLC”). The Fund accounts for its interest in Funding LLC under the equity method of accounting.
 
In March of 2009 the Fund also invested $428,000 in LEAF Funds Joint Venture 2, LLC (“LEAF Funds JV2”), representing a 2% ownership interest, which the Fund accounted for under the cost method of accounting. In May 2012 the Fund fully impaired its investment in LEAF Funds JV2 due to continued uncertainty as to future performance, which resulted in a $428,000 impairment charge on the accompanying statement of operations.  Should the Fund realize a return on its investment in a future period, this would result in a gain to the Fund.

The accompanying unaudited financial statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Fund’s financial position as of September 30, 2012, and the results of its operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results of the Fund’s operations for the 2012 calendar year. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with the Fund’s financial statements and notes thereto presented in the Fund’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 28, 2012.

The Fund has evaluated subsequent events through the date the financial statements were issued noting no subsequent events that were required to be disclosed in the consolidated financial statements.
 
 
7

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements – (Continued)
September 30 2012
(Unaudited)
 
Use of Estimates
 
Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. The Fund bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Significant Accounting Policies

Investments in Leases and Loans
 
The Fund’s investment in leases and loans consist of direct financing leases, operating leases and loans.
 
Direct Financing Leases. Certain of the Fund’s lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment ownership to the customer. The Fund’s investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual value over the cost of the related equipment.
 
Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon the Fund’s history with regard to the realization of residuals, available industry data and the General Partner’s experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipment’s fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.
 
Operating Leases. Leases not meeting any of the criteria to be classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis.
 
A review for impairment of operating leases is performed whenever events or changes in circumstances indicate that the carrying amount of the operating leases may not be recoverable.  The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds its fair value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment.
 
Loans. For term loans, the investment in loans consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted loan payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.
 
Allowance for Credit Losses. The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management’s historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due any remaining balance is fully-reserved less an estimated recovery amount. The Fund’s policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.
 
 
8

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 30 2012
(Unaudited)
 
Income is not recognized on leases and loans when a default on payment exists for a period of 90 days or more. Generally, income recognition resumes when a lease or loan becomes less than 90 days delinquent.  Fees from delinquent payments are recognized when received and are included in other income.

Other Income

Other income includes miscellaneous fees charged by the Fund such as late fee income, among others.    The Fund recognizes late fee income as fees are collected. Late fee income was $196,000 and $719,000, respectively, for the three and nine months ended September 30, 2012 and $338,000 and $1,126,000, respectively, for the three and nine months ended September 30, 2011.

Recent Accounting Standards
 
Accounting Standards Recently Adopted

Comprehensive Income - In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income as part of the statement of changes in equity.  The amendment requires that all non-owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The Fund adopted the two-statement approach for the period beginning January 1, 2012.  However, adoption of this standard did not impact the Fund’s financial statements for the three and nine months ending June 30, 2012 as the Fund had no items of other comprehensive income.

Fair Value Measurements - In May 2011, the FASB issued an amendment to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability. This guidance was adopted by the Fund for the period beginning January 1, 2012 and did not significantly impact the Fund’s consolidated financial statements.
 
NOTE 3 – INVESTMENT IN LEASES AND LOANS
 
The Fund’s investment in leases and loans, net, consists of the following (in thousands):

 
 
September 30,
2012
   
December 31, 2011
 
Direct financing leases (a)
  $ 22,433     $ 50,246  
Loans (b)
    19,702       33,674  
Operating leases
    684       2,087  
      42,819       86,007  
Allowance for credit losses
    (900 )     (1,640 )
    $ 41,919     $ 84,367  
 

(a)
The Fund’s direct financing leases are for initial lease terms generally ranging from 24 to 96 months.
(b)
The interest rates on loans generally range from 6% to 15%.
 
 
9


LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 30 2012
(Unaudited)
 
The components of direct financing leases and loans are as follows (in thousands):

   
September 30,
2012
   
December 31,
2011
 
   
Leases
   
Loans
   
Leases
   
Loans
 
Total future minimum lease payments
  $ 21,907     $ 22,288     $ 50,509     $ 38,350  
Unearned income
    (1,447 )     (2,124 )     (4,019 )     (3,987 )
Residuals, net of unearned residual income (a)
    2,305       -       4,319       -  
Security deposits
    (332 )     (462 )     (563 )     (689 )
    $ 22,433     $ 19,702     $ 50,246     $ 33,674  


(a)
Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from extensions or disposition of the equipment.
 
The Fund’s investment in operating leases, net, consists of the following (in thousands):
 
   
September 30,
 2012
   
December 31,
 2011
 
Equipment on operating leases
  $ 4,378     $ 8,546  
Accumulated depreciation
    (3,694 )     (6,438 )
Security deposits
    -       (21 )
    $ 684     $ 2,087  

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

The following table is an age analysis of the Fund’s receivables from leases and loans (presented gross of allowance for credit losses of $900,000 and $1.6 million) as of September 30, 2012 and December 31, 2011, respectively (in thousands):

   
September 30, 2012
   
December 31, 2011
 
Age of receivable
 
Investment in
leases and loans
   
%
   
Investment in
leases and loans
   
%
 
Current
  $ 37,409       87.4 %   $ 80,907       94.1 %
Delinquent:
                               
31 to 91 days past due
    4,522       10.5 %     2,850       3.3 %
Greater than 91 days (a)
    888       2.1 %     2,250       2.6 %
                                 
    $ 42,819       100.0 %   $ 86,007       100.0 %
 

(a)
Balances in this age category are collectively evaluated for impairment.

The Fund had $888,000 and $2.3 million of leases and loans on nonaccrual status as of September 30, 2012 and December 31, 2011, respectively.  The credit quality of the Fund’s investment in leases and loans as of September 30, 2012 and December 31, 2011 is as follows (in thousands):

   
September 30,
2012
   
December 31,
2011
 
Performing
  $ 41,931     $ 83,757  
Nonperforming
    888       2,250  
                 
    $ 42,819     $ 86,007  
 
 
10

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 30 2012
(Unaudited)
 
The following table summarizes the activity in the allowance for credit losses (in thousands):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Allowance for credit losses, beginning of period
  $ 850     $ 5,610     $ 1,640     $ 9,180  
Provision for credit losses
    988       1,353       2,097       7,787  
Charge-offs
    (1,167 )     (4,196 )     (3,786 )     (15,160 )
Recoveries
    229       713       949       1,673  
Allowance for credit losses, end of period (a)
  $ 900     $ 3,480     $ 900     $ 3,480  


(a)
End of period balances were collectively evaluated for impairment.
 
NOTE 5 – DEFERRED FINANCING COSTS
 
As of September 30, 2012 and December 31, 2011, deferred financing costs include $379,000 and $1.6 million, respectively, of unamortized deferred financing costs which are being amortized over the estimated life of the related debt. Accumulated amortization as of September 30, 2012 and December 31, 2011 is $1.7 million and $2.5 million, respectively. In June 2012, the Fund expensed the remaining unamortized deferred financing costs totaling $568,000 related to its DZ Bank facility due to uncertainty that the Fund will utilize the facility in the future.
 
NOTE 6 –DEBT
 
The Fund’s bank debt consists of the following (dollars in thousands):
 
                 
December 31,
 
 
September 30, 2012
 
2011
 
         
Outstanding
 
Interest rate
 
Outstanding
 
 
Type
 
Maturity Date
 
Balance
 
per annum
 
Balance
 
2010-4 Term Securitization
Term
 
August 2018,
January 2019
  $ 43,316  
1.70% to 5.50%
  $ 88,235  
DZ Bank
Revolving
 
November 2013
    -  
Commercial paper plus 1.75%
    -  
          $ 43,316       $ 88,235  

2010-4 Term Securitization
 
The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes were issued at an original discount of approximately $7.2 million of which approximately $1.3 million remains unamortized as of September 30, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of September 30, 2012, $42.7 million of leases and loans and $6.1 million of restricted cash were pledged as collateral for this facility. Recourse is limited to the amount of collateral pledged.

The 2010-4 Term Securitization is serviced by an affiliate of the Fund’s General Partner (the “Servicer”).  If the Servicer or the Fund’s portfolio does not comply with certain requirements, then the noteholders have the right to replace the Servicer.  The portfolio exceeded the cumulative net loss percentage permitted on the 2010-4 Term Securitization in April 2012.  The servicing agreement was amended as of September 28, 2012 to increase the cumulative net loss percentages and as a result the portfolio was in compliance with the agreement as of September 30, 2012.  In addition, the servicing agreement and the indenture were amended to establish an additional reserve account to be funded by cash flows on leases and loans, that will be used by the trustee as additional collateral.

DZ Bank
 
The Fund has a facility with DZ Bank that has not been terminated but is currently not available for use as the Fund had incurred multiple breaches under its covenants for which the Fund has requested waivers.  No cross-default provisions exist with the 2010-4 Term Securitization.  No amounts were outstanding under this borrowing arrangement as of September 30, 2012.  As noted previously, in June 2012, the Fund expensed the remaining unamortized deferred financing costs totaling $568,000 related to this facility due to uncertainty that the Fund will utilize the facility in the future.
 
 
11

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 30 2012
(Unaudited)
 
Debt Repayments: Excluding $1.3 million of remaining unamortized discount on the 2010-04 Term Securitization, estimated annual principal payments on the Fund’s aggregate borrowings over the next three annual periods ended September 30, are as follows (in thousands):

September 30, 2013
  $ 26,820  
September 30, 2014
    11,687  
September 30, 2015
    6,114  
    $ 44,621  
 
NOTE 7 – NOTE PAYABLE
 
The Fund had a $1.3 million, 12% note payable. The remaining principal balance of $778,000 was paid off on March 21, 2011.
 
NOTE 8 – FAIR VALUE MEASUREMENT
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (exit price). U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
 
 
Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
 
 
 
Level 2 – Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
 
 
Level 3 – Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
 
There were no assets or liabilities measured at fair value at September 30, 2012 or December 31, 2011.
 
The Fund is also required to disclose the fair value of financial instruments not measured at fair value for which it is practicable to estimate that value.  For cash, restricted cash, receivables, and payables, the carrying amounts approximate fair value because of the short term maturity of these instruments. At December 31, 2011, the carrying value of debt approximated fair value as interest rates were comparable to current market rates.
 
Subsequent to the adoption of Accounting Standards Update 2011-04 (“ASU 2011-04”), the Fund is also required to disclose the methods used to estimate fair value on financial instruments not measured at fair value and the level within the fair value hierarchy that those fair value measurements are categorized. The carrying value and fair value of the Fund’s debt at September 30, 2012 is as follows:
 
         
Fair Value Measuring Using
   
Liabilities
 
   
Carrying Value
   
Level 1
   
Level 2
   
Level 3
   
At Fair Value
 
Debt, at September 30, 2012
  $ 43,316     $ -     $ 41,094     $ -     $ 41,094  
 
The fair value of the debt was determined using quoted prices obtained from brokers as of the measurement date.
 
 
12

 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
September 30 2012
(Unaudited)
 
NOTE 9 – CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES
 
The Fund relies on the General Partner and its affiliates to manage the Fund’s operations and pays the General Partner or its affiliates fees to manage the Fund in accordance with the Partnership Agreement. The following is a summary of fees and costs of services charged by the General Partner or its affiliates (in thousands):
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Administrative expenses
  $ 127     $ 375     $ 489     $ 1,200  
Management fees
    -       -       -       -  
 
Administrative Expenses. The General Partner and its affiliates are reimbursed by the Fund for administrative services reasonably necessary to operate the Fund which do not exceed the General Partner’s actual cost of those services.
 
Management Fees. The General Partner was paid a subordinated annual asset management fee equal to 4% of gross rental payments for operating leases or 2% for full payout leases or a competitive fee, whichever is less. During the Fund’s five-year investment period, the management fees were subordinated to the payment to the Fund’s limited partners of a cumulative annual distribution of 8.5% of their capital contributions, as adjusted by distributions deemed to be a return of capital. Beginning August 1, 2010, our General Partner waived its asset management fee. Through September 30, 2012, the General Partner has waived $5.2 million of asset management fees, of which $1.1 million related to the nine months ended September 30, 2012.
 
Due to Affiliates. Due to affiliates includes amounts due to the General Partner and its affiliates related to acquiring and managing portfolios of equipment from its General Partner, management fees and reimbursed expenses.
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES
 
In connection with a sale of leases and loans to a third-party in July of 2008, the Fund contractually agreed to repurchase delinquent leases up to a maximum of $327,000, calculated on the basis of 7.5% of total proceeds received from the sale (“Repurchase Commitment”).  As of September 30, 2012, the Fund has a $206,000 remaining Repurchase Commitment.
 
The Fund is party to various routine legal proceedings arising out of the ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Fund’s financial condition or results of operations.
 
 
13

 
 
When used in this Form 10-Q, the words “believes” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in Item 1A, under the caption “Risks Inherent in Our Business,” in our annual report on Form 10-K for the year ended December 31, 2011. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
 
The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other items related to us. The following discussion and analysis should be read in conjunction with (i) the accompanying interim financial statements and related notes and (ii) our consolidated financial statements, related notes, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
As used herein, the terms “we,” “us,” or “our” refer to LEAF Equipment Leasing Income Fund III, L.P. and its subsidiaries.
 
Business
 
We are a Delaware limited partnership formed on May 16, 2006 by our General Partner, LEAF Asset Management, LLC (the “General Partner”), which, along with its affiliates,  manages us. The General Partner is a Delaware limited liability company, and subsidiary of Resource America, Inc. (“RAI”). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through our offering termination date of April 24, 2008 we raised $120.0 million by selling 1.2 million of our limited partner units. We commenced operations in March 2007.
 
 
We are expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent liquidation period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and loans during the liquidation period, we expect to continue to return capital to our partners as those leases and loans mature. All of our leases and loans mature by the end of 2018. We expect to enter our liquidation period beginning in April 2013. We will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Partnership Agreement.
 
We acquire a diversified portfolio of new, used or reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from LEAF Financial Corporation (“LEAF”), an affiliate of our General Partner and also a subsidiary of RAI. In addition, we may make secured loans to end users to finance their purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We finance business-essential equipment including, but not limited to computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business market, which generally includes businesses with:
 
 
500 or fewer employees;
 
 
$1.0 billion or less in total assets; or
 
 
Or $100 million or less in total annual sales.
 
Our principal objective is to generate regular cash distributions to our limited partners.
 
General Economic Overview

Economic indicators for the quarter ending September 30, 2012 show a continuation of the uneven pattern of economic activity that was seen in the first half of 2012. The overall economic landscape exhibits a stagnant condition with some sectors showing modest improvement and other sectors showing declines.  These mixed results are especially evident in the important housing market, a major engine of economic activity, as existing home sales declined 1.7% in September while new housing starts increased.  A lack of consumer and business confidence seems to be driving the lackluster economic performance. Consumer and business confidence also remains uncertain pending the outcomes of the United States of America (“U.S.”) presidential election, tax changes, the “fiscal cliff” (an automatic combination of tax increases and mandated government spending cuts), the U.S. debt ceiling, and the European debt problem.
 
 
14

 
Some specific key economic indicators and reports that were released in the third quarter of 2012 and that show the downward trend are summarized below.
 
 
·
The Commerce Department reported that durable goods orders fell 13.2% which was the largest drop since January 2009 when the economy was in recession.
 
 
·
Rising gas prices are negatively impacting consumer spending.
 
 
·
Slowing global growth is negatively impacting U.S. manufacturing which had shown signs of growth due to expanding exports.
 
 
·
The National Federation of Independent Business Optimism Index reported a drop in September 2012 and continued to indicate a “solid recession reading”. This is particularly noteworthy as small businesses comprise the majority of the equipment lease and loan obligors in our portfolios. Lack of confidence and optimism among this group does not bode well for economic expansion and job creation.
 
 
·
Business investment and capital spending, which are important contributors to economic growth, were reported to be down in the quarter ending September 2012.
 
With the presidential election looming, congressional gridlock firmly in place and uncertainty about tax policy we might expect the economy to remain stagnant in the fourth quarter. Additionally, with the looming “fiscal cliff” the outlook for 2013 is not positive with many economists now warning of the possibility of recession if the issues surrounding the “fiscal cliff” are not promptly addressed.  In such a situation the performance of our portfolio of leases and loans might be negatively impacted.
 
Finance Receivables and Asset Quality
 
Information about our portfolio of leases and loans is as follows (dollars in thousands):

   
September 30,
2012
   
December 31, 2011
 
Investment in leases and loans, net
  $ 41,919     $ 84,367  
                 
Number of contracts
    12,200       20,000  
Number of individual end users (a)
    11,000       17,200  
Average original equipment cost
  $ 22.6     $ 18.8  
Average initial lease term (in months)
    61       59  
Average remaining lease term (in months)
    14       21  
States accounting for more than 10% of lease and loan portfolio:
               
Florida
    13 %     10 %
California
    10 %     12 %
                 
Types of equipment accounting for more than 10% of lease and loan portfolio:
               
Industrial Equipment
    36 %     37 %
Medical Equipment
    16 %     13 %
Office Equipment
    13 %     15 %
                 
Types of businesses accounting for more than 10% of lease and loan portfolio:
               
Services
    44 %     42 %
Retail Trade
    13 %     13 %
Transportation/Communication/Energy
    12 %     12 %
 

(a)
Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user or single piece of equipment accounted for more than 1% of our portfolio based on original cost of the equipment.

 
15

 
Portfolio Performance
 
The table below provides information about our finance receivables including non-performing assets, which are those assets that are not accruing income due to non-performance or impairment (dollars in thousands):

   
As of and for the
 
   
Nine Months Ended September 30,
 
               
Change
 
   
2012
   
2011
    $       %  
Investment in leases and loans before allowance for credit losses
  $ 42,819     $ 110,276     $ (67,457 )     (61 )%
Less: allowance for credit losses
    (900 )     (3,480 )     2,580       (74 )%
Investment in leases and loans, net
  $ 41,919     $ 106,796     $ (64,877 )     (61 )%
                                 
Weighted average investment in direct financing leases and loans before allowance for credit losses
  $ 61,278     $ 148,024     $ (86,746 )     (59 )%
Non-performing assets
  $ 888     $ 4,562     $ (3,674 )     (81 )%
Charge-offs, net of recoveries
  $ 2,837     $ 13,487     $ (10,650 )     (79 )%
As a percentage of finance receivables:
                               
Allowance for credit losses
    2.10 %     3.16 %                
Non-performing assets
    2.07 %     4.14 %                
As a percentage of weighted average finance receivables:
                               
Charge-offs, net of recoveries
    4.63 %     9.11 %                
 
Our allowance for credit losses is our estimate of losses inherent in our commercial finance receivables. The allowance is based on factors which include our historical loss experience on equipment finance portfolios we manage, an analysis of contractual delinquencies, current economic conditions and trends and equipment finance portfolio characteristics, adjusted for recoveries. In evaluating historic performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. Our policy is to charge-off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote. Substantially all of our assets are collateral for our debt and, therefore, significantly greater delinquencies than anticipated will have an adverse impact on our cash flow and distributions to our partners.

We focus on financing equipment used by small to mid-sized businesses. The recent economic recession in the U.S. has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies may continue as the U.S. economy recovers as evidenced by the deterioration in our current receivables as a percentage of our portfolio from 93.9% at September 30, 2011 to 87.4% at September 30, 2012.  Despite this, our non-performing assets as a percentage of finance receivables decreased from 4.14% at September 30, 2011 to 2.07% at September 30, 2012.  Our allowance for credit losses as a percentage of our investments in leases and loans also declined from 3.16% at September 30, 2011 to 2.10% at September 30, 2012.
 
Our net charge-offs decreased in the 2012 period compared to the 2011 period due primarily to the decrease in our portfolio balance.
 
Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. We base our estimates on historical experience, current economic conditions and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
For a complete discussion of our critical accounting policies and estimates, see our annual report on Form 10-K for fiscal 2011 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Estimates.”  There have been no material changes to these policies through September 30, 2012.

 
16

 
Results of Operations
 
As discussed previously, the economic recession has negatively impacted our operating results primarily through increased rates of default on outstanding leases and loans and increased costs of borrowing from our lenders.  These factors have resulted in our inability to reinvest earnings in additional leases and loans, leading to a decrease in our portfolio balance and a reduction in cash generated to continue to support distributions to our limited partners.
 
Three Months Ended September 30, 2012 as compared to the Three Months Ended September 30, 2011 (dollars in thousands):
 
         
Increase (Decrease)
 
   
2012
   
2011
    $       %  
Revenues:
                         
Interest on equipment financings
  $ 1,218     $ 2,656     $ (1,438 )     (54 )%
Rental income
    286       762       (476 )     (62 )%
Gain on sale of equipment and lease dispositions, net
    96       187       (91 )     (49 )%
Other income
    223       420       (197 )     (47 )%
      1,823       4,025       (2,202 )     (55 )%
                                 
Expenses:
                               
Interest expense
    1,030       2,111       (1,081 )     (51 )%
Depreciation on operating leases
    217       598       (381 )     (64 )%
Provision for credit losses
    988       1,353       (365 )     (27 )%
General and administrative expenses
    171       290       (119 )     (41 )%
Administrative expenses reimbursed to affiliate
    127       375       (248 )     (66 )%
      2,533       4,727       (2,194 )     (46 )%
Loss before equity in loss of affiliate and impairment on investment in affiliate
    (710 )     (702 )     (8 )        
Equity in loss of affiliate
    (12 )     (18 )     6          
Net loss
  $ (722 )   $ (720 )   $ (2 )        
Net loss allocated to limited partners
  $ (715 )   $ (713 )   $ (2 )        
 
The decrease in total revenues was primarily attributable to the following:
 
 
·
A decrease in interest on equipment financings and rental income.  Our weighted average net investment in financing assets decreased to $48.0 million for the three months ended September 30, 2012 as compared to $120.0 million for the three months ended September 30, 2011, a decrease of $72 million or 60%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.
 
 
·
Gains on the sale of equipment and lease dispositions decreased $91,000 to $96,000 for the three months ended September 30, 2012 compared to $187,000 for the three months ended September 30, 2011.  Gains and losses on sales of equipment may vary significantly from period to period.
 
 
·
A decrease in other income primarily due to a reduction in late fee income. Late fee income decreased due to the decrease of the equipment financing portfolio.
 
The decrease in total expenses was primarily the result of the following:
 
 
·
A decrease in interest due to a decrease in our average debt outstanding. Average borrowings for the three months ended September 30, 2012 and 2011 were $49.6 million and $121.0 million, respectively. Borrowings for the three months ended September 30, 2012 and 2011 were at an effective interest rate of 8.3% and 7.0%, respectively. The interest expense reduction was primarily driven by accelerated debt payments required by our debt agreements and due to the reduction in the size of our portfolio of leases and loans.
 
 
·
A decrease in depreciation on operating leases due to a decrease in the size of our operating lease portfolio.
 
 
·
A decrease in provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets.  Non-performing assets declined to $888,000 at September 30, 2012 compared to $4.6 million at September 30, 2011, which is a decrease as a percentage of our portfolio to 2.1% at September 30, 2012 compared to 4.1% at September 30, 2011.
 
 
17

 
 
·
A decrease in general and administrative expenses and administrative expenses reimbursed to affiliate due to the decrease in the size of our portfolio.

The net loss per limited partner unit, after the loss allocated to our General Partner, for the three months ended September 30, 2012 and 2011 was $0.60 each period based on a weighted average number of limited partner units outstanding of 1,195,631 for both periods.
 
Nine Months Ended September 30, 2012 compared to the Nine Months Ended September 30, 2011 (dollars in thousands):
 
         
Increase (Decrease)
 
   
2012
   
2011
    $       %  
Revenues:
                         
Interest on equipment financings
  $ 4,469     $ 9,757     $ (5,288 )     (54 )%
Rental income
    1,128       2,694       (1,566 )     (58 )%
(Loss)/gain on sale of equipment and lease dispositions, net
    (157 )     322       (479 )     (149 )%
Other income
    834       1,315       (481 )     (37 )%
      6,274       14,088       (7,814 )     (55 )%
                                 
Expenses:
                               
Interest expense
    4,503       7,429       (2,926 )     (39 )%
Depreciation on operating leases
    843       2,071       (1,228 )     (59 )%
Provision for credit losses
    2,097       7,787       (5,690 )     (73 )%
General and administrative expenses
    841       1,201       (360 )     (30 )%
Administrative expenses reimbursed to affiliate
    489       1,200       (711 )     (59 )%
      8,773       19,688       (10,915 )     (55 )%
Loss before equity in loss of affiliate and impairment on investment in affiliate
    (2,499 )     (5,600 )     3,101          
Equity in loss of affiliate
    (27 )     (64 )     37          
Impairment on investment in affiliate
    (428 )     -       (428 )        
Net loss
  $ (2,954 )   $ (5,664 )   $ 2,710          
Net loss allocated to limited partners
  $ (2,924 )   $ (5,607 )   $ 2,683          
 
The decrease in total revenues was primarily attributable to the following:
 
 
·
A decrease in interest income on equipment financings and rental income. Our weighted average net investment in financing assets decreased to $61.3 million for the nine months ended September 30, 2012 as compared to $148.0 million for the nine months ended September 30, 2011, a decrease of $86.7 million or 59%. As noted previously, this decrease was primarily due to the continued runoff of our portfolio of leases and loans, as higher than anticipated defaults resulted in excess cash being used to settle debt obligations and support distributions to our partners, rather than be reinvested in new leases and loans.
 
 
·
(Losses)/gains on the sale of equipment and lease dispositions decreased to a net loss of $157,000 for the nine months ended September 30, 2012, compared to a net gain of $322,000 for the nine months ended September 30, 2011, a decrease of $479,000.  Gains and losses on sales of equipment may vary significantly from period to period.
 
 
·
A decrease in other income due primarily to a decrease in late fee income due to the decrease of the equipment financing portfolio.
 
The decrease in total expenses was primarily the result of the following:
 
 
·
A decrease in interest due to a decrease in our average debt outstanding, partially offset by an additional expense of $568,000 related to the write-off of deferred financing costs on our DZ Bank Facility. Average borrowings for the nine months ended September 30, 2012 and September 30, 2011 were $63.5 million and $145.5 million, respectively. Borrowings for the nine months ended September 30, 2012 and 2011 were at an effective interest rate of 9.5% and 6.8%, respectively. The interest expense reduction was also driven by accelerated debt payments required by our debt agreements.
 
 
·
A decrease in depreciation on operating leases due to a decrease in the size of our operating lease portfolio.

 
18

 
 
·
A decrease in provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. This decrease is consistent with the decline in the portfolio of equipment financed assets.  Non-performing assets declined to $888,000 at September 30, 2012 compared to $4.6 million at September 30, 2011, which is a decrease as a percentage of our portfolio to 2.1% at September 30, 2012 compared to 4.1% at September 30, 2011.
 
 
·
A decrease in general and administrative expenses and administrative expenses reimbursed to affiliate due to the decrease in the size of our portfolio.
 
The net loss per limited partner unit, after the loss allocated to our General Partner, for the nine months ended September 30, 2012 and 2011 was $2.45 and $4.69, respectively, based on a weighted average number of limited partner units outstanding of 1,195,631 each period.

 
Liquidity and Capital Resources
 
General
 
Our major source of liquidity is from the collection of lease and loan payments.  Our primary cash requirements are for debt service, investment in leases and loans, and distributions to partners, in addition to normal operating expenses.
We believe at this time that future net cash inflows will be sufficient to finance operations and meet debt service payments. The following table sets forth our sources and uses of cash for the periods indicated (in thousands):

   
Nine Months Ended September 30,
 
   
2012
   
2011
 
Net cash provided by operating activities
  $ 3,880     $ 6,714  
Net cash provided by investing activities
    39,351       71,560  
Net cash used in financing activities
    (43,377 )     (78,429 )
Decrease in cash
  $ (146 )   $ (155 )
 
Cash decreased by $146,000 which was primarily due to debt repayments of $46.4 million and distributions to our partners of $1.8 million, partially offset by net proceeds from leases and loans of $39.4 million, cash provided by operating activities of $3.9 million, and a decrease in restricted cash of $4.9 million.
 
Partners’ distributions paid for the nine months ended September 30, 2012 and 2011 were $1.8 million each period.  To date, limited partners have received total distributions of approximately 28% of their original amount invested, depending upon when the investment was made.   Distributions to limited partners were paid at a rate of 2.0% for the nine month periods ended September 30, 2012 and 2011.
 
Future cash distributions are not guaranteed and are solely dependent on our performance and are impacted by a number of factors which include: our ability to obtain and maintain debt financing on acceptable terms to build and maintain our equipment finance portfolio; lease and loan defaults by our customers; accelerated principle payments of our debt facilities required per our agreements; and prevailing economic conditions. The terms of our current debt facilities are structured to use excess cash to accelerate the repayment of debt. This results in paying less interest expense over time, but also limits available cash to make monthly distributions to the partners. The terms of our current debt facilities coupled with continued higher than expected lease and loan defaults, caused by a slow economic recovery could impact our ability to make monthly cash distributions to our limited partners.
 
Beginning August 1, 2010, our General Partner waived its asset management fee. Through September 30, 2012, the General Partner has waived $5.2 million of asset management fees, of which $1.1 million related to the nine months ended September 30, 2012.
 
 
19


Borrowings

2010-4 Term Securitization
 
The 2010-4 Term Securitization was issued on November 5, 2010 at $201.9 million in six tranches of asset-backed notes - one note matures in August 2018 and five notes mature in January 2019.   The notes bear interest at stated, fixed rates ranging from 1.7% to 5.5% and were issued at an original discount of approximately $ 7.2 million of which approximately $1.3 million remains unamortized as of September 30, 2012.  Proceeds of the 2010-4 Term Securitization were used to retire facilities with previous lenders on December 8, 2010.  As of September 30, 2012, $42.7 million of leases and loans and $6.1 million of restricted cash were pledged as collateral this facility. Recourse is limited to the amount of collateral pledged.

Our securitization is serviced by an affiliate of our General Partner (the “Servicer”).  Under the terms of our securitization, if the Servicer or our portfolio does not comply with certain requirements then the noteholders have the right to replace the Servicer.  The portfolio exceeded the cumulative net loss percentage permitted in the 2010-4 Term Securitization in April 2012.  The servicing agreement was amended as of September 28, 2012 to increase the cumulative net loss percentages and as a result the portfolio was in compliance with the agreement as of September 30, 2012.  In addition, the servicing agreement and the indenture were amended to establish an additional reserve account to be funded by cash flows on leases and loans, that will be used by the trustee as additional collateral.  The additional reserve account will negatively impact our liquidity and could result in our inability to continue to make distributions to our partners in the future.

This event does not constitute an event of default on the 2010-4 Term Securitization.  Additionally, we are not, nor have been, delinquent on any payments owed to the noteholders.
 
DZ Bank
 
 The Fund has a facility with DZ Bank that has not been terminated but is currently not available for use as we have incurred multiple breaches under its covenants for which we have requested waivers.  Additionally, no cross-default provisions exist with the 2010-4 Term Securitization.  As of September 30, 2012, there were no amounts outstanding under this borrowing arrangement. In June 2012, we expensed the remaining unamortized deferred financing costs totaling $568,000 related to this facility due to uncertainty that we will utilize the facility in the future.
 
Note Payable
 
We had a note payable in the amount of $1.3 million and which bore interest at 12% annually. The remaining principal balance of $778,000 was paid off on March 21, 2011.
 
Liquidity Summary
 
Our primary source of liquidity comes from payments on our lease and loan portfolio. Our liquidity has been and could be further adversely affected by higher than expected equipment lease defaults, which results in a loss of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment in the underlying equipment. As our lease portfolio ages, and if the recovery in the United States economy falters for a substantial period of time, we anticipate the need to increase our allowance for credit losses.
 
Our primary use of cash is for debt service. Substantially all of our leases and loans are collateral for our debt, however, all of our debt is non-recourse to the partnership which limit our financial exposure. Repayment of our debt is based on the payments we receive from our customers. If a lease or loan becomes delinquent our lender uses the excess collateral from performing leases to repay our loan, even though our customer has not paid us. Therefore, higher than expected lease and loan defaults will reduce our liquidity.
 
The terms of our 2010-4 Term Securitization require the use of excess cash flow from the underlying collateral to accelerate the repayment on our debt.  As a result, this minimizes the excess cash flow available to us for the acquisition of new leases and loans until the securitization is paid off. When we have available resources, the climate of the credit markets is such that our liquidity may be adversely affected, particularly our ability to obtain or renew debt financing needed to execute our investment strategies. Historically, we have utilized both revolving and term debt facilities to fund our acquisitions of equipment financings.  If we are unable to obtain new debt that will allow us to invest the repayments of existing leases and loans into new investments, then our portfolio of leases and loans will continue to decline.
 
 
20

 
Legal Proceedings
 
We are a party to various routine legal proceedings arising out of the ordinary course of our business. Our General Partner believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
 
 
Quantitative and Qualitative Disclosures about Market Risk have been omitted as permitted under rules applicable to smaller reporting companies.
 
 
Disclosure Controls
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Under the supervision of our General Partner’s chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our General Partner’s chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level discussed above.
 
Changes in Internal Control over Financial Reporting
 
There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
21

 
PART II. OTHER INFORMATION

Exhibit
   
No.
 
Description
  3.1
 
Certificate of Limited Partnership (1)
3.2  
Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P. (1)
3.3  
Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III, L.P. (4)
   4.1
 
Forms of letters sent to limited partners confirming their investment (1)
 10.1
 
Origination and Servicing Agreement among LEAF Equipment Leasing Income Fund III, L.P., LEAF Financial Corporation and LEAF Funding Inc., dated February 12, 2007 (1)
 10.2
 
Receivables Loan and Security Agreement, dated as of November 21, 2008, among LEAF III C SPE, LLC, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, U.S. Bank, National Association, and Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services) (2)
  10.3
 
Amendment No. 1 to Receivables Loan and Security Agreement, dated as of April 13, 2010 among LEAF III C SPE, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III, L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (3)
10.4
 
Indenture between LEAF Receivables Funding 5, LLC and U.S. Bank National Association dated as of November 5, 2010 (5)
10.5
 
First Amendment dated as of September 28, 2012 to the Indenture between LEAF Receivables Funding 5, LLC and U.S. Bank National Association
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
 
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at September 30, 2012 and December 31, 2011; (ii) the Consolidated Statements of  Operations for the three and nine month periods ended September 30, 2012 and 2011; (iii) the Consolidated Statement of Changes in Partners’ Deficit for the nine month period ended September 30, 2012; (iv) the Consolidated Statements of Cash Flows for the periods ended September 30, 2012 and 2011; and, (v) the Notes to Consolidated Financial Statements.
 

 
(1)
Filed previously as an exhibit to our Registration Statement on Form S-1 filed on October 2, 2006 and by this reference incorporated herein.
 
(2)
Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and by this reference incorporated herein.
 
(3)
Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and by this reference incorporated herein.
 
(4)
Filed previously as an exhibit to our Current Report on Form 8-K Report dated October 17, 2011.
 
(5)
Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2010 and by this reference incorporated herein.

 
22

 
 
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.
 
 
LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
 
A Delaware Limited Partnership
     
 
By:
LEAF Asset Management, LLC, its General Partner
     
November 14, 2012
By:
/s/ CRIT S. DEMENT
   
Crit S. DeMent
   
Chief Executive Officer
     
November 14, 2012
By:
/s/ ROBERT K. MOSKOVITZ
   
Robert K. Moskovitz
   
Chief Financial Officer
 
 
23
EX-31.1 2 ex31_1.htm EXHIBIT 31.1 ex31_1.htm

EXHIBIT 31.1

CERTIFICATION

I, Crit S. DeMent, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 of LEAF Equipment Leasing Income Fund III, L.P.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 14, 2012
/s/ Crit S. DeMent                                                                
 
 
Name: Crit S. DeMent
 
Title: Chief Executive Officer of the General Partner
 
 

EX-31.2 3 ex31_2.htm EXHIBIT 31.2 ex31_2.htm

EXHIBIT 31.2

CERTIFICATION

I, Robert K. Moskovitz, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 of LEAF Equipment Leasing Income Fund III, L.P.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under such supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 14, 2012
/s/ Robert K. Moskovitz                                                                           
 
 
Name: Robert K. Moskovitz
 
Title: Chief Financial Officer of the General Partner
 
 

EX-32.1 4 ex32_1.htm EXHIBIT 32.1 ex32_1.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LEAF Equipment Leasing Income Fund III, L.P. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Crit S. DeMent, Chief Executive Officer of the General Partner of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:  November 14, 2012
/s/ Crit S. DeMent
 
 
Name: Crit S. DeMent
 
Title: Chief Executive Officer of the General Partner
 
 

EX-32.2 5 ex32_2.htm EXHIBIT 32.2 ex32_2.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LEAF Equipment Leasing Income Fund III, L.P. (the “Company”) on Form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert K. Moskovitz, Chief Financial Officer of the General Partner of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 14, 2012
/s/ Robert K. Moskovitz
 
 
Name: Robert K. Moskovitz
 
Title: Chief Financial Officer of the General Partner
 
 

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margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">LEAF Equipment Leasing Income Fund III, L.P. ("LEAF III"&#160;&#160;or the "Fund") is a Delaware limited partnership formed on May 16, 2006 by its General Partner, LEAF Asset Management, LLC (the "General Partner"), which manages the Fund. The General Partner is a Delaware limited liability company, and a subsidiary of Resource America, Inc. ("RAI"). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of April 24, 2008, the Fund raised $120.0 million by selling 1.2 million of its limited partner units. It commenced operations in March 2007.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The Fund is expected to have a minimum of a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent liquidation period of two years, during which the Fund's leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the liquidation period, the Fund expects to continue to return capital to its partners as those leases and loans mature. All of the Fund's leases and loans mature by the end of 2018. The Fund expects to enter its liquidation period beginning in April 2013. Contractually, the Fund will terminate on December 31, 2031, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement ("the Partnership Agreement").</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The Fund acquires diversified portfolios of equipment to finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily from LEAF Financial Corporation ("LEAF Financial"), an affiliate of its General Partner and a subsidiary of RAI. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In addition to its 1% general partnership interest, the General Partner has also invested $1.3 million for a 1.3% limited partnership interest in the Fund.</div></div></div></div> 2000 158000 223000 420000 834000 1315000 196000 719000 338000 1126000 444000 511000 <div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The following table is an age analysis of the Fund's receivables from leases and loans (presented gross of allowance for credit losses of $900,000 and $1.6 million) as of September 30, 2012 and December 31, 2011, respectively (in thousands):</div><div style="text-indent: 0pt; display: block;"><br /></div><div><table cellpadding="0" cellspacing="0" style="width: 100%; font-family: times new roman; font-size: 10pt;"><tr><td valign="bottom" style="padding-bottom: 2px; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td colspan="6" valign="bottom" style="border-bottom: black 2px solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">September 30, 2012</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td valign="bottom" style="padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td colspan="6" valign="bottom" style="border-bottom: black 2px solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">December 31, 2011</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td></tr><tr><td valign="bottom" style="border-bottom: black 2px solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Age of receivable</div></td><td valign="bottom" style="padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td colspan="2" nowrap="nowrap" valign="bottom" style="border-bottom: black 2px solid;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Investment in </div><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">leases and loans</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td valign="bottom" style="padding-bottom: 2px; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td colspan="2" valign="bottom" style="border-bottom: black 2px solid;"><