LEAF Equipment Leasing Income and Serious Problems

Leasing News wrote about an investor not being happy with LEAF Equipment Leasing Income Fund III, where he was also being asked to reinvest more of the distributable cash which they are now prohibited from doing until they pay the unpaid cumulative returns.

The Resource American, Inc. June 30, 2011 financial statement “On Page 12, the “CASH FLOWS FROM FINANCING ACTIVITIES” shows a large drop in principal payments, but as important, Resource America used $15.2 million proceeds from issuance of LEAF preferred stock that enabled them to pick up from the cash of $11.2 million at the beginning of the year.

The article also showed, “In following up a complaint from an investor in one of the funds, who listened to a LEAF salesman, he complained he should have known better, a search on debt equity from a copy of a Regulation D offering for $25 million. It cost them 11.7% up-front. And that doesn’t include the management fees. “

http://leasingnews.org/archives/Aug2011/8_05.htm#dement

The investor, who wrote the original question, after reading the article, told Leasing News: “LEAF was sold to me as a safe fixed income investment for my retirement. I read the prospectus after I had already given my “trusted” financial advisor my money. I was told there was nothing to be concerned about. It sucks having one fourth of my retirement savings in limbo. I have now learned the difference between a certified financial planner with a fiduciary duty to their clients and others who are just interested in the largest commission.”

In the 10-Q filing, LEAF Equipment Leasing Income Fund III, L.P., LEAF notes that the fund incurred net losses of $17.7 million, $28.8 million and $26.1 million for the years ended December 31, 2008, 2009 and 2010, respectively, and a net loss of $2.2 million for the three months ended March 31, 2011.

LEAF Financial Corporation is admittedly saying they cannot pay the cumulative interest return to the investors. On top of that, the LP agreement mandates that investors will be paid their cumulative interest return “before” any monies can be re-invested into new equipment leases. Now, LEAF is asking the investors to let LEAF invest all monies into new leases and not pay any cumulative interest. WOW, what a mess for the investors. First they get their investment interest rate cut from 8.5% to 2%, now they’re not going to get any interest return at all. In addition, accordingly to this LEAF III statement, LEAF incurred total net losses of -$74.8M in years 2008, 2009, 2010 and 2011 (3mos.). They say they raised $120M from investors, does that mean they loss -62% of their investor principal too?

One big factor not being disclosed to the LP investors is that LEAF created a different funding model and different sales channel. All new deals now go through LEAF Commercial into the Guggenheim funding pools. LEAF is trying to grow LEAF Commercial so why would they direct good deals to the previous LP fund platform where they don’t make any profit.

It appears the LP fund investors would be better served to let the portfolios run off, take as much cumulative interest income (if any), and get any remaining principal returned as soon as possible. They stand to lose more capital by agreeing to the amendment. It is not a question anymore about maximizing investor returns; it is a question about cutting losses as much as possible.

Edgar Online via COMTEX re: 10-Q: LEAF Equipment Leasing Income Fund III, LP

http://www.menafn.com/qn_news_story.asp?storyid=%7B9b3209c2-9e53-4e49-8dd9-03a60b4d75be%7D

LEAF Investor asks what he should do
http://leasingnews.org/archives/Jun2011/6_22.htm#LEAF_investor