Attached files

file filename
EX-32.2 - EX-32.2 - ATEL 16, LLCatel-20201231ex322e47dfd.htm
EX-32.1 - EX-32.1 - ATEL 16, LLCatel-20201231ex321f91a5c.htm
EX-31.2 - EX-31.2 - ATEL 16, LLCatel-20201231ex31271390b.htm
EX-31.1 - EX-31.1 - ATEL 16, LLCatel-20201231ex3117dda03.htm
EX-14.1 - EX-14.1 - ATEL 16, LLCatel-20201231ex141b668b9.htm
EX-4.1 - EX-4.1 - ATEL 16, LLCatel-20201231ex41ae0c330.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

              Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the year ended December 31, 2020

         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 000-55417

ATEL 16, LLC

(Exact name of registrant as specified in its charter)

California

90-0920813

(State or other jurisdiction of

(I. R. S. Employer

incorporation or organization)

Identification No.)

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111

(Address of principal executive offices)

Registrant’s telephone number, including area code: (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

N/A

N/A

N/A

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes No

Indicate by a 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. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

State the aggregate market value of voting stock held by non-affiliates of the registrant:  Not applicable

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable.

The number of Limited Liability Company Units outstanding as of February 28, 2021 was 4,274,486.

DOCUMENTS INCORPORATED BY REFERENCE

None.


PART I

Item 1. BUSINESS

General Development of Business

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability company. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group. The Fund may continue until terminated as provided in the ATEL 16, LLC Limited Liability Company Operating Agreement dated November 1, 2013 (the “Operating Agreement”). Contributions in the amount of $500 were received as of December 31, 2012, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a base price of $10 per Unit. As of March 6, 2014, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2014. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on June 19, 2014, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on November 5, 2015.

As of December 31, 2020, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $42.9 million (inclusive of the $500 initial Member’s capital investment) have been received. As of the same date, 4,274,486 Units were issued and outstanding.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unit holders during the Offering Stage and Operating Stage of the Fund, any balance remaining after required minimum distributions, equal to not less than 7% nor more than 9% per annum on investors’ Original Invested Capital, during the Operating State, to be used to purchase additional investments during the Reinvestment Period (the first six years after the year the offering terminates); and (iii) provide additional cash distributions during the Liquidating Stage, commencing with the end of the Operating Stage/Reinvestment Period and continuing until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by the Operating Agreement.

Pursuant to the terms of the Operating Agreement, the Managing Member and/or its affiliates receive compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 7, Related party transactions, as set forth in Part II, Item 8, Financial Statements and Supplementary Data). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of the Managing Member.

Narrative Description of Business

The Company has acquired and intends to acquire various types of new and used equipment subject to leases and to make loans secured by equipment acquired by its borrowers. The Company’s primary investment objective is to acquire investments primarily in low-technology, low-obsolescence equipment such as the core operating equipment used by companies in the manufacturing, mining and transportation industries. A portion of the portfolio will include some more technology-dependent equipment such as certain types of communications equipment, medical equipment, manufacturing equipment and office equipment.

1


The Company only purchases equipment under pre-existing leases or for which a lease will be entered into concurrently at the time of the purchase. Through December 31, 2020, the Company had purchased equipment with a total acquisition price of $43.1 million. The Company had also funded investments in notes receivable totaling $7.6 million through December 31, 2020.

The Company’s objective is to have at least 75% of its investment portfolio (by cost) consist of equipment leased to lessees that the Manager deems to be high quality corporate credits and/or leases guaranteed by such high quality corporate credits. High quality corporate credits are lessees or guarantors who have a credit rating by Moody’s Investors Service, Inc. of “Baa3” or better, or the credit equivalent as determined by the Manager, or are public and private corporations with substantial revenues and histories of profitable operations, as well as established hospitals with histories of profitability or municipalities. The remaining 25% of the initial investment portfolio may include equipment lease transactions, and other debt or equity financing for companies which, although deemed creditworthy by the Manager, would not satisfy the specific credit criteria for the portfolio described above. Included in this 25% of the portfolio may be growth capital financing investments. No more than 25% of the initial portfolio, by cost, will consist of these growth capital financing investments.

The equipment financing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms that vary widely depending on the type of financing, the lease or loan term and type of equipment. The ability of the Company to keep the equipment leased and the terms of purchase, lease and sale of equipment depends on various factors (many of which neither the Managing Member nor the Company can control), such as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic obsolescence.

The Managing Member will use its best efforts to diversify lessees by geography and industry and to maintain an appropriate balance and diversity in the types of equipment acquired and the types of leases entered into by the Company, and will apply the following policies: (i) The Managing Member will seek to limit the amount invested in equipment or property leased to any single lessee to not more than 20% of the aggregate purchase price of investments as of the final commitment of net offering proceeds; (ii) in no event will the Company’s equity investment in equipment or property leased to a single lessee exceed an amount equal to 20% of the maximum capital from the sale of Units (or $30,000,000); and (iii) the Managing Member will seek to invest not more than 20% of the aggregate purchase price of equipment in equipment acquired from a single manufacturer. However, this last limitation is a general guideline only, and the Company may acquire equipment from a single manufacturer in excess of the stated percentage during the offering period and before the offering proceeds are fully invested, or if the Managing Member deems such a course of action to be in the Company’s best interest.

The primary geographic region in which the Company seeks leasing opportunities is North America. Most of the Company’s current operating revenues and long-lived assets relate to customers domiciled in North America. See Note 2, Summary of significant accounting policies, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

The business of the Company is not seasonal. The Company has no full time employees. Employees of the Managing Member and affiliates provide the services the Company requires to effectively operate. The cost of these services is reimbursed by the Company to the Managing Member and affiliates per the Operating Agreement.

For further information refer to the financial statements and footnotes.

2


Equipment Leasing Activities

The Company has acquired a diversified portfolio of equipment. The equipment, most of which is currently located in the United States, has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Company through December 31, 2020 and the industries to which the assets have been leased (dollars in thousands):

    

Purchase Price 

    

Percentage of 

 

Excluding

Total

 

Asset Types

Acquisition Fees

Acquisitions

 

Aviation

$

10,371

 

24.09

%

Containers

 

6,803

 

15.80

%

Coal terminal

 

5,000

 

11.61

%

Materials handling

 

4,138

 

9.61

%

Transportation, rail

 

5,034

 

11.70

%

Mining

 

2,766

 

6.42

%

Marine vessels

 

2,291

 

5.32

%

Transportation

 

1,879

 

4.36

%

Manufacturing

 

1,243

 

2.90

%

Construction

 

1,898

 

4.41

%

Other

 

1,629

 

3.78

%

$

43,052

 

100.00

%

    

Purchase Price

    

Percentage of

 

Excluding

Total

 

Industry of Lessee

Acquisition Fees

Acquisitions

 

Agriculture

$

8,363

 

19.43

%

Manufacturing

 

2,824

 

6.56

%

Transportation

 

6,825

 

15.85

%

Transportation, air

 

7,905

 

18.35

%

Utilities

 

7,291

 

16.94

%

Transportation, rail

 

4,352

 

10.11

%

Construction

 

3,482

 

8.09

%

Refuse systems

 

997

 

2.32

%

Other

 

1,013

 

2.35

%

$

43,052

 

100.00

%

From inception through December 31, 2020, the Company has disposed of certain leased assets as set forth below (in thousands):

    

Original

    

    

Equipment Cost

Excluding

Asset Types

Acquisition Fees

Sale Price

Gross Rents

Aviation

$

5,280

$

1,964

$

5,019

Materials handling

3,055

761

3,201

Containers

 

310

 

137

 

161

Transportation

 

2,111

 

1,149

 

1,690

Construction

 

799

 

452

 

513

Other

 

416

 

283

 

207

$

11,971

$

4,746

$

10,791

For further information regarding the Company’s equipment lease portfolio as of December 31, 2020, see Note 5, Equipment under operating leases, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

3


Notes Receivable Activities

The Company finances assets in diverse industries. The following tables set forth the types of assets financed by the Company through December 31, 2020 and the industries to which the assets have been financed (dollars in thousands):

    

Amount Financed

    

Percentage of

 

Excluding

Total

 

Asset Types

Acquisition Fees

Acquisitions

 

Research

$

2,614

 

34.26

%

Manufacturing

1,000

13.10

%

Computers

 

350

 

4.59

%

Agriculture

300

3.93

%

Other

 

3,367

 

44.12

%

$

7,631

 

100.00

%

    

Amount Financed

    

Percentage of

 

Excluding

Total

 

Industry of Borrower

Acquisition Fees

Acquisitions

 

Manufacturing

$

1,763

 

23.10

%

Electrical

 

1,000

 

13.10

%

Health services

 

900

 

11.79

%

Business services

 

1,737

 

22.77

%

Research & development

684

8.96

%

Computer engines

 

1,113

 

14.59

%

Chemical

 

134

 

1.76

%

Agriculture

 

300

 

3.93

%

$

7,631

 

100.00

%

From inception through December 31, 2020, assets financed by the Company that are associated with terminated loans are as follows (in thousands):

    

Amount Financed

    

    

Excluding

Early Termination

Total Payments

Asset Types

Acquisition Fees

of Notes Proceeds

Received

Research

$

2,614

$

349

$

3,083

Computers

350

437

Other

 

2,900

 

3,029

 

2,889

$

5,864

$

3,378

$

6,409

For further information regarding the Company’s notes receivable portfolio as of December 31, 2020, see Note 4, Notes receivable, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

Item 2. PROPERTIES

The Company does not own or lease any real property, plant or material physical properties other than the equipment held for lease as set forth in Item 1.

Item 3. LEGAL PROCEEDINGS

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

4


PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.

Fund Valuation

Background to Fund Valuation

The Financial Industry Regulatory Authority (“FINRA”), in conjunction with the Securities and Exchange Commission (“SEC”) updated rules for the presentation of account statement values relative to pricing of Direct Placement Program (“DPP”) shares. Under FINRA Notice 15-02 (the “Notice”) the SEC approved amendments to National Association of Securities Dealers (“NASD”) Rule 2340, Customer Account Statements, and FINRA rule 2310, which address a FINRA member firm’s participation in a public offering of a DPP. In summary, the amendments require a FINRA member firm to include in the account statements for customers holding DPP securities a per share value for the DPP. This per share value must be prepared by, or with the material assistance or confirmation of, a third-party valuation expert or service. The results of this valuation must be disclosed in the issuer’s reports filed under the Securities Exchange Act of 1934. A valuation in compliance with the Notice must be undertaken and published on at least an annual basis.

The effective date of the Notice was April 11, 2016.

Methodologies

Broker dealers are required to provide a per share estimated value on the customer account statements for each non-listed DPP security held by their customers. Such estimated value must have been developed in a manner reasonably designed to provide a reliable value. Two valuation methodologies have been defined by FINRA, which by such designation are presumed to be reliable.

Net Investment Methodology

The amendments to NASD Rule 2340(c)(1)(A) require “net investment” to be based on the “amount available for investment” percentage disclosed in the “Estimated Use of Proceeds” section of the issuer’s offering prospectus. In essence, such value is equal to the offering price less selling commissions, other offering and organization expenses, and capital reserves. This method may be used for up to 150 days following the second anniversary of a Fund breaking escrow.

Appraised Value Methodology

As amended, Rule NASD 2340(c)(1)(B) requires that the per share estimated value disclosed in an issuer’s most recent periodic or current report be based upon an appraisal of the assets and liabilities of the program by, or with the material assistance or confirmation of, a third-party valuation expert or service, in conformity with standard industry valuation practice as it relates to both the aforementioned assets and liabilities. No later than 150 days following the second anniversary of the issuer’s break of escrow for its minimum offering, this methodology must be used to establish the required estimated values.

Unit Valuation

The per Unit valuation estimate for ATEL 16, LLC has been conducted, and the results disclosed herein, in compliance with the mandates of the Notice.

5


For ATEL 16, LLC, its estimated value per Unit reflects the Manager’s estimate of current portfolio valuation of all assets and liabilities of the Fund, calculated on a per Unit basis, and as such, does not represent a market value for the Units and may not accurately reflect the value of the Fund Units to the Unit holders if held over time to Fund maturity.

In connection with any estimate of per Unit value, Unit holders and all parties are reminded that no public market for the Units exists. Additionally, in order to preserve the Fund’s pass-through status for federal income tax purposes, the Fund will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.

The estimate of per Unit value does not take into account any extraordinary potential future business activity of the Fund; rather the valuation represents a snapshot view of the Fund’s portfolio as of the valuation date. In addition, the Fund does not include any analysis of the distributions that have already been paid by the Fund, nor the anticipated returns to Unit holder over the full course of the Fund life cycle, which will be dependent on many factors.

Disclosure

The estimated value per Unit reported in this Form 10-K has been calculated using the “Appraised Value Methodology” described above under “Methodologies” above, as of December 31, 2020.

ATEL 16, LLC, will satisfy the disclosure requirements for providing estimated per Unit values pursuant to the Notice as follows:

For these disclosure, subsequent to the Fund's initial compliance with FINRA 15-02, annual disclosures of estimated per unit values, through the termination of the Fund, will be accomplished and included on an annual basis in a document filed with the Securities and Exchange Commission available to the public.

Specifics Underlying Valuation Methodology:

Notes and Explanation of Valuation Components and Calculation

A.Fund Assets and Liabilities (other than as specifically identified below): The estimated values for non-interest bearing items such as current assets and liabilities are assumed to equal their reported GAAP balances as an appropriate approximation of their fair values. Debt (interest bearing) is assumed to equal the fair values of the debt as disclosed in the footnotes of the financial statements.
B.Equipment under operating leases (net of fees and expenses): The estimated values for equipment under operating leases are based on calculating the present value of the projected future cash flows. Projected future cash flows include both the remaining contractual lease payments, plus assumptions on lease renewals and sale value of the residuals. Projected future cash flows are net of projected future fees and expenses including:

management fees applicable for the Fund (1.25% of the aggregate original equipment cost of Portfolio Assets during offering stage, 1.75% of the aggregate net Portfolio Assets during operating stage and 1.75% of the Book Value of the Fund Assets less total cash reported as of the end of the most recent prior fiscal quarter or year, as the case may be)
carried interest applicable for the Fund (0.01% of distributions)
operating expenses which are assumed to be 3% of original equipment costs for the Fund

Projected future cash flows have been discounted back to present value at discount rates based on like-term U.S. Treasury yields (as of the valuation date) plus a 400 basis point spread, to account for the credit risk differentials between the instrument being valued and U.S. Treasury security yields.

6


Residual values assumptions used in the cash flow projections are as follows:

For On-Lease and Month-to-Month Lease:  Considers realized residual as a percent of book residual of 169.5%, based on ATEL’s historical track record as of December 31, 2020.

For Off-Lease:  A current fair market value of off-lease equipment is based upon estimates from ATEL’s seasoned Asset Management Group.

Special Situation Leases:  The valuation of certain leases has been performed outside of the above noted protocol based upon specific lease assumptions different than the macro assumptions above, due to the specific situations of those leases.

C.Investments in Notes Receivable:  The estimated values for Investments in Notes Receivable are estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market value techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.
D.Investments in Securities:  The estimated values for Investments in Securities have been based on the estimated net book value as of the valuation date (with impairment adjustments), plus any unrealized gain on equity. The unrealized gain on equity is based on either: a) the most recent round of financing, b) the most recent 409A valuation provided by the underlying companies of the warrants, or c) the Manager’s estimate of the company valuations based on all available information, including company financials, company valuation reports, public press releases, and other sources.
E.Warrants Outstanding:  The estimated values for Warrants Outstanding considers the reported GAAP balances to be an appropriate approximation of their fair values.
F.Accrued distributions:  Accrued distributions, which are payable to the Unit holders have been removed from the balance sheet liability section because they are not a liability to a third party.

ATEL 16, LLC Unit Valuation

The Manager’s estimated per Unit value of ATEL 16, LLC at December 31, 2020 as determined, and derived under the guidelines of the Appraised Value Methodology, and pursuant to the above specific enumerated component valuation methodologies and calculations, equals $6.81. An independent national public accounting firm with valuation expertise was retained to examine, attest and confirm ATEL 16, LLC’s per Unit valuation and its component methodologies and calculation as it relates to compliance with the regulatory mandate defined in the Notice. In this regard, they examined the components of the valuation methodologies and determined them to be reasonable and within industry standards. Other component attributes, including the bases and related key assumptions of the calculation were tested for their completeness, underlying documentation support and mathematical accuracy. Upon completion of their efforts, their attestation report confirmed that the per unit valuation of ATEL 16, LLC, and the related notes, in all material respects, was based upon industry practice as described in the Manager’s valuation approach.

Disclaimer

The foregoing Fund per Unit valuation has been performed solely for the purpose of providing an estimated value per Unit in accordance with a regulatory mandate, in order to provide the broker dealer and custodian community with a valuation on a reasonable and attested basis for use in assigning an estimation of a Unit holder’s account value. Any report or disclosure of such estimated per Unit valuation is to be accompanied by statements that the value does not represent an estimate of the amount a Unit holder would receive if the Unit holder were to seek to sell the Units, and that the Fund intends to liquidate its assets in the ordinary course of its business and over the Fund’s term. Further, each statement of the Fund’s estimated per Unit valuation is to be accompanied by a disclosure that there can be no assurance as to (1) when the Fund will be fully liquidated, (2) the amount the Fund may actually receive if and when the Fund seeks to liquidate its assets, (3) the amount of lease or loan payments the Fund will actually receive over the remaining term, (4) the amount of asset disposition proceeds the Fund will actually receive over the remaining term, and (5) the amounts that may actually be received in distributions by Unit holders over the course of the remaining term.

7


Distributions

The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of April 2014. Additional distributions have been consistently made through December 31, 2020.

Cash distributions were paid by the Fund to Unitholders of record as of November 30, 2020, and paid through December 31, 2020. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the ATEL 16, LLC Prospectus dated November 5, 2013 (“Prospectus”) under “Income, Losses and Distributions — Reinvestment.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

Cash distributions were based on current and anticipated gross revenues from the leases and loans acquired. During the Fund’s acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund’s actual and anticipated gross revenues to be generated from the binding initial terms of the leases and loans acquired.

The following table summarizes distribution activity for the Fund from inception through December 31, 2020 (in thousands, except for Units and Per Unit Data):

Total

Weighted

Return of

Distribution

Total

Distribution

Average Units

Distribution Period(1)

    

Paid

    

Capital

    

    

of Income

    

    

Distribution

    

    

per Unit (2)

    

Outstanding(3)

Monthly and quarterly distributions

  

  

Nov 2013 – Mar 2014 (Distribution of all escrow interest)

Jun 2014

$

$

$

n/a

n/a

Mar 2014 – Nov 2014

Apr 2014 – Dec 2014

 

453

 

 

453

0.51

896,524

Dec 2014 – Nov 2015

Jan 2015 – Dec 2015

2,096

2,096

0.69

3,044,217

Dec 2015 – Nov 2016

Jan 2016 – Dec 2016

3,016

3,016

0.70

4,306,106

Dec 2016 – Nov 2017

Jan 2017 – Dec 2017

3,001

3,001

0.70

4,295,644

Dec 2017 – Nov 2018

Jan 2018 – Dec 2018

2,997

2,997

0.70

4,276,421

Dec 2018 – Nov 2019

Jan 2019 – Dec 2019

2,992

2,992

0.70

4,274,486

Dec 2019 – Nov 2020

Jan 2020 – Dec 2020

2,992

2,992

0.70

4,274,486

$

17,547

$

$

17,547

$

4.70

Source of distributions

 

 

  

 

 

 

Lease and loan payments and sales proceeds received

$

17,547

100.00

%  

$

0.00

%  

$

17,547

100.00

%  

 

 

Interest Income

 

0.00

%  

 

0.00

%  

 

0.00

%  

 

 

Debt against non-cancellable firm term payments on leases and loans

 

0.00

%  

 

0.00

%  

 

0.00

%  

 

 

$

17,547

100.00

%  

$

0.00

%  

$

17,547

100.00

%  

 

 


(1)Investors may elect to receive their distributions either monthly or quarterly. See “Timing and Method of Distributions” on Page 67 of the Prospectus.
(2)Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period.
(3)Balances shown represent weighted average units for the period from March 6 – November 30, 2014, December 1, 2014 – November 30, 2015, December 31, 2015 – November 30, 2016, December 1, 2016 – November 30, 2017, December 1, 2017 – November 30, 2018, December 1, 2018 – November 30, 2019 and December 1, 2019 – November 30, 2020, respectively.

Item 6. SELECTED FINANCIAL DATA

A smaller reporting company is not required to present selected financial data in accordance with item 301(c) of Regulation S-K.

8


Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-K, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of March 6, 2014, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2014. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on June 19, 2014, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on November 5, 2015. As of December 31, 2020, 4,274,486 Units were issued and outstanding.

During 2015, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company has reinvested and will reinvest cash flow in excess of certain amounts required to be distributed to the members and/or utilized its credit facilities to acquire additional equipment. Throughout the Reinvestment Period which ends December 31, 2021, the Company anticipates continued reinvestment of cash flow in excess of minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”) dated November 1, 2013 as amended.

The Company may continue until terminated as provided in the ATEL 16, LLC Operating Agreement. Periodic distributions are paid at the discretion of the Managing Member.

It is the Company’s objective to maintain a 100% utilization rate for all equipment purchased in any given year. All equipment is acquired subject to binding lease commitments, so equipment utilization is expected to remain high during the funding period and throughout the reinvestment stage. Initial lease terms of these leases are generally from 36 to 120 months, and as they expire, the Company will attempt to re-lease or sell the equipment. All of the Company’s equipment on lease was purchased in the years 2014 through 2020. The utilization percentage of existing assets under lease was 100% at both December 31, 2020 and December 31, 2019.

Cost reimbursements to the Managing Member and/or affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.

9


Results of Operations

The Company had net income of $44 thousand and $881 thousand for the years ended December 31, 2020 and 2019, respectively. The current year results reflect decreases in total operating revenues and expenses, and an increase in other income when compared to the prior year.

Total operating revenues were $3.9 million for the year ended December 31, 2020 compared to $5.2 million for the prior year. The $1.2 million, or 24%, year over year reduction in total operating revenues was primarily due to a decrease in operating lease revenues, a decline in gains on sales of lease assets, and a reduction in interest income on notes receivables.

Operating lease revenues declined by $839 thousand primarily due to run-off and disposition of lease assets. Gains realized on asset sales decreased by $241 thousand mainly due to the change in the mix of assets sold; and interest income on notes receivable declined by $226 thousand largely due to maturities of certain notes during the current year.

Total operating expenses were $4.8 million for both years ended December 31, 2020 and 2019. Compared to the prior year there were decreases in depreciation, interest expense, cost reimbursements to Manager and/or affiliates, amortization of initial direct costs (“IDC”), professional fees and asset management fees to the Managing Member. These decreases were offset by an increase in impairment losses on equipment and acquisition expense.

Depreciation expense declined by $388 thousand largely due to current year run-off and disposition of lease assets. Such decline is net of $214 thousand of additional depreciation recorded to reflect year-to-date changes in estimated residual values of certain equipment generating revenue under month-to-month extensions, and $183 thousand of incremental depreciation from current year lease asset purchases. Interest expense decreased by $60 thousand due to maturities of certain notes during the current year; and costs reimbursed to the Manager and/or affiliates declined by $42 thousand due to lower allocated costs reflective of the Fund’s declining assets. In addition, amortization of IDC decreased by $38 thousand as a result of a higher amount of fully amortized IDC balances, and dispositions of associated lease assets. Professional fees declined by $34 thousand mainly due to lower audit related billings; and asset management fees was reduced by $28 thousand due to the decline in managed assets and related revenues. Offsetting these decreases were an increase in impairments on equipment of $548 thousand and an increase in acquisition expense of $68 thousand attributable to current year equipment purchases. There were no equipment purchases in 2019.

During the years ended December 31, 2020 and 2019, the Company recorded other income of $848 thousand and $410 thousand, respectively. Such income reflects unrealized gains/losses on the Company’s investment securities and warrants portfolio. During 2020, the Company recorded unrealized gains of $1.3 million on the fair valuation of its investments securities as a result of a favorable change in the stock value of securities converted from warrants during the fourth quarter, subsequent to a borrower’s completion of a quick initial public offering. Also, for 2020, the Company recorded $466 thousand of unrealized losses on fair valuation of its warrants as compared to $410 thousand of unrealized gains recorded for 2019.

Capital Resources and Liquidity

At December 31, 2020 and 2019, the Company’s cash and cash equivalents totaled $3.6 million and $8.0 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds from asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The Company currently believes it has adequate reserves available to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. The Managing Member envisions no such requirements for operating purposes.

10


Cash Flows

The following table sets forth summary cash flow data (in thousands):

2020

    

2019

Net cash provided by (used in):

Operating activities

$

2,048

$

3,047

Investing activities

 

(1,498)

 

2,981

Financing activities

 

(4,939)

 

(2,404)

Net (decrease) increase in cash and cash equivalents

$

(4,389)

$

3,624

During the years ended December 31, 2020 and 2019, the Company’s primary source of liquidity were cash flows from its portfolio of operating lease contracts, principal payments on its investments in notes receivable, and proceeds from sales of lease assets and early termination of notes receivable. Principal payments received on the notes receivable totaled $724 thousand and $1.7 million for the years ended December 31, 2020 and 2019, respectively; and proceeds from sales of lease assets and early termination of notes receivable totaled $591 thousand and $1.4 million for the same respective years. In addition, during 2019, the Company obtained $3.1 million of borrowings under non-recourse debt. There were no such borrowings during 2020.

During the years ended December 31, 2020 and 2019, cash was primarily used to pay distributions and to repay borrowings under non-recourse debt. Distributions paid to Other Members totaled $3.0 million for each of the years ended December 31, 2020 and 2019; and cash used to repay non-recourse debt totaled $1.9 million in 2020 and $2.5 million in 2019. In addition, during 2020, the Company used $2.8 million to acquire lease assets. There were no such purchases in 2019. Cash was also used to pay invoices related to management fees and expenses, and other payables in both years.

Revolving credit facility

Effective October 31, 2019, the Company executed a new credit facility agreement which replaced a previous agreement extended beyond its original expiration date of June 2019. The Company participated with ATEL Capital Group and certain subsidiaries and affiliated funds with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”), the Company and affiliates, and a venture facility.

The amount of the Credit Facility is $55 million and expires June 30, 2021. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

Non-Recourse Debt

As of December 31, 2020 and 2019, the Company had non-recourse long-term debt totaling $3.3 million and $5.3 million, respectively. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a specific lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.

Long-Term Debt

As of December 31, 2020 and 2019, the Company had no long-term debt other than described above as non-recourse long-term debt.

11


Distributions

The Company commenced periodic distributions beginning with the month of April 2014. Additional distributions have been consistently made through December 31, 2020. See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, for additional information regarding the distributions.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At December 31, 2020, there was a commitment to fund investments in notes receivable totaling $1.4 million and investments in equipment totaling $94 thousand. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company. There have not been any cancellations through the date of issuance of these financial statements.

Off-Balance Sheet Transactions

None.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 13 through 37.

12


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Member

ATEL 16, LLC

Opinion on the Financial Statements

We have audited the accompanying balance sheets of ATEL 16, LLC (the “Company”), as of December 31, 2020 and 2019, the related statements of income, changes in members’ capital, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Management of the Company’s Managing Member. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Moss Adams LLP

San Francisco, California

March 29, 2021

We have served as the Company’s auditor since 2013.

13


ATEL 16, LLC

BALANCE SHEETS

DECEMBER 31, 2020 AND 2019
(In Thousands)

2020

2019

ASSETS

Cash and cash equivalents

$

3,603

$

7,992

Accounts receivable, net

 

65

 

99

Notes receivable, net

 

576

 

1,384

Investment in securities

 

1,495

 

41

Warrants, fair value

 

130

 

730

Equipment under operating leases, net

 

15,296

 

15,831

Prepaid expenses and other assets

 

11

 

13

Total assets

$

21,176

$

26,090

LIABILITIES AND MEMBERS’ CAPITAL

Accounts payable and accrued liabilities:

Due to Managing Member and affiliates

$

35

$

52

Accrued distributions to Other Members

 

289

 

289

Other

 

116

 

108

Non-recourse debt

 

3,318

 

5,265

Unearned operating lease income

 

234

 

244

Total liabilities

3,992

5,958

Commitments and contingencies

Members’ capital:

Managing Member

 

 

Other Members

 

17,184

 

20,132

Total Members’ capital

 

17,184

 

20,132

Total liabilities and Members’ capital

$

21,176

$

26,090

See accompanying notes.

14


ATEL 16, LLC

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands Except for Units and Per Unit Data)

2020

2019

Operating revenues:

Leasing and lending activities:

Operating lease revenue, net

$

3,579

$

4,418

Notes receivable interest income

 

174

 

400

Gain on sales of equipment under operating leases and/or early termination of notes receivable

 

144

 

385

Interest income

 

2

 

5

Other revenue

 

49

 

13

Total operating revenues

 

3,948

 

5,221

Operating expenses:

Depreciation of operating lease assets

 

2,431

 

2,819

Asset management fees to Managing Member

 

450

 

478

Acquisition expense

 

68

 

Cost reimbursements to Managing Member and/or affiliates

 

505

 

547

Provision for losses on notes receivable

 

 

27

Impairment losses on equipment

 

548

 

Amortization of initial direct costs

 

44

 

82

Interest expense

 

167

 

227

Professional fees

 

191

 

225

Outside services

 

100

 

70

Taxes on income and franchise fees

 

23

 

28

Other expense

 

225

 

247

Total operating expenses

 

4,752

 

4,750

(Loss) income from operations

(804)

471

Other income:

Unrealized gain on fair value adjustment for securities

1,314

Unrealized (loss) gain on fair value adjustment for warrants

(466)

410

Total other income

848

410

Net income

$

44

$

881

Net income:

Managing Member

$

$

Other Members

 

44

 

881

$

44

$

881

Net income per Limited Liability Company Unit (Other Members)

$

0.01

$

0.21

Weighted average number of Units outstanding

 

4,274,486

 

4,274,486

See accompanying notes.

15


ATEL 16, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands Except for Units and Per Unit Data)

Amount

Other

Managing

Units

    

Members

    

Member

    

Total

Balance December 31, 2018

4,274,486

$

22,243

$

$

22,243

Distributions to Other Members ($0.70 per Unit)

 

(2,992)

 

 

(2,992)

Net income

 

881

 

 

881

Balance December 31, 2019

4,274,486

20,132

20,132

Distributions to Other Members ($0.70 per Unit)

(2,992)

(2,992)

Net income

44

44

Balance December 31, 2020

4,274,486

$

17,184

$

$

17,184

See accompanying notes.

16


ATEL 16, LLC

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands)

2020

2019

Operating activities:

Net income

$

44

$

881

Adjustment to reconcile net income to cash provided by operating activities:

Accretion of note discount-warrants

 

(44)

 

(81)

Depreciation of operating lease assets

 

2,431

 

2,819

Gain on sales of equipment under operating leases and early termination
of notes receivable

 

(144)

 

(385)

Amortization of initial direct costs

 

44

 

82

Impairment losses on equipment

548

Reversal of provision for credit losses

 

(7)

 

(57)

Provision for losses on notes receivable

27

Unrealized gain on fair value adjustment for securities

(1,314)

Unrealized loss (gain) on fair value adjustment for warrants

 

466

 

(410)

Changes in operating assets and liabilities:

Accounts receivable

 

41

 

141

Prepaid expenses and other assets

 

2

 

28

Accounts payable, Managing Member and affiliates

 

(17)

 

59

Accounts payable, other

 

8

 

(3)

Unearned operating lease income

 

(10)

 

(54)

Net cash provided by operating activities

 

2,048

 

3,047

Investing activities:

Purchases of equipment on operating leases

 

(2,782)

 

Purchase of securities

 

(6)

 

(41)

Proceeds from sales of equipment under operating leases and early termination of notes receivable

 

591

 

1,368

Payments of initial direct costs

 

(25)

 

Notes receivable advances

 

 

(27)

Principal payments received on notes receivable

 

724

 

1,681

Net cash (used in) provided by investing activities

 

(1,498)

 

2,981

Financing activities:

Borrowings under non-recourse debt

 

 

3,128

Repayments under non-recourse debt

 

(1,947)

 

(2,540)

Distributions to Other Members

 

(2,992)

 

(2,992)

Net cash used in financing activities

 

(4,939)

 

(2,404)

Net (decrease) increase in cash and cash equivalents

 

(4,389)

 

3,624

Cash and cash equivalents at beginning of year

 

7,992

 

4,368

Cash and cash equivalents at end of year

$

3,603

$

7,992

Supplemental disclosures of cash flow information:

Cash paid during year for interest

$

177

$

229

Cash paid during year for taxes

$

27

$

34

Schedule of non-cash investing and financing transactions:

Distributions payable to Other Members at year-end

$

289

$

289

Conversion of warrants to equity securities

$

134

$

See accompanying notes.

17


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

1. Organization and Limited Liability Company matters:

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability company. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group. The Fund may continue until terminated as provided in the ATEL 16, LLC Limited Liability Company Operating Agreement dated March 1, 2013 (the “Operating Agreement”). Contributions in the amount of $500 were received as of December 31, 2012, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a base price of $10 per Unit. As of March 6, 2014, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2014. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on June 19, 2014, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on November 5, 2015.

As of December 31, 2020, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $42.9 million (inclusive of the $500 initial Member’s capital investment) have been received. As of the same date, 4,274,486 Units were issued and outstanding.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unit holders during the Offering Stage and Operating Stage of the Fund, any balance remaining after required minimum distributions, equal to not less than 7% nor more than 9% per annum on investors’ Original Invested Capital, during the Operating Stage, to be used to purchase additional investments during the Reinvestment Period (the first six years after the year the offering terminates); and (iii) provide additional cash distributions during the Liquidating Stage, commencing with the end of the Operating Stage/Reinvestment Period and continuing until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by the Operating Agreement.

Pursuant to the terms of the Operating Agreement, the Managing Member and/or its affiliates receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 7, Related party transactions). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of the Managing Member.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying balance sheets as of December 31, 2020 and 2019, and the related statements of income, changes in members’ capital, and cash flows for the years then ended, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no significant effect on the reported financial position or results from operations.

Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after December 31, 2020, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.

18


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.

Use of Estimates:

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

Accounts receivable:

Accounts receivable represent the amounts billed under operating lease contracts and notes receivable which are currently due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.

Credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating lease receivables, notes receivable and accounts receivable. The Company places the majority of its cash deposits in noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Fund’s cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts and notes receivable represent amounts due from lessees or borrowers in various industries related to equipment on operating lease contracts and notes receivable.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35-3, over the periods of the lease terms contained in each asset’s respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360-10-35-43).

19


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, revenues are recognized on a cash basis.

Notes receivable, unearned interest income and related revenue recognition:

The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.

Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.

Notes receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, the related notes may be placed on non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.

20


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

Initial direct costs:

Incremental costs of a lease that would not have been incurred if the lease had not been obtained are capitalized and amortized over the lease term. All other costs associated with the execution of the Company’s leases are expensed as incurred.

Acquisition expense:

Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.

Asset valuation:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than the net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.

Segment reporting:

The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States with activities in the United States and Costa Rica.

The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.

21


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the years ended December 31, 2020 and 2019 and long-lived assets as of December 31, 2020 and 2019 (dollars in thousands):

For the Year Ended December 31,

    

2020

    

% of Total

    

2019

    

% of Total 

Revenue

United States

$

3,726

 

94

%  

$

4,808

 

92

%

Costa Rica

 

222

 

6

%  

 

413

 

8

%

Total

$

3,948

 

100

%  

$

5,221

 

100

%

For The Year Ended December 31, 

2020

    

% of Total

    

2019

    

% of Total

 

Long-lived assets

United States

$

12,462

 

81

%  

$

12,972

 

84

%

Costa Rica

 

2,834

 

19

%  

 

2,859

 

16

%

Total

$

15,296

 

100

%  

$

15,831

 

100

%

Investment in securities:

From time to time, the Company may purchase securities of its borrowers or receive warrants in connection with its lending arrangements.

Purchased securities

The Company’s purchased securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The Company’s purchased securities that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company had $1.5 million and $41 thousand of investment securities as of December 31, 2020 and 2019, respectively. An approximate $1.4 million of the purchased securities balance at December 31, 2020 reflects the fair market value of certain warrants exercised and converted to equity securities during the year, whereby the Company recorded unrealized gains of $1.3 million. Such conversion related to a borrower’s completion of an initial public offering in December 2020. Prior to the conversion, the Company only held securities that do not have readily determinable fair values. Cumulatively, there has been no fair value adjustments recorded on such securities. There were neither impairment losses nor sales or disposition of securities during the years ended December 31, 2020 and 2019.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. As of December 31, 2020 and 2019, the estimated fair value of the Company’s portfolio of warrants was $130 thousand and $730 thousand, respectively. During the years ended December 31, 2020 and 2019, the Company recorded unrealized losses of $466 thousand and unrealized gains of $410 thousand, respectively, on fair valuation of its warrants. There were net exercises of warrants in exchange for securities totaling $134 thousand during the fourth quarter of 2020. No other warrant exercises occurred during the years ended December 31, 2020 and 2019.

22


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

Unearned operating lease income:

The Company records prepayments on operating leases as a liability under the caption of unearned operating lease income. The liability is recorded when prepayments are received and recognized as operating lease revenue over the period to which the prepayments relate using a straight-line method.

Income Taxes:

The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Company has provided current franchise income taxes for only those states which levy income taxes on partnerships. For the years ended December 31, 2020 and 2019, the related provision for state income taxes was approximately $23 thousand and $28 thousand, respectively. The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is generally subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of a tax return.

The tax bases of the Company’s net assets and liabilities vary from the amounts presented in these financial statements at December 31, 2020 and 2019 as follows (in thousands):

    

2020

    

2019

Financial statement basis of net assets

$

17,184

$

20,132

Tax basis of net assets (unaudited)

 

14,284

 

17,406

Difference

$

2,900

$

2,726

The primary differences between the tax bases of net assets and the amounts recorded in the financial statements are the result of differences in accounting for syndication costs and differences between the depreciation methods used in the financial statements and the Company’s tax returns.

The following reconciles the net income reported in these financial statements to the income (loss) reported on the Company’s federal tax return (unaudited) for the years ended December 31, 2020 and 2019 (in thousands):

    

2020

    

2019

Net income per financial statements

$

44

$

881

Tax adjustments (unaudited):

 

  

 

  

Adjustment to depreciation expense

 

(87)

 

(444)

Provision for losses and doubtful accounts

 

(7)

 

(57)

Adjustments to revenues

 

(1,321)

 

(463)

Adjustments to gain on sales of assets

 

228

 

364

Other

 

1,013

 

31

(Loss) income per federal tax return (unaudited)

$

(130)

$

312

Per Unit data:

Net income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the year.

Emerging growth company:

Section 107 of the Jumpstart Our Business Startups Act (the “JOBS Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

23


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Recent accounting pronouncements:

In March 2020, the FASB issued Accounting Standards Update No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. Management is currently evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Fund’s financial statements and disclosures.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and equipment under operating leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, equipment under operating leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Management is currently evaluating the standard and expects the update may potentially result in the increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.

In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new CECL impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.

On August 15, 2019, the FASB issued a proposed ASU that would grant certain companies additional time to implement FASB standards on CECL and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective date for hedging to fiscal periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of Topic 326 until fiscal years beginning after December 15, 2022.

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Fund adopted ASU 2018-13 on January 1, 2020. Such adoption did not have a significant impact on the Fund’s financial statements and related disclosure requirements.

24


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

3. Concentration of credit risk and major customers:

The Company leases equipment to lessees and provides debt financing to borrowers in diversified industries. Leases and notes receivable are subject to the Managing Member’s credit committee review. The leases and notes receivable provide for the return of the equipment to the Company upon default.

As of December 31, 2020 and 2019, there were concentrations (greater than or equal to 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financed for borrowers in certain industries as follows:

Percentage of

 

Total Equipment Cost

 

Industry

    

2020

    

2019

 

Utilities

 

32

%  

34

%

Agriculture

 

20

%  

23

%

Transportation, air

 

16

%  

16

%

Transportation, rail

 

14

%  

15

%  

During 2020 and 2019, certain lessees and/or financial borrowers generated significant portions (defined as greater than or equal to 10%) of the Company’s total leasing and lending revenues, excluding gains or losses on disposition of assets, as follows:

    

Percentage of Total

 

Leasing and Lending

 

Revenues

Lessee

    

Type of Equipment

2020

    

2019

 

AEP Generating Company

Facility - Other

15

%  

12

%

Signature Flight Support Corporation

Aviation

12

%  

10

%

Union Pacific Railroad Company

 

Railroad

 

11

%  

*

Mississipi Power Company

Mining

10

%  

10

%

Chiquita Brands, LLC

 

Containers

 

*

18

%

* Less than 10%

These percentages are not expected to be comparable in future periods due to anticipated changes in the mix of investments and/or lessees as a result of normal business activities.

25


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

4. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. As of December 31, 2020, the original terms of the notes are all 42 months with interest at rates ranging from 11.68% to 16.00% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2021 through 2022.

As of December 31, 2020, the minimum future payments receivable are as follows (in thousands):

Year ending December 31, 2021

 

$

538

2022

115

 

653

Less: portion representing unearned interest income

 

(52)

 

601

Less: warrants - notes receivable discount

 

(26)

Unamortized initial direct costs

 

1

Notes receivable, net

$

576

IDC amortization expense related to notes receivable and the Company’s operating leases for the years ended December 31, 2020 and 2019 are as follows (in thousands):

2020

    

2019

IDC amortization - notes receivable

$

2

$

7

IDC amortization - lease assets

42

75

Total

$

44

$

82

5. Equipment under operating leases, net:

The Company’s equipment under operating leases, net consists of the following (in thousands):

    

    

Additions/

    

    

Balance

Dispositions/

Depreciation/

Balance

December 31,

Reclassifications and

Amortization

December 31,

2019

Impairment Losses

Expense

2020

Equipment under operating leases, net

$

15,704

$

1,956

$

(2,431)

$

15,229

Assets held for sale or lease, net

 

43

 

(43)

 

 

Initial direct costs, net

 

84

 

25

 

(42)

 

67

Total

$

15,831

$

1,938

$

(2,473)

$

15,296

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $2.4 million and $2.8 million for the years ended December 31, 2020 and 2019, respectively.

Total depreciation for 2020 includes $214 thousand of additional depreciation which was recorded to reflect year-to-date changes in estimated residual values of certain equipment generating revenue under month-to-month extensions. Such estimated residual values of equipment associated with leases on month-to-month extensions are evaluated at least semi-annually, and depreciation recorded for the change in estimated reduction in value. There were no such additional adjustments to depreciation recorded during the year ended December 31, 2019.

During the year ended December 31, 2020, the Company recorded a $548 thousand loss reserve to reduce the book value of certain leases deemed impaired. There was no such reserve recorded in 2019.

IDC amortization expense related to the Company’s operating leases totaled $42 thousand and $75 thousand for 2020 and 2019, respectively.

26


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

All of the Company’s lease asset purchases and capital improvements were made during the years from 2014 through 2020.

Operating leases:

Property on operating leases consists of the following (in thousands):

    

Balance

    

    

    

Balance

December 31, 

December 31, 

2019

Additions

Dispositions

2020

Aviation

$

4,587

$

783

$

(280)

$

5,090

Containers

 

6,545

 

 

(52)

 

6,493

Coal terminal

 

5,000

 

 

 

5,000

Railroad

 

4,017

 

 

(340)

 

3,677

Mining

 

2,766

 

 

 

2,766

Materials handling

 

1,287

 

96

 

(276)

 

1,107

Marine vessels

 

2,291

 

 

 

2,291

Trucks and trailers

 

1,103

 

 

 

1,103

Manufacturing

 

1,243

 

 

 

1,243

Construction

1,902

1,902

Other

 

414

 

 

 

414

 

29,253

 

2,781

 

(948)

 

31,086

Less accumulated depreciation

 

(13,549)

 

(2,431)

 

123

 

(15,857)

Total

$

15,704

$

350

$

(825)

$

15,229

The average estimated residual value for assets on operating leases was 34% of the assets’ original cost at both December 31, 2020 and 2019. There were no operating leases in non-accrual status at December 31, 2020 and 2019.

At December 31, 2020, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

    

Operating 

Leases

Year ending December 31, 2021

$

2,126

2022

 

1,707

2023

 

893

2024

 

669

2025

400

Thereafter

662

$

6,457

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of December 31, 2020, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

Equipment category

    

Useful Life

Coal terminal

 

50 - 60

Railroad

 

35 - 50

Marine vessel

 

20 - 30

Aviation

 

20 - 30

Containers

 

15 - 20

Manufacturing

 

10 - 15

Mining

 

10 - 15

Construction

 

7 - 10

Materials handling

 

7 - 10

Trucks and trailers

 

7 - 10

27


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

6. Allowance for credit losses:

The Company’s allowance for credit losses are as follows (in thousands):

Allowance for

Valuation

Doubtful

Adjustments on

Accounts

Financing Receivables

Operating 

Notes

    

Leases

    

Receivables

    

Total

Balance December 31, 2018

$

65

$

133

$

198

(Reversal of) provision for credit losses

(57)

27

(30)

Write offs

 

 

(160)

 

(160)

Balance December 31, 2019

$

8

$

$

8

Allowance for

Valuation

Doubtful

Adjustments on

Accounts

Financing Receivables

Operating 

Notes

    

Leases

    

Receivables

    

Total

Balance December 31, 2019

$

8

$

$

8

Reversal of credit losses

 

(7)

 

 

(7)

Balance December 31, 2020

$

1

$

$

1

As of December 31, 2020 and 2019, the Company had no allowance for credit losses related to financing receivables.

The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass — Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the manager to fall into one of the three risk profiles below.

Special Mention — Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

Substandard — Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.

Doubtful — Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.

28


ATEL 16, LLC
NOTES TO FINANCIAL STATEMENTS

At December 31, 2020 and 2019, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes warrants - notes receivable discount and unamortized IDC) (in thousands):

Notes Receivable

    

2020

    

2019

Pass

$

601

$

1,451

Special mention

 

 

Substandard

 

 

Doubtful

 

 

Total

$

601

$

1,451

There was no impaired investment in financing receivables at December 31, 2020 and 2019.

At December 31, 2020 and 2019, the investment in financing receivables (excludes warrants - notes receivable discount and unamortized IDC) is aged as follows (in thousands):

    

    

    

    

    

    

    

Recorded

Greater

Total

Investment>90

3160 Days

6190 Days

 Than

Total

Notes

Days and

December 31, 2020

    

Past Due

    

Past Due

    

90 Days

    

Past Due

    

Current

    

Receivable

    

Accruing

Notes receivable

$

$

$

$

$

601

$

601

$