Cypress Income Fund IV, LLC

Transcription

1 Quarterly Letter January 2017 Cypress Income Fund IV, LLC Equipment Lease Investment Specialists Since 1985 January 2017 To the Holders of Interests in the Master Note issued by Cypress Income Fund IV, LLC (the Fund ): The Fund has sold all its remaining assets and was fully liquidated and dissolved on December 12, This is the final quarterly letter that the Fund will issue. In early 2017, a Form 1099-for tax year 2016 will be issued, and in July 2017, 2016 audited financial statements will be forwarded. Please keep us apprised of any changes in your mailing address so that these final documents will reach you. Updated address information should be sent to Cypress Investor Services at the address on the last page of this report. Investment Portfolio A summary of the Fund s investment portfolio is included with this report. Interest and Principal Payments The Fund did not make a Note payment for the period from October 1, 2016 through December 12, 2016 because the Fund did not have sufficient Net Cash Flow to make that payment. Through dissolution on December 12, 2016, the Fund made interest plus principal payments totaling between 47.63% and 50.46% of original Note principal, depending on the date of an individual Note holder s initial investment. The Fund has not returned any of the original Note principal to the Note holders of the Fund. Trustee The Fund s Master Note is governed by a Trust Indenture originally executed with Wells Fargo Bank Northwest, N.A., as Trustee. On April 2, 2013, Bank of Utah accepted the appointment as successor Trustee, and assumed all rights, powers, and duties of the Trustee under the Indenture. Any communication with the successor Trustee may be directed in writing to: Bank of Utah, Corporate Trust Office, 200 East South Temple, Suite 210, Salt Lake City, UT 84111; or via telephone at (801) Note holders should anticipate communications directly from the Trustee from time to time. Investor Inquiries Inquiries concerning any aspect of the Fund s activities or your investment may be directed to your Financial Advisor or to Cypress Investor Services, which can be reached toll free at (866) or via at investorservices@cypressleasing.com. For more information about Cypress please visit our website at You can view your investment information on-line through our secure web portal which is accessible by clicking on the Investor Login button in the upper right corner of our home page. Through the web portal you can obtain copies of your statements, tax documents, and change of address forms. Sincerely, Ken Park President of the Manager For Distribution to Cypress Income Fund IV Note Holders and their Financial Advisors

2 CYPRESS INCOME FUND IV, LLC Investment Portfolio Summary (All assets were held through Cypress Acquisition Fund IV, LLC, which was wholly owned by Cypress Income Fund IV, LLC.) In October 2006 the Fund acquired a 20% interest in an entity that held a 51% interest in a portfolio of 13,838 dry and refrigerated marine cargo containers managed by Cronos Containers, Ltd. The Fund s investment in the transaction totaled $2,288,000, all of which was paid in cash. In November 2006 debt was placed on the transaction, reducing the Fund s cash investment to $498,000. In June 2008 the investment was sold, resulting in net cash to the Fund of $1,290,000, generating a profit of $792,000 and a cash-on-cash return of 258% *. In June and July 2007 the Fund made investments in the oil drilling platform Cecil Provine, chartered to the Rowan Companies. The Fund s investments represented a 12% ownership in an entity which owned 75% of the vessel. During the third quarter of 2007 debt was placed on the transaction, reducing the Fund s total cash investment to $3,743,000 net of the debt proceeds. In July 2008 the investment was sold. The total net cash generated from lease receipts and sale proceeds was $6,281,000, resulting in a profit to the Fund of $2,538,000, and a cash-on-cash return of 168% * on the Fund s net investment. In November 2007 the Fund acquired a 50% interest in an entity which held a 90% interest in the Cape Moreton, a container vessel operating between Australia and South Asia, chartered to Schoeller Holdings, Ltd. The Fund s investment totaled $3,590,000, of which $1,859,000 was paid in cash. In March 2009 the vessel was sold. The net cash generated from the sale was $1,754,000, resulting in a cash-oncash return of 94% *. In November 2006 the Fund acquired a 10% interest in an entity that owned two container vessels. The vessels were subject to bareboat charters to Shoeller Holdings, Ltd., through June 30, 2009, and were returned as of that date. The Fund s total investment in this transaction was $2,533,000, of which $775,000 was paid in cash. The balance was a non-recourse loan from a German bank. The Fund s manager worked with the lender to sell the vessels, the first of which was sold in November 2009 and the second of which was sold in January The net proceeds were delivered to the lending bank; consequently, the Fund realized no return on its investment. 2

3 In December 2007 the Fund acquired a 15% interest in a 200 megawatt gas-fired co-generation plant leased to the Dow Chemical Company, located on 4.5 acres within Dow s Plaquemine, Louisiana complex. The total cost to the Fund was $3,461,000, of which $1,879,000 was paid in cash. In June 2010 the plant was sold to Dow. The net lease and sales proceeds to the Fund were $3,492,000, resulting in a profit of $1,613,000 and a cash-on-cash return of 186% *. In November 2007 the Fund acquired a 17% interest in the oil tanker Glenross, which was bareboat chartered to Glen Carriers, Ltd., and time chartered to AET Ltd. The cost of the investment to the Fund was $7,604,000. In February 2008 the Fund placed debt on the transaction, reducing the Fund s cash investment to $3,014,000. The charter expired on May 30, 2012, and the vessel was returned. As a result of a decline in petroleum demand coupled with current oversupply of vessels of this type, the market value of the vessel had declined to substantially below the debt balance. The lender assumed control of the vessel and sold it in November 2012, retaining all proceeds. In March 2008 the Fund acquired a 16% interest in an entity which owned the Zim Italia, a container ship chartered to Zim Integrated Shipping Services through January The Fund s share of the transaction cost was $4,517,000, of which $2,772,000 was paid in cash. At the end of the Zim charter, the vessel was returned. The Manager subsequently entered into an agreement with Doris Maritime to manage the vessel, which was placed on a time charter through October As a result of prolonged depression in the shipping industry, the rates under the new charter were substantially lower than previous rates, and slightly below the actual operating costs of the vessel. Over the course of this charter, the Fund contributed additional cash of $881,000. The vessel was returned at the end of October 2012 and despite an extensive effort to re-charter it at a rate above operating costs, no parties expressed interest. The vessel was subsequently sold to a scrap buyer in December 2012, resulting in net charter and sale proceeds to the Fund of $847,000, producing a loss to the Fund of 78% * of the total cash contributed to the transaction. In February 2009 the Fund acquired a 2% interest in an entity which owned the double hulled Aframax crude oil tanker Orkney Spirit. The charter, with a subsidiary of Teekay Corporation, expired in February The Fund s investment totaled $690,000, of which $459,000 was paid in cash. The debt on the vessel was fully amortized at the expiration of the charter. Despite an extensive marketing effort, no new charter opportunities were identified and the vessel was ultimately sold to a scrap buyer. The Fund realized net proceeds of $141,000, representing a loss of 69% * of the cash invested in the transaction. 3

4 In August 2008 the Fund made an investment acquiring a 13% interest in an entity which owned a 90% interest in a portfolio of eight refrigerated cargo vessels. The Fund s total investment was $10,953,000, of which $3,009,000 was paid in cash. The vessels were subject to bareboat charters which expired in July 2011 and all were returned by September 30, The Manager endeavored to seek new charters with the expectation that market conditions would improve and worked with the lenders to restructure the outstanding debt. Seven of the vessels were placed in a refrigerated vessel pool managed by the Dutch operator Seatrade Group. The eighth vessel was sold in mid-september 2011, with all proceeds applied towards repayment of the outstanding debt which had been amortized from approximately 75% to 50% of the original purchase price. As part of the debt restructuring, including extension of the term through July 2013, the Fund was required to contribute additional capital in October 2011, further reducing the outstanding debt balance to approximately 25% of the original purchase price. The agreement required that the debt balance be further reduced by July 2012 and fully retired by the end of July Two more of the vessels were sold in the third quarter of 2012, satisfying the 2012 debt balance requirement. Seatrade operated the vessels within a pool of similar ships and the Fund was to be paid its pro-rata share of the pool s total income. In the first quarter of 2012 Seatrade notified the Manager of issues with the condition of the vessels at the time of their delivery and reduced their payments to the Fund from the pool. The Manager disputed this claim and filed a suit against Seatrade, but in the interim, separate from the dispute, the Fund was required to contribute cash to continue satisfying the debt service payments and for dry docking and other operating and maintenance requirements. The remaining five ships were marketed for sale, and ultimately, Seatrade made an offer to purchase the vessels at a price greater than offers from the other interested parties, and the sale was concluded in March As part of the sale, the claims and counterclaims with Seatrade were settled. The total capital contributed by the Fund subsequent to the initial purchase was $1,942,000, which increased its cash investment in the transaction from $3,009,000 to $4,951,000. The net lease and sale proceeds to the Fund were $296,000, resulting in a loss to the Fund of 94% * of its total cash contribution to the investment. In April 2010 the Fund acquired an 11% interest in an entity which then acquired the lease of a 3.03% undivided interest in the Grand Gulf Nuclear Power Generating Station, located near Port Gibson, MS, and operated by a subsidiary of Entergy Corporation. The Fund s total investment in the transaction was $5,598,000, of which $3,479,000 was paid in cash. In August 2010 the Fund completed a borrowing against the transaction which reduced the cash investment to $559,000. In February 2012 additional leverage was placed against the transaction resulting in proceeds to the Fund of $191,000 in excess of the initial cash investment. The interest was sold in December The net lease and sales proceeds to the Fund were $365,000, resulting in a cash-on-cash return of 116% * and a net profit of $556,000. 4

5 In December 2009 the Fund acquired a 1.92% interest in an entity which then purchased the owner participation interest in leases of a 1.36% undivided interest in each of Units 1 and 2 of the Palo Verde Nuclear Generating Station in Maricopa County, Arizona. The Palo Verde plant is operated by Arizona Public Service Company on behalf of a group of public utilities, with Public Service Company of New Mexico as the lessee of the two interests. The Fund s total investment in the transaction was $1,627,000, of which $973,000 was paid in cash. In November 2010 the Fund sold its interest in Unit 1. In March 2014 and again in September 2014 additional debt was placed on the transaction against a portion of the anticipated residual value to be realized upon the sale, reducing the Fund s cash investment to $493,000. The base lease term of the remaining interest expired in January 2016 and the interest was sold back to the lessee. The net lease and sales proceeds to the Fund were $1,650,000, resulting in a cash-on-cash return of 170% *. In October 2010, the Fund acquired a 7% interest in an entity, Cypress Hoosier, which then acquired a 50% interest in an entity, Cyterna, which in turn owned a 15.7% undivided interest in the Merom Generating Station, a coal-fired dual unit steam and electric power generating station located in Southwest Indiana. The Merom Generating Station, which is capable of producing 1,070 megawatts, was built by and is currently leased to and operated by Hoosier Energy Rural Electric Cooperative. The base lease term on the undivided interest expires on June 30, The Fund s investment totaled $4,170,000, of which $2,793,000 was paid in cash. In September 2011, additional leverage was placed against the transaction which reduced the Fund s cash investment to $ Cyterna has been in litigation with Hoosier relating to the end of lease appraisal process. The risk, time and expense related to the continuing pursuit of this complex litigation was not deemed to be in the best interest of the Fund s investors. Additionally, the market environment for coal fired power plants in the United States continues to look negative with no sight of improvement. Accordingly, in lieu of bearing the ongoing liabilities and present and future out of pocket costs associated with prosecuting the litigation and holding the asset with no indication of an improved future value, Cypress Hoosier decided to exit this transaction, albeit in negative market conditions, after determining that this course of action was likely to be better for the Fund s Note Holders. Accordingly, Cypress Hoosier entered into an agreement with Alterna, the other 50% owner of Cyterna, to sell Cypress Hoosier s 50% ownership interest in the Merom transaction to the Alterna affiliates. The Alterna affiliates are now the sole owners of Cyterna. Cypress Hoosier did not receive any cash consideration as part of this transaction, with Alterna accepting the Merom interest subject to responsibility for the approximately $32 million outstanding debt balance. The net lease and sales proceeds to the Fund were $2,146,000 resulting in a net loss to the Fund of 23% * of the cash invested in the transaction. 5

6 In November 2008, the Fund made an investment acquiring a 9% interest in an entity, Cypress Ckor, which owned the Seabulk Asia, an oil platform supply vessel. The Fund s investment totaled $2,964,000, all of which was paid in cash. The vessel was operated by Seacor, and since the vessel s acquisition, was placed on a series of short-term time charters with oil exploration and development companies in West Africa and Egypt. In October 2013, the vessel was placed on a three-year charter (subsequently extended by an additional six months) with a subsidiary of TOTAL, a global energy firm based in France, for use in Angola. In December 2013, leverage was placed on the investment, reducing the Fund s investment in the transaction to $1,737,00. As the price of oil declined in conjunction with a large oversupply of platform supply vessels and other offshore oil and gas equipment, charter rates and equipment values plummeted across the industry and TOTAL reduced the charter rate on the Seabulk Asia by nearly 50%. Faced with this deteriorating market with no sight of improvement, and having to bear the ongoing costs associated with holding the vessel with no indication of an improved future value, Cypress Ckor was sold to Seacor Marine at a price equal to the outstanding debt balance. The net lease and financing proceeds to the Fund were $3,256,000, representing cash of $292,000 in excess of the cash invested, producing a cash-on-cash return of 110% *. * The percentage expressing the Fund s cash-on-cash return or loss from a transaction represents (i) the net lease and sale proceeds realized from the transaction divided by the Fund s net cash investment in the transaction, and (ii) in the case of a transaction from which a loss was realized, the difference between the net invested by the Fund in the transaction and the net lease and sale proceeds realized from the transaction divided by the Fund s net cash investment in the transaction. These percentage calculations do not take into account Fund fees and expenses. Privacy Policy Regulations issued by the Federal Trade Commission require that financial institutions such as Cypress Financial Corporation and its affiliates (together, the Cypress Companies ) and each of the investment programs sponsored and managed by one of the Cypress Companies (the Funds ), provide the Funds investors with written notice of their policies and procedures for disclosure of the investors nonpublic personal information. You should be aware of the following policies relating to disclosure of your nonpublic personal information: 1. We collect nonpublic personal information about you from the following sources: a. Information we receive from you on applications or other forms, and b. Information about your transactions with us, our affiliates, or others. 2. We do not disclose any nonpublic personal information about Fund investors or former investors to anyone, except as permitted by law. 3. We restrict access to nonpublic personal information about you to employees and agents of Cypress who need to know that information to provide services to you and the Fund in which you have invested, and require that all such employees and agents adhere to our privacy policy. Furthermore, Cypress has confirmed that Phoenix American Financial Services, provider of administrative services to the Funds, which is also governed by the FTC privacy rules, maintains a similar policy with regard to protecting the privacy of your nonpublic personal information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. If you have any questions about these policies or our use, maintenance and disclosure of your nonpublic personal information, please contact us by telephone, mail or and we will be happy to discuss the policies with you. We are required by law to inform you of our privacy policy once a year. Please note that this is not a request for an opt out statement from you; the above stated policies are the policies in place at this time. CYPRESS INCOME FUND IV, LLC Cypress Investor Services 2401 Kerner Boulevard San Rafael, CA Telephone: (866) Fax: (415) Cypress Fund Management Two Theatre Square, Suite 211 Orinda, CA Telephone: (415) Fax: (415) Investorservices@cypressleasing.com Cypress Income Fund is registered in the US Patent and Trademark Office 6