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America First Tax Exempt Investors L.P. Reports Operating Results (10-Q)

November 06, 2009 | About:

America First Tax Exempt Investors L.P. (NASDAQ:ATAX) filed Quarterly Report for the period ended 2009-09-30.

America First Tax Exempt Investors L.P. is a consistently performing fund with a portfolio of federally tax-exempt mortgage revenue bonds; interest on these bonds is excludable from gross income for federal tax purposes. As a result most of the income earned by the Partnership is exempt from federal income taxes. America First Tax Exempt Investors L.p. has a market cap of $91.8 million; its shares were traded at around $5.39 with and P/S ratio of 5. The dividend yield of America First Tax Exempt Investors L.p. stocks is 9.2%.

Highlight of Business Operations:

Until June 2009, Company debt consisted of the TOB facility of approximately $76.6 million and approximately $37.3 million of mortgage debt on MF Properties. In June 2009, the Company entered into a new secured credit facility with Bank of America which refinanced the maturing TOB facility. The new credit facility has a one-year term with a six-month renewal option held by the Company, an annual floating interest rate of one-month LIBOR plus 390 basis points and a loan amount of $50.0 million. The proceeds from the new credit facility plus the cash collateral held by Bank of America for the TOB facility were used to retire the outstanding balance on the TOB facility. The new credit facility is secured by 13 tax-exempt mortgage revenue bonds with a total par value of $112.1 million plus approximately $1.5 million in restricted cash. Financial covenants for the new credit facility include the maintenance of a leverage ratio not to exceed 70% and a minimum liquidity of $5.0 million by the Company. Additionally, the properties which secure the bond portfolio which is collateral for the new credit facility are to maintain, as a group, minimum debt service coverage of 1.1 to 1 and a loan to value ratio not to exceed 75%. At September 30, 2009, the Company was in compliance with these covenants. Subsequent to September 30, 2009, the Company was notified by Bank of America that it was no longer in compliance with the loan to value covenant. In November 2009, the Company transferred additional collateral of approximately $2.0 million to Bank of America to maintain compliance with the covenant. The Company continues to explore opportunities to improve its financing arrangements. One option currently being pursued is a Tax-Exempt Bond securitization facility (“TEBs”) with Freddie Mac. The Company feels this financing option offers several advantages over the current credit facility including a longer term of up to 10 years. There can be no assurance that we will be able to enter into a TEBs securitization facility on terms favorable to the Partnership or at all.

Approximately $19.9 million in outstanding mortgage financing related to the MF Properties located in Ohio and Kentucky was due in July 2009. This mortgage loan contains three one-year renewal options held by the borrower. In July 2009, the borrower entered into a Maturity Date Extension Agreement for the mortgage loan which extended the maturity on the mortgage one year to July 2010. In conjunction with the extension, the borrower paid down the mortgage balance related to two of the financed properties, Eagle Ridge and Meadowview. The outstanding principal was reduced by approximately $7.1 million resulting in a new outstanding mortgage balance of approximately $12.8 million and the Eagle Ridge and Meadowview properties were released as collateral for the loan. If the current illiquidity in the financial markets continues or further deteriorates, our ability to renew or refinance our outstanding credit facility, as well as the mortgage debt financing MF Properties, may be negatively affected.

The Partnership has an effective Registration Statement on Form S-3 with the SEC relating to the sale of up to $100.0 million of its BUCs. Pursuant to this Registration Statement, in October 2009, the Partnership issued, through an underwritten public offering, a total of 4,830,000 BUCs at a public offering price of $5.05 per BUC. Additionally, pursuant to this Registration Statement, in May 2009, the Partnership issued, through an underwritten public offering, a total of 3,500,000 BUCs at a public offering price of $5.00 per BUC. Net proceeds realized by the Partnership from the issuance of the additional BUCs were approximately $22.9 million and $16.1 million, respectively, after payment of an underwriter's discount and other offering costs. The proceeds will be used to acquire additional tax-exempt revenue bonds and other investments meeting the Partnership's investment criteria and for general working capital needs. To date, the Partnership has issued approximately $71.5 million of BUCs under this Registration Statement which will expire in January 2010. The Partnership intends to issue additional BUCs from time to time. In that regard, the Partnership expects to file a new Registration Statement on Form S-3 for the sale of additional BUCs beyond the amount registered under its existing Registration Statement.

The Company s regular annual distributions were paid at a rate of $0.54 per BUC, or $0.135 per quarter per BUC, through the first quarter of 2009. Given the changes to the Company s credit facilities, the General Partner completed financial models in order to estimate the impact of the change on the Company's assets, debt and cash available for distribution ("CAD"). In order to ensure that cash provided by the Company s tax-exempt mortgage revenue bonds and other investments will be adequate to meet its projected liquidity requirements, including the payment of expenses, interest and distributions to BUC holders, beginning with the second quarter 2009 distribution, the General Partner changed the Company s regular annual distribution to $0.50 per BUC, or $0.125 per quarter per BUC. The General Partner believes that distributions at this level are sustainable; however, if actual results vary from current projections and the actual CAD generated is less than the new regular distribution, such distribution amount may need to be reduced.

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Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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