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| 8-K - 2009 YEAR END LIQUIDATION UPDATE - ICON CASH FLOW PARTNERS L P SEVEN | body.htm |
Exhibit 99.1
ICON
Cash Flow Partners L.P. Seven Liquidating Trust
2009 Year End Liquidation
Update
This
update covers the activity for the calendar year 2009. It is intended
to give registered representatives and the investors of ICON Cash Flow Partners
L.P. Seven (“Fund Seven”), whose limited partnership interests were exchanged
for an equal number of beneficial interests in the Fund Seven Liquidating Trust
as of July 12, 2007 (the “Liquidating Trust”), a description of Fund Seven’s
activities throughout the year and provide an outlook for the
future.
As a fund
manager, ICON Capital Corp. (“ICON”) has actively and prudently managed Fund
Seven’s portfolio to yield the best possible return to investors. As
a public program, Fund Seven reported to you regularly through quarterly, annual
and current reports filed with the Securities and Exchange Commission
(“SEC”). However, as Fund Seven has only one remaining asset, its
investment in North Sea (Connecticut) Limited Partnership (“North Sea”), which
is entitled to receive the proceeds from the litigation regarding the Rowan
Halifax mobile offshore jack-up drilling rig (discussed below), if and when
received, and in order to reduce Fund Seven’s expenses and to maximize potential
distributions to its investors, Fund Seven transferred all of its remaining
assets and liabilities to the Liquidating Trust as of July 12, 2007.
The Liquidating Trust is required
to file an annual report with the SEC under cover of a Form 10-K showing the
assets and liabilities of the Liquidating Trust at the end of each calendar year
and the receipts and disbursements for the year. The annual report
also describes the changes in the assets of the Liquidating Trust and the
actions taken during the year. The financial statements contained in such
report are not audited, but will be prepared in accordance with US
GAAP.
$12,325,000 Investment in
Equipment on Lease to The Rowan Companies
The Lessee: Rowan
Companies, Inc. (“Rowan”), founded in 1923, is a major international offshore
and land drilling contractor.
The
Equipment: 43.825% interest in one Class 116-C Mobile Offshore
Jack-Up Drilling Rig known as the “Rowan Halifax” which was built in 1982 by
Marathon LeTourneau and acquired by Textron Corporation in 1984 at a cost of
$66,500,000.
Investment: In
December 1996, Fund Seven purchased a 50% interest in North Sea, the equipment
and the charter for $12,325,000 in cash and the assumption of $2,401,000 in
non-recourse debt. Fund Seven acquired its interest directly from
North Sea, leaving the other 50% interest with partners unaffiliated with Fund
Seven. In connection with the renewal of the charter in July 2000,
North Sea financed the renewal charter hire payments on a non-recourse basis and
distributed $10,001,284 to Fund Seven. In November 2004 and February
2005, certain of Fund Seven’s affiliates acquired 6.175% of Fund Seven’s
interest in North Sea. On May 31, 2006, Fund Seven received a
distribution of $3,944,250 from North Sea related to the Hurricane Rita events,
which are discussed below. Thus, as of December 31, 2009, Fund Seven
has received $14,066,234 on this investment.
Expected Future Proceeds from
Investment: $7,000,000 - $26,000,000
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Outlook: On October
5, 2005, Rowan notified the owner trustee of the rig that an “Event of Loss”
occurred with respect to the rig in September 2005 as a result of Hurricane
Rita. The charter provides that Rowan will pay to the lender (and upon
satisfaction of all of the debt outstanding, to the owner trustee on behalf of
North Sea) an amount equal to the “Stipulated Loss Value” of the rig. The
“Stipulated Loss Value” for the rig will be determined according to the terms of
the charter. The “Stipulated Loss Value” is defined in the charter as the sum of
(i) the charter hire payment payable on the first charter hire payment date
following an “Event of Loss”, (ii) the present value of the remaining charter
hire payments due and (iii) the present value of the estimated residual value of
the rig at the end of the charter, as determined by the appraisal procedure
under the charter. Prior to North Sea initiating the appraisal procedure on
November 29, 2005, Rowan commenced a declaratory judgment action in Texas State
Court requesting that the court declare, among other things, that “Stipulated
Loss Value” should be determined by “the value estimated in advance” of the
renewal term of the charter, which amount was never documented or agreed by the
parties. North Sea immediately filed a counterclaim against Rowan to, among
other things, have the charter enforced in accordance with its terms, and the
owner trustee of the rig initiated the appraisal procedure required under the
charter. The appraisal procedure has been completed and it was determined that
the “Stipulated Loss Value” of the rig at the end of the charter was
$80,235,317.37. Thus, Fund Seven’s portion of that amount would be
$26,310,159.27, calculated as follows: $80,235,317.37, minus the $20,200,726.90
that Rowan has paid to date, or $60,034,590.47, times 43.825% − Fund Seven’s
interest in the rig.
On or
about May 22, 2006, Rowan paid (i) the March 2006 charter hire payment and (ii)
the component of the “Stipulated Loss Value” of the rig represented by the
present value of the remaining charter hire payments due to the lender, which
amounts were used to fully satisfy the outstanding non−recourse debt on the rig.
On May 31, 2006, Fund Seven received a distribution of $3,944,250 with respect
to its limited partnership interest in North Sea. The distribution represented
Fund Seven’s portion of the $10,941,943 in net insurance proceeds that Rowan
agreed to distribute to North Sea with respect to the rig. The insurance
proceeds received by North Sea neither represents the full amount of the
insurance proceeds, nor the final amount of the “Stipulated Loss Value” of the
rig, that North Sea expects to receive in accordance with the terms of the
charter.
On
September 1, 2006, Rowan and North Sea each filed motions for complete summary
judgment. Oral argument on the motions occurred on November 7,
2006. On January 24, 2007, the Texas State Court issued a preliminary
order granting all of North Sea’s summary judgment motions and denying all of
Rowan’s summary judgment motions. In addition, the Court ordered Rowan to pay
North Sea the approximately $60 million plus interest thereon that North Sea
claimed as its damages. On March 7, 2007, the Texas State Court
issued its final judgment and an order of severance and consolidation with
respect to the parties’ summary judgment motions. In its final
judgment, the Texas State Court (i) granted all of North Sea’s summary judgment
motions that support the Court’s related order for Rowan to pay North Sea the
approximately $60 million plus interest thereon that North Sea claimed as its
damages, as well as $500,000 in attorneys’ fees, (ii) denied all of North Sea’s
other summary judgment motions, except for those that were severed pursuant to
the order of severance and consolidation, and (iii) denied all of Rowan’s
summary judgment motions.
Rowan
appealed the Texas State Court’s judgment and filed its appeals brief on
November 7, 2007. North Sea’s appeals brief was filed on March 3,
2008. The Texas Court of Appeals held a hearing on the appeal on May
1, 2008. On March 31, 2009, by a two to one decision of the appellate
panel, the Court of Appeals rendered its decision to reverse the Texas State
Court’s decision. On February 4, 2010, the Texas Court of Appeals
denied North Sea’s motions for rehearing and reconsideration. We and
the other North Sea partners strongly disagree with the decision of the
appellate panel and continue to believe its interpretation of the charter
agreement with Rowan and the Texas State Court’s decision are both
correct. To that end, North Sea is expected to file a petition to
review the Court of Appeals decision in the Texas Supreme Court in the next few
weeks.
We and
the other North Sea partners are working vigorously to have the Court of
Appeals’ decision reconsidered and, if necessary, overturned as soon as
practicable. While it is not possible at this stage to determine the
likelihood of the outcome, we and the other North Sea partners believe that the
Texas State Court’s decision is correct and we are working with the other North
Sea partners to vigorously pursue our claims and defend the Court’s
decision. Although the Court initially ruled in North Sea’s favor,
the final outcome of any appeal is uncertain. The appeals process may span
several more years, during which time the Liquidating Trust expects to incur
additional expenses and legal fees. If the Texas State Court’s
decision is ultimately reversed on appeal, the matter could be remanded to the
Texas State Court and could proceed to trial, which would further delay a
resolution of the dispute. A trial would require the Liquidating Trust and
the other North Sea partners to devote significant resources, including
substantial time and money, to the pursuit of North Sea’s claims. There is
no certainty that a trial will result in a favorable verdict. If Rowan
prevails on appeal, it is anticipated that such a verdict would have a material
adverse effect on the cash available for distribution to the beneficiaries of
the Liquidating Trust.
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The
following chart depicts the net position of the Liquidating Trust’s material
asset
as
of the year ended 2009.
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Expected
Future Proceeds from Investment
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|||||||||
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Lessee
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Low
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High
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Rowan
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$ | 7,000,000 | $ | 26,000,000 | |||||
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Total
Proceeds Expected
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$ | 7,000,000 | $ | 26,000,000 | |||||
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Approximate
Number of Limited Partnership Units Outstanding as of December 31,
2009
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987,287
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||||||||
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Estimate
Net Value Per Unit
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$ | 7.09 | $ | 26.33 | |||||
Conclusion
Fund
Seven was adversely affected by several events, including, as discussed below,
the loss of two significantly leveraged investments and the tragic events of
September 11, 2001.
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First,
Fund Seven had a $2.9 million investment in two supply vessels on charter
to SEACOR Smit, Inc. (“SEACOR”). The vessels were returned by SEACOR in
June 2003 following the end of the then-current charter terms. Fund Seven
was not able to agree with the lender on remarketing terms and was not in
a position to satisfy the outstanding indebtedness, therefore, the vessels
were repossessed by the lender in September 2003. The vessels were
ultimately sold for an amount less than the outstanding debt and accrued
interest.
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Second,
Fund Seven had a $6 million investment (including recourse indebtedness)
in an option to acquire three Boeing 737-300 aircraft on lease to
Continental Airlines, Inc. In August 2003, with the option set to expire
and the value of the aircraft still significantly impacted by the events
of September 11th,
Fund Seven restructured the recourse indebtedness in exchange for giving
up its option early and a reduction in the restructured indebtedness from
any excess residual proceeds received from a sale of the
aircraft. The indebtedness was paid in full in July 2006,
without any reduction from any excess residual proceeds from the sale of
the aircraft.
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Finally,
the sharp decline in capital spending following September 11th
provided Fund Seven with significantly fewer reinvestment opportunities
than would have been anticipated by any historical
measure.
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As of
December 31, 2009, the investors that joined Fund Seven at its commencement on
January 19, 1996 have received $75.61 in cash distributions for every $100
invested. As depicted in the chart above, we hope that Fund Seven’s investors’
eventual total distributions will be approximately 101% of their original
capital invested, but that amount could be significantly lower depending on the
ultimate resolution of the Rowan litigation. However, even if the
higher end of the range of estimated proceeds are received, later investors are
not likely to receive a return of all capital invested. Nevertheless,
and in acknowledgment of the likely desire of Fund Seven investors to achieve
liquidation in a timely manner, we continue to focus on the disposition of the
Rowan litigation and the realization of the proceeds therefrom. While
we cannot report to you that the Fund has lived up to our expectations, its
interest in at least one remaining extraordinary asset helps us maintain a
guardedly optimistic outlook for the result described above.
As
always, we are happy to answer any additional questions that you may
have. Please reach us at the following
numbers: Investors: 800-343-3736; Registered
Representatives: 800-435-5697.
Neither
Fund Seven nor its General Partner, nor the Liquidating Trust nor its Managing
Trustee, accepts any responsibility for, or assumes any liability for, any duty
to update or reliance upon the contents, accuracy, completeness, usefulness or
timeliness of any of the information contained under the headings “The Lessee”
contained within this document. The estimates and projections
contained in this update do not take into account any fees or expenses
(including, but not limited to, remarketing fees and expenses and attorneys’
fees and expenses) that may be necessary or advisable in connection with the
realization of such estimates and projections.
Forward-Looking Information -
Certain statements within this document may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, or the PSLRA. These statements are being made pursuant to
PSLRA, with the intention of obtaining the benefits of the “safe harbor”
provisions of the PSLRA, and, other than as required by law, we assume no
obligation to update or supplement such statements. Forward-looking
statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may
predict, forecast, indicate or imply future results, performance, achievements
or events. You can identify these statements by the use of words such
as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “predict” or “project” and variations of these words or comparable
words or phrases of similar meaning. These forward-looking
statements reflect our current beliefs and expectations with respect to future
events and are based on assumptions and are subject to risks and uncertainties
and other factors outside of our control that may cause actual results to differ
materially from those projected.
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