WLFC almost down to 13$/ share. Book value is ~22.5$, so it is trading at a considerable discount. Not that many book value bargains available, so I looked into this business a bit more.
1) Leverage is huge (5:1 nominally) but WLFC has securitized some assets in a WEST entity with Mitsumi. Mitsum also provided financing for WEST II.
2) WLFC is much smaller than most competitors and does not pay a dividend. WLFC is apparently controlled by it's founder.
3) deprecation of 52M$ for ~1B$ in assets implies a 20 year economic life of their assets (mostly aircraft engines). This seems high but there is no evidence, that they overvalue their assets. They did make some gains on asset sales, but most of those were to related parties.
4) credit risk - they mention in their 10-k that they have a 4.5:1 leverage ratio in their loan covenants.That translates into a 186M$ net worth requirements. Current net worth is 199M$. Not a whole lot of buffer in my opinion.
In addition, any deterioration in the financial condition of our customers may adversely affect future lease revenues. As of December 31, 2012, all but one of our leases are accounted for as operating leases. Under an operating lease, we retain title to the leased equipment, thereby retaining the potential benefit and assuming the risk of the residual value of the leased equipment. .
We generally depreciate engines on a straight-line basis over 15 years to a 55% residual value. Spare parts packages are generally depreciated on a straight-line basis over 15 years to a 25% residual value
I'll pass on this.I think the upside is book value (22.5$) but that is only likely if they sell out. Since WLFC is controlled by the owner, it would be up to him to make a deal. The downside is that loan covenants are violated and the banks demand a very dilutive capital raise. I think shareholders would loose 50% in this case with some chance of recovery, since the owner would loose control of the company most likely
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