There’s growing interest in bonds backed by shipping container leases, and this could prompt underwriters to structure deals with higher-rated tranches, analysts at DBRS said in a webcast that took place Wednesday.
So far this year-to-date, there has been $1.5 billion of container ABS issuance, compared with $2.7 billion for all of 2012 and $1.5 billion for 2011.
Currently, most bonds issued by securitization trusts are rated no higher than ‘A’ by DBRS. For example, a deal SeaCo completed in May consisted of a single, $200 million tranche of notes rated ‘A’ by the credit rating agency.
The container trade continues to expand. The global container fleet is expected to grow by 5.5% in 2013 and 6.9% in 2014. And an increasing proportion of the fleet is being leased. DBRS’ presentation cited data from TAL International showing that marine container lessors accounted for approximately 62% of new container production from 2009 to 2012; it is expected to account for as much as 70% of new container orders in 2013.
Securitization isn't the only kind of financing available to lessors. The lead players also have acces to asset-backed financing, as well as both public and private equity to fund the purchase of new containers. In December 2011, Seaco was acquired by HNA Group; more recently, SeaCube was acquired by the Ontario Teachers’ Pension Plan in April 2013.
DBRS analysts said that the transaction structures for container lease securitizations are well developed and were tested during the most recent economic downturn. There were very low credit losses and high recoveries among the chief lessors.
This strong performance is boosting demand for new issuance, and DBRS thinks there would be even more demand for tranches rated higher than single-A. In the presentation, analysts said deals could be structured to make tranches less risky.
A slide accompanying the presentation listed a possible example of such a tranche: it would have a shorter term with a maturity related to the weighted average life of a discrete pool of direct finance leases.