Element Rail Leasing is trundling into the market with securitization of railcars, according to a presale from Standard & Poor’s.
The deal totals $340.3 million and is divided into an A (sf)-rated tranche for $87.5 million, another A (sf)’ piece for $220.8 million, and a BBB (sf)’ tranche for $32 million.
Collateral consists of 4,267 railcars worth an estimated $402 million. The expected maturity is seven years.
The servicer on the deal is Trinity Industries Leasing Co.
S&P cited the high, stable utilization rates in the U.S. railcar industry; the low risk of technical obsolescence; and the youth of the railcars in the portfolio as a few of strengths of the securitization.
On the flipside, “a majority of the leases are full-time, which exposes the transaction to the railcars’ uncertain variable expenses, such as maintenance and servicing,” the agency said. In addition, a little over a third of the pool consists of DOT-111 railcars, which could face regulatory changes.
Though Element Corporation started up in May, 2007, it is relatively new to the railcar leasing business, according to S&P. The administrator’s short operating history is mitigated by the experience of the servicer, Trinity Industries Leasing (TILC).
While the higher energy production in states such as North Dakota and Montana have spurred on the railcar industry, a number of accidents of tank cars carrying crude oil has simultaneously cast a pall on the industry’s practices. Railroad operators have proposed making changes while regulators are considering their own rule changes.
S&P believes a rule change would probably take years to come into effect.