Just one day before heading to the tropics for this fall's batch of conferences, Interpool Inc. and investment bank Wachovia Securities clinched the second phase of a groundbreaking $540 million chassis securitization, structuring and placing equity with a pair of leveraged-lease investors.

The transaction, which has been in the works for well over a year, collateralizes the lease payments coming off a portfolio of shipping-container railcar chassis. Such chassis are used for ground transport of the shipping/cargo containers.

Essentially, the equity investors purchased the rights to the tax benefits associated with the leveraged lease, in exchange for a lower equity return profile, allowing Interpool a lower overall cost of funds. The lease investors have the tax benefits tied to the accelerated depreciation of the chassis, which are new when purchased.

"It was a successful transaction for us," said Mitch Gordon, executive vice-president and chief financial officer at Interpool. "It gave us the ability to access the market on a very efficient basis and lower our overall interest rate."

In March, when the asset-backed component of the transaction was structured, the debt was placed in Wachovia's Variable Funding Capital Corp. ABCP conduit. MBIA provided a triple-A wrap.

Within the next month or so, the company will pull the deal out of VFCC and issue approximately $450 million worth of triple-A rated term notes in the 144A market, sources close to the transaction said. The class breakdown and tenors have yet to be yet to be determined.

While incorporating a leveraged-lease structure is not entirely new to securitization, this is the first visible instance that the combination involved an operating asset securitization, as opposed to the more typical lease ABS, where the debt is backed by scheduled payments from a portfolio of term contracts, a source said.

In this case, the payments from the chassis are dependent on Interpool's ability to reap value from the portfolio, continually re-leasing the chassis for as much return as possible, but with nothing guaranteed.

"This takes the combination of ABS and leveraged lease technology to the next higher level," a lawyer instrumental in the deal commented.

The complexities of the transaction required more extensive investor education - one reason the deal was so long in the making - according to parties involved. "It took time for the asset-backed debt people to recognize some of the concerns of the leveraged-lease equity investors," said a source close to the deal. "And vice-versa, it had to be explained to the equity investors that was not your grandmother's leveraged lease deal."

Interpool is the third largest lessor of sea containers globally and is the largest lessor of chassis. In 1999, Interpool established a securitization facility for a portfolio of containers, worth approximately $250 million. In 2000, the company securitized $280 million worth of chassis. Both deals were funded in the conduit market.

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