Leaner Trinity returns with another $530M railcar fleet securitization

Trinity Railcar is returning to the securitization market to help fund the expansion of its manufacturing and leasing business.

After spinning off its infrastructure-related businesses in November, it is focused on its rail manufacturing, leasing, and services businesses together with its highway products and logistics businesses. The company has a total of 120,850 railcars in its fleet, and it is securitizing 8,003 of them, or about 7%, in this transaction. It follows a transaction in June backed by leases on another 7,000 railcars. Before that, Trinity had not been in the securitization market for four years.

The leases backing the new deal have a lower weighted average lease rate, according to Kroll Bond Rating Agency. The railcars ultimately securing the transaction are also two years older, on average. However, there is a similar breakdown between tank cars (3,429 with an aggregate fair market value of $375.5 million) and non-tank cars (4,574 with an aggregate fair market value of $310.7 million). The entire portfolio is currently on lease, the majority of them (73.3%) full-service leases with Trinity responsible for covering maintenance costs.

The securitization is structured as a single, $528.3 million class of notes that amortizes by approximately 4% a year for the first seven years; after that, all remaining funds after paying senior fees, expenses and interest will be used to pay down the notes. The notes represent a 77% advance rate against the fair market value of the railcar portfolio.

In addition to overcollateralization, the securitization includes a liquidity facility, debt service coverage ratio trigger at 1.05x, as well as a utilization trigger at 80%.

Wells Fargo Securities is the sole structuring agent and joint bookrunner, along with Credit Suisse.

By comparison, the 2018 deal consisted of two tranches of notes with an advance rate of 77.6% and the senior tranche amortized over a straight line for 10 years, at which point the subordinate notes begin to amortize.

Kroll views Trinity as a "strong and experienced" servicer. As of Dec. 31, 2018, the utilization rate for its fleet was approximately 98.5% and it has maintained a historical average utilization rate of 98.7% since 1990, with an average obligor retention rate of approximately 70% during the previous five years. The company's write-offs as a percentage of revenue have been 0.5% or below since 2006.