Napier Park adds shorter repayment period in next railcar lease ABS

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Napier Park Global Capital is pooling its first investment portfolio of railcar leases in two years in a $258.4 million securitization transaction.

The deal, dubbed NP SPE IX LP, is a collection of leases for 3,489 transportation railcars are serviced by Trinity Industries, but have been acquired by a Napier Park special-purpose entity that provides returns to Napier Park’s Real Assets investment program.

According to Kroll Bond Rating Agency, the NP SPE IX trust will market three classes of notes, including a $73.9 million Class A-1 tranche that carries a preliminary A rating from Kroll (as well as from S&P Global Ratings, which issued its early ratings on the deal late Wednesday). The notes will amortize over seven years through the expected repayment date of September 2026.

Both a $165.6 million Class A-2 tranche (also rated A) and an $18.9 million Class B-1 offering rated BBB have a “soft bullet bond” feature, in which the principal will be made with a single payment on the anticipated September 2026 repayment due.

The 7-year repayment date is shorter than the 10-year period established by Napier Park’s previous transaction in 2017, which securitized leases on 6,382 railcars. The NP SPE II LLC transaction had a younger fleet, however, with a weighted average age of 5 years compared to 5.8 years in the current deal.

The notes are secured by fair market collateral of 3,489 railcars on full-service lease by Trinity to various manufacturing and industrial industries. (Full-service leases hold Trinity responsible for railcar maintenance.)

The railcar types are split between 1,820 non-tank freight cars with a fair market value of $138.1 million and 1,669 tank railcars with a $177 million market value. Nearly all (99.7%) of the railcars in the pool are currently in use, at an average monthly lease rate of $691.

All of the railcars were also manufactured by Trinity, which accounts for about half of all railcar deliveries in the U.S. each year, according to Kroll. The company has a historical in-use rate of 98.6% of its railcar fleet that today stands at 124,650 railcars, and an average lease renewal rate of 69%.

Credit Suisse is the sole structuring agent and bookrunner on the transaction.

Kroll stated that demand for railcars has diminished in recent years, including a 2.9% year-over-year decline in U.S. carload traffic in the first six months of 2019. While demand for grain and polyethylene product transport has “an overall positive outlook,” the report stated, petroleum and coal demand has weakened due to downward pressure on energy prices as well as from regulatory impact.

Midwest flooding has also factored in, as well as potentially the U.S-China tariffs wars, Kroll noted. “There are conflicting views on whether tariffs have had an impact on rail volumes to date; however, tariffs could impact exports of agricultural products, which could affect rail volumes.” Agricultural products were formerly among the exports to China, but “since the tariff policies began last year, agricultural goods have dropped out of that top five list in most states,” the report added.

Kroll also reports that will utilization rates have remained high in rated securitizations of railcars (including those sponsored by Trinity itself), “the industry continues to see lower lease rates in some car types.”

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