The Andersons Inc., an Ohio-based agribusiness, raised roughly $86.4 million through a railcar lease securitization. The deal funds the acquisition of three fleets of railcars operated in three countries - Mexico, Canada and the U.S. - by three corresponding newly created subsidiaries of the Andersons Rail Group. The Andersons will act as servicer.
Each of the subsidiaries of the Andersons is a co-seller to the securitization, issuing its interests in the acquired railcars and the cash flows tied to the leases through three SPEs, called NARCAT (U.S.), NARCAT Mexico, and CARCAT (in Canada). These then issue the interests into a separate trust, called TOP CAT, which sells notes to the investor group. The transaction is broken into four parts, three A classes and a B class (see scorecard p. 41, 2/16/04). MBIA wraps the top three classes of the four-part deal. The A-3 class is structured to suit Canadian investors, and is paid by the CARCAT cash flow exclusively (unless the MBIA policy is drawn), and will be sold only in that jurisdiction.
"Since 2001, MBIA has captured over 75% of the wrapped rail equipment structured finance market, working with independent rail equipment lessors, Class I Railroads and rail equipment manufacturers," John Morris, a director at MBIA in the financial and operating assets group. "Given our experience, we welcomed the opportunity to provide structural and legal solutions to complex jurisdictional and withholding tax issues involving the U.S., Canada and Mexico."
BB&T Capital Markets, BMO Nesbitt Burns and CapStone Investments underwrote the deal.
In total, about 6,700 railcars worth $92 million back the deal, with an average economic useful life of 18 years remaining (the average useful life is estimated at 36 years total). About 24% of the railcars are in triple-net lease arrangements with the lessees, while 32% are in partial or modified "full-service" lease arrangements. At the offering date, 87% of the fleet was being leased. There were also 48 locomotives in the pool. Less than 5% of the railcars are located in Mexico.
The transaction allowed the Andersons to purchase the railcar assets of Railcar Inc. and Progress Rail Servicers, both subsidiaries of Progress Energy. The intended acquisition of these assets was announced last March.
There are several unique aspects to this transaction, sources said. The most obvious challenge was structuring the deal to capture revenue streams coming out of three jurisdictions simultaneously. While the three SPVs are liable to all the notes, in order to minimize the amount of cash flow flowing cross border (and to minimize withholding taxes), structurers had to match the cash flow coming from each of the countries to the interests purchased by TOP CAT holding Co, the note-issuing vehicle.
Also unique to an operating asset securitization, the assets are
on average 18 years into their economically useful lives (which is about halfway through). Generally, transactions of this nature include newer assets, said one source familiar with the sector.
While the cash flow schedule will pay down the notes in order of seniority, the proceeds from cars that are destroyed, sold, retired or scrapped will pass through as principal for the A-3 class - a duel amortization schedule. This is similar to other operating transactions.