Trinity Industries has a railcar lease-backed transaction called Trinity Rail Leasing 2010-1 (TRL 2010-1).
Credit Suisse is the offering's sole bookrunner and structuring agent, according to a Standard & Poor's presale report released this week. Wilmington Trust is the trustee on the deal. S&P assigned a preliminary rating of 'A (sf)' to TRL 2010-1. Trinity Industries Leasing Co. (TILC), a wholly owned unit of Trinity Industries, serves as servicer and insurance manager on the transaction.
TRL will be funding the portfolio purchase, S&P said. The debt facility will fund 72.5% of the railcars's purchase price while TILC will finance 27.5%.
The collateral comprises a $509,261,970 portfolio of 6,734 railcars, the S&P report indicated. The issuer has the right to lease the portfolio's revenues as well as any residual cash flows from the sale of the railcars.
S&P cited several of the deal's strengths that include the young age (less than four years old) of the railcars backing the portfolio, their low maintenance, the long lead time for government mandated improvement programs, the low write-offs, and the diversified pool of tank and freight cars. The rating agency also noted the railcar leasing industry's historical stability and high utilization rates as well as the stable equipment and its long useful life.
Potential drawbacks to the deal are that most of the leases are full service, which exposes the deal to the railcars' variable expenses including maintaining and servicing them. Only 59.19% (40.81% are unrated) of the leases are rated, of which 37.82% are investment grade. S&P also mentioned the lower lease and utilization rates due to the leasing industry's general weakness.
S&P, which characterized railcar leasing as a very stable and predictable cash flow, said that the leasing industry is currently concentrated within a few major and several smaller players. The rating agency added that railroad firms view leasing, specifically operating leasing, as an attractive investment alternative and thus have focused on investing in imporving core operations versus certain railcar types.
