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SeaCube plans $300M notes issue via container lease ABS trust

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Securitization activity for marine cargo shipping container leases continues to thaw out after a long period of dormancy.

SeaCube Containers LLC is marketing $300 million in bonds backed by a portfolio of nearly 255,000 shipping containers with a net book value of $1.05 billion. The 2019-1 Series bonds, issued through the CLI Funding VI LLC Series master trust, will be paid from the lease receivables or sales of the fleet containers by SeaCube, the d/b/a of Container Leasing international.

Over 99% of the fleet collateral is in use via long-term lease or direct-finance arrangements with shipping firms, according to a presale reports issued Wednesday by S&P Global Ratings and Kroll Bond Rating Agency.

S&P and Kroll have each assigned a preliminary A rating to $285.9 million in Class A notes and a BBB to the Class B notes totaling $14.1 million.

The deal, expected to close this month, is SeaCube’s first since April 25, 2018, when its CLI Funding trust issued a $380 million series of fixed-rate notes (Series 2018-1) secured by its portfolio of container vessels.

The SeaCube transaction is also only the second ABS deal involving marine shipping containers in 2019. Last month, Textainer Equipment Management closed on a $254 million deal after a six-month gap in securitization activity in the esoteric class.

The lack of lease-backed container deals in the fourth quarter of last year and the first quarter of 2019 was the longest stretch of inactivity for the sector since 2016, when only a single $140 million transaction sponsored by SeaCube went to market that year.

The volume of deals took off, though, in 2017 ($2.76 billion) and 2018 ($2.4 billion) as container leasing companies like SeaCube, Textainer and Triton Container International capitalized on rising global trade levels that boosted demand for containers. In response, shipping firms increasingly opted to expand their fleets via leasing because of the rising manufacturing costs for containers.

S&P states that SeaCube’s Series 2019-1 securitization is particularly strengthened by its high concentration of “reefers,” or refrigerated containers, that make up 59.12% of the NBV of the portfolio. Reefers have historically had more stable demand and higher utilization rates than so-called “dry” standard containers.

The weighted average age of the fleet backing CLI VI is 3.04 years, older than most recent container securitizations rated by S&P.

The deal does expose investors to potential risks in the proportion of direct-finance leases (24.57% by NBV), according to S&P. Those DFLs could be recharacterized as secured debt in the event of a SeaCube bankruptcy, exposing the collateral to debtor claims.

The CLI Funding VI deal also lacks cash flow-based performance triggers that would hasten amortization in the event of cash-flow shortfalls or breached debt-service coverage ratios, S&P’s report states.

Mitigating some of that risk, however, is a nine-month liquidity account covering note interest through the transaction’s seven-year life, as well as a minimum interest coverage ratio of 2.0x that is higher than other peer issuers in the shipping container lease field, according to S&P.

At the end of 2018, CLI owned or managed 735,533 units in its fleet, of which 89% (by NBV) were placed under long-term leases and direct-financing arrangements. The fleet’s average age is 4.8 years.

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Shipping container ABS Esoteric ABS