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Textainer readies shipping container ABS backed by newer vessels

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Textainer Equipment Management has gathered another fleet of newer intermodal shipping containers in the first securitization of globally leased containers for 2019.

The $254 million Textainer Marine Containers VII Series 2019-1 transaction pools an initial fleet of 75,706 dry and refrigerated container vessels with a weighted average age of 2.1 years, which is younger than other recent lease container securitizations rated by S&P Global Ratings.

Two tranches of rated notes will be issued: $234.9 million of Class A notes carry a preliminary A rating from S&P Global ratings and $15.1 million of Class B notes are rated BBB. The ratings were similar to the 2018-1 series.

RBC Capital Markets is the structuring agent.

The notes are secured by the approximately $294.4 million net book value (NBV) of the containers. The notes will be paid through lease receivables, but will exclude any net lease revenues or residual cash flow stemming from asset sales. Those proceeds will instead be treated as income for the trust.

This is the second series of notes to be issued through the Textainer Marine Containers VII master trust, following the July 2018 series that had an even younger fleet age average of 1.52 years.

Textainer’s fleet age was slightly below the range of 2.36 to 2.81 years in 2017 and early 2018 ABS transactions by competitors such as CAI International and Triton Container International Ltd., according to S&P.

Textainer’s younger fleet reflects the bulk of its new long-term leasing contracts that mostly utilize new containers. These containers, both dry cargo units of various sizes and refrigerated vessels, can be supplied on a quick-turn basis from international manufacturers depending on demand. Prices have fallen in recent years due to declining steel prices.

Last December, Textainer Group Holdings President and Chief Executive Olivier Ghesquiere disclosed during an earnings conference call that nearly 75% of the company’s leasing activity in the fourth quarter involved new-production containers. New-container production has increased with rising trade demand since 2017, preceded by a period in which overcapacity in shipping container vessels and low post-crisis lease rates stymied new-unit assembly.

The containers now cost an average of $1,700 per CEU, or cost-equivalent unit, according to Textainer. (CEUs can vary for each container depending on capacity size or specialty use.) That is down from approximately $2,200 per CEU in mid-2017.

The most recent shipping container asset-backed transaction was the $344 million ABS deal managed by CAL, a subsidiary of CAI, with an equivalent 2.11-year fleet age average in September 2018. It was the last of eight securitizations in 2018 featuring $2.42 billion in bonds secured by the underlying container fleets.

CAI, Triton and SeaCube Container Leasing Ltd. each sponsored two deals in 2018.

Leasing rates have declined since the first of the year, according to S&P, but the container leasing firms maintain stable utilization rates for their fleets, “linked to modest growth in global trade and reduced levels of capital spending, which continue to result in relatively stable supply,” S&P’s presale report stated. The ratings agency warned external economic factors affecting trade (global trade wars, Brexit, and instability for certain oil-producing countries) could affect the global container market.

The high 43.82% concentration of refrigerated containers (or “reefers”) by NBV in Textainer’s deal also concerns S&P analysts, given slower demand for the specialized containers.

But Textainer’s buffer against fluctuations in demand and rate trends is the large share (98.5%) of the portfolio by NBV covered by long-term and direct finance leases that are shielded from potential rate reductions, should a global economic downturn affect trade and shipping demand.

In December, Moody’s warned that the credit quality of shipping lines and container leasing companies was likely to weaken this year based on rising bunker fuel costs and escalating tensions in U.S.-China trade relations.

“Although slowing trade growth will likely weaken demand for containers, container supply will quickly adjust accordingly as a result of the short lead time to manufacture containers, which will allow lessors to quickly adjust their orders for new containers. Manufacturers will be able to respond by scaling back production to adjust to softening demand, similar to what occurred during the 2008-10 financial crisis.

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