A portfolio of about 4,363 rail cards carrying a cargo of biofuels, plastics and sulfur products will secure $325 million in asset-backed securities, through a master trust called the Trinity Rail Leasing 2021-1.
For this transaction, Trinity Rail Leasing will issue two classes of notes, one senior and one subordinate. Wells Fargo Securities is the sole structuring agent and lead bookrunner, and created a master trust that can issue additional series of notes after the deal has closed, according to Kroll Bond Rating Agency.
The structure is a positive consideration, according to KBRA, noting that the class A notes will amortize to a loan-to-value-ratio of 67% in approximately seven years.
The trust can make railcar dispositions during the life of the 2021-1 securitization. This ability allows the servicer, Trinity Industries Leasing Company, to take advantage of market opportunities, is creates the potential for the collateral pool to shift to a weaker position. Yet KBRA also expressed confidence in TILC, which has already securitized 120,030 railcars, with an aggregate value of $9.5 billion.
[
One aspect of the deal is a potential drawback, however, according to KBRA. The notes have a potential for negative carry during the period when a significant portion of the fleet has been sold, but the proceeds have not been reinvested in new collateral or used to pay down the notes.
The deal continues Trinity Rail Leasing’s practice of financially supporting low-carbon transportation, specifically through financing acquisitions, purchases and refurbishments of freight railcars. On a per ton-kilometer basis, rail freight transportation helps support lower carbon emissions much better than road transportation options.
The railcars break down to two general types, tank and non-tank. About 88.3% of the railcars are on full-service leases, while 8.4% of the pool is leased on a per diem basis, while 3.3% are on net leases, says KBRA. None of the cars in the underlying portfolio are off lease.
On railcars, the lease contracts work similarly to credit tenant leases, or CTLs. On a full-service lease, the lessor is fully financially responsible for the railcars’ maintenance and servicing costs, taxes, and providing ancillary services to the lessee. In per diem leases, the lessor maintains and services the railcars, and the contracts require the lessee to pay rent only for the days that the equipment was used above a pre-established minimum. Under a net lease, the lessee is responsible for all maintenance, applicable taxes and expenses.
