Triton Container International is marketing another $350 million of notes backed by a significantly larger portfolio of shipping containers in its third transaction of the year, according to a presale report from S&P Global Ratings.
Triton Container Finance VI LLC 2017-2 is the seventh offering of shipping container ABS by anyone so far in 2017. The offeirng consists of two tranches of notes, an $333 million senior tranche rated A and $17 million subordinate tranche rated BBB. The notes pay interest at a fixed rate and reach final maturity in August 2042.
Collateral consists of a portfolio of 197,912 shipping containers with a net book value (NBV) of approximately $785 million. The portfolio includes just over 100,000 more shipping containers than Triton’s second securitization of the year (the first from this platform), which issued a portfolio of 97,207 shipping containers with an NBV of $376 million.
It is the second-largest portfolio in a shipping container ABS this year, behind Textainer International’s 2017-2 deal which had a portfolio of over 313,000 containers.
Although dry containers are the most widely used type of container in the industry, S&P acknowledged that standard dry containers have “historically been more sensitive to sector downturns,” and noted the high concentration of standard dry shipping containers as a risk factor in the deal.
Just fewer than 18% of collateral are dry shipping containers, and the total concentration of dry containers (including “high-cube” dry containers) in the pool is 60.4%. For comparison, the concentration of all dry containers in Triton’s previous securitization was two basis points lower.
The transaction also includes concentration limits for the pool, which the presale noted as a positive factor for the deal. Amongst these limitations is a 60% maximum on the concentration of the top three lessors in the pool.
Right now, the top three lessors comprise 34% of the pool. While significantly lower than the maximum concentration allowed, S&P noted this concentration as a risk factor should one or more of the companies experience a weakening in performance.
Long-term shipping container leases are shielded from rate reductions during economic downturns, making a higher concentration of term leases in an ABS pool credit-positive. S&P noted that the high concentration of long-term leases in the pool (nearly 84%) strengthens the transaction and mitigates some risk associated with global economic downturns.
However, this is approximately seven percentage points lower than the concentration in series 2017-1, and the third lowest in a shipping container ABS issued this year. The pool also includes short-term leases, which were not included in the previous deal.
Approximately 3.63% of the portfolio is currently off-lease, down 26 basis points from the concentration in 2017-1 and nearly 1.5 percentage points lower than in Triton’s inaugural 2017 deal (TAL Advantage VI LLC Series 2017-1).
Shipping containers are exposed to the global market, with supply and demand primarily influenced by the level of world trade. During the 2008 financial crisis, shipping container demand lessened significantly; since 2013, demand for shipping containers has grown slightly, though it is still weaker than expected.
However, container lessors have grown their fleets since late last year given a recent increase in container demand and favorable prices on new shipping containers. Some shipping lines began acquiring their own containers, though S&P noted that “this trend has recently reversed due to shipping lines’ constrained liquidity.”
RBC Capital Markets, Mizuho Securities, and MUFG Securities America are the initial purchasers and bookrunners for the deal. Wells Fargo will act as the indenture trustee and transition manager.