NEW YORK, July 26 (IFR) - Acquisition finance, once fueled
strictly by bank loans and high yield bonds, is increasingly
including asset-backed debt as a funding method.
This week's $250 million shipping container-lease
asset-backed transaction from SeaCo Ltd, sold to the market by
Deutsche Bank (structuring lead), Bank of America Merrill Lynch,
and Wells Fargo, is a prime example of the growing trend.
The offering, which was nearly one year in the making, is
linked to Chinese conglomerate HNA Group's high profile
acquisition of a General Electric-affiliated container-lease
company, GE SeaCo, that was completed last December. GE SeaCo
was a 50-50 joint venture between GE Capital and SeaCo Ltd.
The sale was the largest foreign acquisition to date by HNA,
which bid for the American company via its Hong-Kong based
partner Bravia Capital, a private equity and investment firm.
HNA paid $1.05 billion in a share acquisition for GE SeaCo,
which is the world's fifth-largest intermodal container lessor.
HNA began bidding on GE SeaCo in mid-2011 with a
securitization financing package structured by Deutsche Bank and
committed to by Deutsche Bank and ING.
For the closing of the transaction late last year, that
financing commitment was syndicated to a global group of 12
banks, meaning that those banks shared in the risk.
This week's asset-backed transaction, backed by the cashflow
from lease payments on a portfolio of shipping containers, is
the first so-called term ABS deal, reducing and replacing the
syndicated securitization financing.
"This transaction almost has the look of a leveraged finance
transaction, but it's a true non-recourse offering repaid by the
cashflow of the containers," said one senior ABS banker.
GROWING SECTOR, WITH RISKS
Although auto loan-backed ABS are currently the main driver
of the securitization market in the U.S., so-called esoteric
asset classes, or those that derive cashflows from unusual
sources, are continuing to make a comeback this year.
One of those sources is intermodal container leases. After a
three-year lull, 2010 saw the first post-crisis issuance; 2011
followed up with six new ABS transactions -- the most ever in
terms of number of offerings (six deals totaling $1.49 billion,
according to Fitch).
This year is poised to outpace 2011, with $1.9 billion in
container lease ABS already issued, year-to-date.
Intermodal containers are standardized steel boxes that have
streamlined efficiency in transporting products worldwide over
the past 50 years. Goods remain packaged in the same container
throughout the shipping process, reducing loading and unloading
time, and allowing more efficient and secure transport.
The collateral in the SeaCo deal included 46,317 units with
over $237 million in net book value (NBV). Dry and refrigerated
containers, combined, accounted for more than 83% of the
aggregate NBV of the collateral pool.
Tank containers represented 13% of the aggregate NBV, with
dry freight special containers comprising the remainder,
according to DBRS. Overall, the collateral for the notes
included 12 different container types.
While transaction performance for these types of deals has
been steady, the high cyclicality of the container industry
calls for close scrutiny of transaction mechanics, particularly
the level of credit enhancement, or the cashflow buffer
protecting the most senior bonds, Fitch said earlier this year.
Moreover, elevated container utilization rates across the
industry create an incentive for lessors to increase container
production. Given the low barriers to container production,
overproduction is possible. Container oversupply would apply
downward pressure on utilization rates, lease rates, and asset
values, Fitch said.
Prices of containers have fluctuated over time and are
highly dependent on the price of steel, which makes up the
largest component of container pricing.
Container lessors own and manage containers globally,
leasing their fleets to shippers and other trade operators.
Customers of the lessors are generally global shippers.
Container ABS transactions have been issued since the 1990s.
Current outstanding bonds total roughly $3.4 billion and date
back to 2004 issuance, as transactions typically follow a
10-year, straight-line amortization schedule.
The offering, titled SeaCo Container 2012-1, marks the first
time the issuer has tapped the U.S. ABS market since 2005.
SeaCo owns and manages more than 870,000 20-foot equivalent
units, the industry's standard measure, and now operates as a
core business within HNA's existing logistics and finance
This week's 2012-1 series was offered in a 144a/Reg S
format, rated Single A by S&P and DBRS, and offered a weighted
average life of five years.
After pricing guidance was disseminated earlier in the week
at a yield in the 4.25% area, final pricing tightened to 4.15%.
The coupon was set at 4.11% with a dollar price of US$99.98017.
This coupon represents efficient funding for a
container-lease company: For a pricing comparison, the $225
million CLIF V 2012-1 (Seacube Container) ABS transaction, which
priced back on June 15th, offered a thicker yield of 4.25%, a
coupon of 4.21% and a dollar price of US$99.98761. Issuers
always strive to deliver lower yields to investors in order to
achieve the most efficient cost of funding.
This week's SeaCo deal was also increased in size from an
initial amount of $200 million due to strong investor demand.
Container-lease ABS may be an attractive investment, even
compared to other on-the-run ABS sectors, analysts said. For
instance, the 4.15% yield from SeaCo offers generous spread
pick-up when compared to a three-year Triple A rated prime auto
ABS bond or a seven-year Triple A rated high quality credit card
ABS, which offer yields of approximately 0.7% and 1.5%,
respectively, investors said.
Approximately 20 investor accounts were heard to be included
in the book order for the SeaCo transaction, and the deal was
roughly two times oversubscribed.
Back in 2011, it was common for only 10-12 accounts to take
part in a similar transaction, according to securitization
The investors involved in the SeaCo offering were said to be
those with a stable presence in the ABS market. Looking ahead,
SeaCo does not plan to wait another seven years for its next new
offering, but it likely won't occur until at least 2013,
according to sources close to the transaction.
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