Industrial Minerals Events

Transcription

1 Industrial Minerals Events 3 rd Annual Frac Sand Conference William J. Geiger Vice President September 2, 2015

2 Interest & Relevance Remains $/barrel $ WTI to Frac Sands Conference Attendance # Attendees 250 $ $80.00 $ $ $ $ WTI Frac Sand Attendance 2

3 Topics To Be Covered About Railroad Financial Corporation Railcar Market Update Financial Market Overview Strategic Approach to Lease Portfolio Management Q&A 3

4 Railroad Financial Corporation RFC is a financial advisory firm founded in 1989 Arranged over $20B in financing primarily related to rolling stock Advise on approximately $500MM in asset transactions per year What RFC does for its clients: Transaction Structuring Currently: Implementing a fleet strategy and restructuring a 3500 railcar fleet for a chemical shipper Arranging lease financing for 1900 plastic pellet and 500 tank cars for a petrochemical shipper Arranging lease financing for 1250 new tank cars for crude service Identify opportunities to cut costs within existing lease portfolios RFC has generated over $30MM in annual savings for chemical industry clients 4

5 Railcar Market Update Highlights (or perhaps Lowlights): Tank Cars Hopper Cars The Sand Story The Petrochemical Boom Other news GE Railcar Sale 5

6 Railcar Market Update Tanks Tank Cars: USDOT & Transport Canada issue new tank spec Safety enhancements include: Full-height ½ thick head shield, 9/16 tank shell thickness, thermal protection, 11- guage jacket, top fittings protection, & enhanced bottom outlet handle design Reuters September 1, 2015: Short-line Railroads Profit On Unused Crude Rail Cars Hundreds of both new and used cars are parked Sitting for 5 months and rumors of more on the way Also currently storing about 700 frac sand cars We d much rather be moving the cars than storing them. 6

7 Railcar Market Update Sand Hoppers The Sand Story A tale of two stories: 1. Rig counts decreasing Source: Baker Hughes Source: WSJ 3 railcars 70 railcars 7

8 17500 Railcar Market Update Sand Hoppers Small Cube Covered Hopper Order/Deliver Ratio Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Small Cube Orders Small Cube Deliveries Order/Del'y Ratio 50,000 cars ordered in 2014 over 50% growth in fleet Source: Chicago Freight Car Leasing & ARCI Committee of the RSI Technological advances in horizontal drilling mean more sand used per well Pick up in housing starts will help ease the pain 8

9 Railcar Market Update Plastic Pellet Hoppers The Petrochemical Boom Between 18,000 & 30,000 cars!! Source: IHS 9

10 Railcar Market Update GE? GE shifting focus to industrial operation, shedding $200B in finance assets GE Railcar $4B price tag?! Interested parties: Wells Fargo (First Union) Sumitomo Mitsui Financial Group PE firms Bloomberg Aug 27, 2015:

11 Financial Market Overview 1. Crude & Natural Gas Prices 1. Treasury Rates Where are we going?! 11

12 $/barrel Financial Market Overview $ Year Comparison: Crude to Natural Gas $14.00 $ $12.00 $ $10.00 $ $80.00 $60.00 $8.00 $6.00 $/MMBTU $40.00 $4.00 $20.00 $2.00 $0.00 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 $0.00 WTI Brent Henry Hub Natural Gas 12

13 Financial Market Overview Saudi Arabia USD $5B Bond Issuance Oil revenue makes up almost 90% of the countries budget income Bloomberg Sept 1, 2015 Iranian Oil Minister: Output to Return After Sanctions Lift Despite low oil prices, OPEC countries still plan to produce Iraq also said to be increasing output Causing many companies domestically to exercise constraint Aug 31: EIA lowered its US production estimates in the first 5 months of the year by 40, ,000 barrels per day for each month 6MM 20MM barrels?! Largest revisions from Texas & Gulf 13

14 July-05 January-06 July-06 January-07 July-07 January-08 July-08 January-09 July-09 January-10 July-10 January-11 July-11 January-12 July-12 January-13 July-13 January-14 July-14 January-15 July-15 Financial Market Overview Yr Treasury 10 Yr Treasury

15 Financial Market Overview When will rates rise and on what basis? August FOMC meeting Fragile consensus around raising in September Almost all members need to see more evidence that economic growth was sufficiently strong. The case for a rate increase in September became less compelling than it was a few weeks ago. China currency devaluation Job Market / Employment Inflation Continues to defy expectations Yellen: The importance of the timing of a first decision to raise rates is something that should not be overblown, whether it s September, or December, or March. What matters is the entire path of rates. 15

16 Financial Market Overview Investors, such as bank leasing companies, pursue investment opportunities in rail assets with tremendous fervor However, they remain skittish in oversold/oversupplied markets yielding lower residuals Desire for assets is driven by a demand for depreciation. Low interest rates make for a fertile lending environment. High levels of available capital for investment. Diversity in the manner in which companies buy or finance new or used equipment. Capital diversity decreases the amount of assets going into bank style leases, product volume decreases. Demand for product compresses credit spreads (borrowing costs), strengthens lessees negotiating position, shortened lease terms and increases residuals. The net result is attractive financing for lessees. 16

17 Strategic Lease Management Regardless of in which market you find your company: Take a proactive approach to your fleet Identify opportunities that may exist: Leverage the resources you have Complete a fleet analysis What do the demographics of your fleet look like? Can the ugly dogs be improved?? Create opportunities that may currently not exist Leverage your relationship with your lessors Develop new relationships with alternative investors/lessors 17

18 Strategic Lease Management Structure your fleet in line with corporate objectives What are the company s short and long-term goals? What are the company s core commodities? Can you establish a core and flex fleet? Take a structured approach to the market Take control of your costs rather than subject yourself to the market Look at it over the long term Ex: $85,000 new railcar today, mid-investment grade lessee: Car Cost Rent PCPM (net) Term Year 11 Purchase Option Remaining Economic Useful Life $85,000 $ $55, st refi $ $30, nd refi $ $16,

19 Thank You & Questions Will Geiger Railroad Financial Corporation 676 N. Michigan Ave Suite 2800 Chicago, IL