Global Container Assets 2014 Ltd.

Transcription

1 Presale: Global Container Assets 2014 Ltd. Primary Credit Analysts: Alexander Dennis, CFA, Chicago (1) ; Hector O Campos, New York (212) ; hector.campos@standardandpoors.com Secondary Contact: Weili Chen, New York (1) ; weili.chen@standardandpoors.com Corporate & Government Credit Analyst: Betsy R Snyder, CFA, New York (1) ; betsy.snyder@standardandpoors.com Analytical Manager, U.S. Structured Credit New Issuance: Winston W Chang, New York (1) ; winston.chang@standardandpoors.com Legal Contact: Wen Wu, New York ; wen.wu@standardandpoors.com Table Of Contents $273 Million Fixed-Rate Secured Container Equipment Notes Rationale Transaction Strengths Transaction Weaknesses Mitigants To Transaction Weaknesses Notable Features Industry Characteristics--Sector Outlook Transaction Structure Servicer DECEMBER 17,

2 Table Of Contents (cont.) Managers Portfolio Characteristics Cash Flow Assumptions Utilization Utilization Rate Assumptions Lease Rates Useful Life And Residual Cost Operating Expenses Management Fees Lessee Defaults And Container Loss Cash Flow Results Payment Priority Events Of Default Early Amortization Events Manager Defaults Legal Matters Surveillance Standard & Poor's 17g-7 Disclosure Report Related Criteria And Research DECEMBER 17,

3 Presale: Global Container Assets 2014 Ltd. $273 Million Fixed-Rate Secured Container Equipment Notes This presale report is based on information as of Dec. 17, The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings As Of Dec. 17, 2014 Class Rating(i) Amount (mil. $) A-1 A (sf) 100 A-2 A (sf) 120 B BBB (sf) 53 Shares NR 163 (i)the rating on each class of securities is preliminary and subject to change at any time. NR--Not rated. Profile Expected closing date Legal final maturity date Collateral Structuring agent Initial purchaser Issuer Sellers Servicer Managers Indenture trustee Dec. 18, Jan. 5, A $429,432,399 (NBV) portfolio containing 192,816 containers. Global Container Assets 2014 Ltd. has the right to net operating income from the portfolio and any net residual cash flows from the sale of containers. BNP Paribas Securities Corp. BNP Paribas Securities Corp. Global Container Assets 2014 Ltd. BCIM Partnership (BCIM P), Buss Container International GmbH & Co., KG (BCIM KG), BCI 2 Partnership (BCI2 P), and BUSS Global Assets 1 L.P. (BGA1 LP) BUSS Global Management Pte. Ltd. Textainer Equipment Management Ltd., Raffles Lease Pte. Ltd., Cronos Containers (Cayman) Ltd., SeaCo SRL, Florens Management Services (Macao Commercial Offshore) Ltd., TAL International Container Corp., Container Applications International Ltd., Dong Fang International Asset Management Ltd., Seacube Container Leasing Ltd., Taylor Minster Leasing Ltd., and UES International (HK) Holdings Ltd. (ranked by NBV under management in this transaction). U.S. Bank N.A. NBV--Net book value. Rationale The preliminary 'A (sf)' and 'BBB (sf)' ratings assigned to Global Container Assets 2014 Ltd.'s (the issuer's) fixed-rate secured container equipment class A-1, A-2, and B notes reflect our view of: DECEMBER 17,

4 The likelihood that timely interest) and ultimate principal payments will be made on or before the legal final maturity date. The initial and future lessees' estimated credit quality. The portfolio characteristics, including the asset quality and lease terms. The transaction's structure. The servicer's experience in managing the container portfolio through multiple managers. The eleven managers' (Textainer Equipment Management Ltd. [Textainer], Raffles Lease Pte. Ltd. [Raffles], Cronos Containers (Cayman) Ltd. [Cronos], SeaCo SRL [SeaCo], Florens Management Services (Macao Commercial Offshore) Ltd. [Florens], TAL International Container Corp. [TAL], Container Applications International Ltd. [CAI], Dong Fang International Asset Management Ltd. [Dong Fang], Seacube Container Leasing Ltd. [Seacube], Taylor Minster Leasing Ltd. [Taylor Minster], and UES International [HK] Holdings Ltd.'s[UES]) experience in the container leasing market. Certain compliance tests, concentration limitations, and early amortization events included in the transaction documents. Transaction Strengths We consider the following to be transaction strengths: The container leasing market's high utilization rates because of the modest growth in global trade and below-historical-average production of containers, which continues to result in relatively tight supply. The 11 reputable third-party managers; each manages a distinct portion of the issuer's portfolio in this transaction, which can diversify the risk from each manager. BUSS Global Management Pte. Ltd. (BGM), the servicer, closely tracks and reviews the performance of the 11 managers. The transaction benefits from diversification through the multiple lessor-manager relationships. The performance tests, such as the asset base compliance and early amortization event tests. Early amortization events include an event of default, an interest coverage test set at 1.1x, and the outstanding notes' aggregate amount exceeding the asset base. If any of the concentration limitations are breached, the excess concentration will be excluded from the asset base. The transaction's expected principal repayment date for the class A-1 notes is about four years after closing, which is shorter than that of other container transactions. Similarly, the class B notes have an expected principal repayment date about nine years after closing. The interest reserve account, which equals nine months' note interest (excluding additional interest and default interest). Transaction Weaknesses We consider the following to be transaction weaknesses: The relatively old age of the marine cargo containers included in the portfolio that, by net book value (NBV), is on average approximately 7.04 years compared with other container portfolios that are usually one to two years old. A notable percentage of the leases (by NBV) are short-term leases (26.0%), which is higher than the short-term lease percentage in some other rated container deals. Containers on short-term leases are typically exposed to risks from not being re-leased and/or potential lease rate reductions during a downturn. The relatively low per diem (or daily) rate by unit compared with that in other rated container transactions. The per diem rate per unit is $1.39 compared with other rated transactions (see table 2). DECEMBER 17,

5 By NBV, 90.7% of portfolio is dry box, which we believe is less resistant to economic cycles compared with refrigerated container (reefer) box. Some managers, for example, Taylor Minster, UES, Dong Fang, and Raffles, are relatively new compared with other managers. The issuer relies on the 11 managers to manage the transaction's inventory, billing, and collection of rental payments. The servicer is responsible for reviewing and consolidating the performance information reported by the managers. There is an approximate 60-day reporting lag between the end of the relevant reporting period and the date when the servicer report for the relevant reporting period is distributed. Therefore, certain early amortization events relating to the container portfolio's performance (e.g., the EBIT ratio) and the calculation of any supplemental principal payment amount will be calculated on a delayed basis and may result in certain funds being released to the issuer that could have been used for principal payments on the rated notes. There can be potential conflicts of interest with the managers' (or the managers' affiliates') own container fleet, especially when the managers' containers and the issuer's containers (which are managed by the manager) are ready for leasing at the same time. The existence of the affiliate relationship between the servicer and Raffles (one of the managers) may cause some of the other managers to hold back certain information from the issuer and the servicer that such managers believe to be competitively sensitive. Global, regional, or local economic downturns could reduce the issuer's revenue because leased containers are deployed worldwide. Approximately 27.4% of the pool is held by the three largest customers, whose performances may affect the issuer's revenue receipts. The default of a customer with containers located in certain countries could make it economically or legally difficult to recover the container assets. The direct finance leases (DFLs; 6.7% by NBV) in the transaction may be "recharacterized" as secured debt in the event that the lessee files for bankruptcy. Since lessors and secured lenders have different rights and remedies as creditors in a bankruptcy, a debtor may seek to recharacterize a lease to take advantage of these distinctions. Mitigants To Transaction Weaknesses We believe the following factors partly mitigate this transaction's weaknesses: Although this transaction's container portfolio is older compared with other rated container transactions, the notes also amortize faster. The class A-1 notes follow a four-year amortization schedule, and the class B notes follow a nine-year amortization schedule. The stress scenarios we apply to the utilization rates can typically incorporate 60% of lessee defaults during the lease term for a three-year operating lease that is subject to six months of downtime between lessees. We incorporated the stress scenarios that we apply to the cash flow modeling for fleet utilization, lease rates, and operating expenses through two sector downturns--the first is four years long and the other is three years long--during the fleet's life. Our scenario analysis comprises 'A' and 'BBB' stresses, which will occur after the transaction closes even though we believe the sector is in a recovery cycle. The transaction benefits from diversification through multiple lessor-manager relationships. Although this multi-manager structure adds in operational complexity, the servicer has experience in managing this type of complexity because it has actively monitored the performance of the managers for the issuer's portfolio since DECEMBER 17,

6 This multi-manager structure has also been utilized by Buss Capital GmbH & Co. KG's (Buss Capital's) container funds since 2003, which were able to raise funds through the economic crisis. Buss Capital, based in Hamburg, Germany, raises and manages funds from retail German investors for specific investments in real estate, ships, port equipment, and containers. Since inception in 2003, Buss Capital has launched 41 closed-end container funds with total investments of $2.91 billion in Germany and Singapore. To address the 60-day portfolio performance reporting delay that may affect some performance triggers, we modeled a two-month delay for performance triggers in our cash flow model. We applied additional stress (additional 5% haircut) on the utilization rate and residual value on the issuer's portfolio managed by Raffles because we view Raffles to be relatively new in the international container leasing market. Although Dong Fang is relatively new in the international container leasing market compared with other global container lessors, it is a fast-growing container lessor. According to industry statistics, Dong Fang is one of the top three Asia-based container lessors in terms of 20-foot equivalent units (TEUs). The operating performance of the issuer's portfolio managed by Dong Fang is efficient in our view as illustrated by the low operating expense and high utilization rate. We analyzed the transaction without giving credit to cash flows generated by Taylor Minster and UES International, which total to 1.1% of NBV. Each note's rating was not dependent on these cash flows. In case of manager defaults, the servicer will act like a manager transition facilitator to replace the defaulted manager. We modeled a higher management fee (to be consistent with the prevalent market rate for management fees) through the life of the transaction to determine that the transaction has available financial resources to replace the manager if one or more managers do not perform. The transaction has a liquidity account to cover nine months' note interest throughout the transaction's life. Based on our findings that indicate shipping lines have not attempted to recharacterize DFLs as secured debt, we use recovery delay assumptions consistent with other business loan-backed securitizations. In those cases, we assume a two-year delay in our sensitivity test for 'A' category ratings and 18 months for 'BBB' category. We will monitor the proportion of the pool subject to DFLs, according to our usual surveillance procedures. We model the loss of container assets following lessee defaults in one of our sensitivity tests. Notable Features Multiple managers At closing, the container portfolio is expected to be managed by the 11 managers listed above. Each manager manages a distinct portion of the issuer's portfolio. The composition of managers may change over time based on the terms of the related management agreements and each manager's performance. If a manager defaults under a management agreement, the servicer will appoint a replacement manager for the defaulted manager. We have rated transactions for Textainer, TAL, Dong Fang, SeaCo, Seacube, CAI, and Cronos and therefore, are familiar with their management capabilities. Industry Characteristics--Sector Outlook Demand for marine cargo containers is primarily based on the level of world trade, which correlates with economic cycles. We believe other factors affecting demand include the needs of shipping lines (marine cargo containers' major DECEMBER 17,

7 customers), the available supply and cost of equipment, and the availability of capital to purchase or lease the needed equipment. At the end of 2013, marine cargo container lessors owned and managed approximately 48% of the global marine cargo container fleet. World trade had historically grown every year through 2008 until trade volumes for marine cargo containers declined by 10% in 2009, which reduced demand, lease rates, and utilization of leased cargo containers. These declines, in turn, led to higher direct costs (e.g., storage) for marine cargo container lessors. During that downturn, some shipping companies did not have access to capital and therefore, defaulted on or restructured their obligations; some even closed down their operations. However, the dollar amount of write-offs the marine cargo container lessors experienced remained modest, and they were able to recover most, if not all, of their equipment. During the same period, marine cargo container lessors substantially reduced their capital spending by adding minimal numbers of new containers to their fleets and minimizing the downturn's effect on their utilization rates. Since 2010, the global demand for goods has increased, causing container trade volume to increase. In 2013, the marine cargo container lessors added modestly to their container fleets to meet weaker, albeit still growing, demand and also because shipping lines began to acquire more containers on their own to take advantage of favorable pricing. This reversed the recent trend in which lessors acquired most of the new containers. However, some shipping companies are still facing liquidity constraints and leasing provides more financial flexibility relative to the capital investment necessary to outfit a fleet. For 2014, the growth is estimated to be approximately 4%--still below the historical average--with stronger demand later in the year offsetting weakness earlier in the year. Thus far, market conditions have improved somewhat, with stronger economic growth in North America offsetting weaker growth in Europe. This trend, as well as the ongoing retirement of older equipment, has resulted in stronger utilization rates. Yet lease rates have not recovered because, in our view, the cost of capital is still lower for the container lessors than for the mostly less-creditworthy shipping lines. We believe the cost of capital is lower for the container lessors due to the spate of asset-backed securities (ABS) financing that they have taken advantage of. Historically, the leased container fleet has accounted for approximately 45% of the total fleet, a trend we expect to be maintained despite the shipping lines adding more containers on their own. We expect stable-to-improving market conditions through the end of 2014 and into 2015 based on certain modestly improving global economies (e.g., the U.S.) and the ongoing retirement of older equipment, which should result in relatively stable utilization and modestly higher lease rates. Nonetheless, if the marine cargo container lessors see demand weakening, they can reduce capital spending fairly quickly because the lead times to order equipment tend to be one to three months. We believe that this, along with the multiyear leases that cover approximately 75% of the marine cargo container lessors' fleets, allows the industry to manage its utilization levels even in periods of weak demand. For more information on our current view on container lessors, please see "Lessors Of Marine Cargo Containers Can Endure A Sluggish Global Economy," published June 19, As of June 30, 2013, the aggregate dry container utilization rate was hovering at its historical average of the past seven years, during which the segment saw a sharp decline with the recent global recession and an even sharper rebound when world trade recovered, only to find limited container supply because production completely shut down in This statistic is based on portfolios totaling approximately 3.5 million TEUs that support 31 Standard & Poor's Ratings DECEMBER 17,

8 Services-rated container ABS transactions. Chart 1 Transaction Structure Global Container Assets 2014 Ltd. is a bankruptcy-remote company incorporated under Bermuda law. The issuer's scope of business is limited to acquiring, owning, and disposing of marine cargo containers as described in the memorandum of association. The containers are being sold to the issuer on the closing date by the following Sellers: BCI2 P, which was formed in August 2008 as a joint venture between the Singapore branch of BCI2 KG and BCI2 PL. BCI2 KG raised $116 million of equity, which when coupled with funds from various bank financings, resulted in total initial BCI2 P Container acquisitions of approximately $253 million dollars. Since its formation, BCI2 P has not engaged in any business other than acquiring containers and arranging for the management and financing of these containers. BCIM P, which was formed in January 2009, and BCIM KG, which was formed in May BCIM P is a joint venture between the Singapore branch of BCIM KG and BCIM PL. BCIM KG raised $140 million of equity, which when coupled with funds from various bank financings resulted in total initial BCIM P and BCIM KG container DECEMBER 17,

9 acquisitions of approximately $405 million dollars. Since their formation, BCIM P and BCIM KG have not engaged in any business other than acquiring containers and arranging for the management and financing of these containers. BGA1 L.P. which was formed in February BGA1 LP raised $67 million from its limited partner, Buss Global Marine Assets Ltd., which when coupled with funds from various bank financings, resulted in total initial BGA1 L.P. container acquisitions of approximately $124 million dollars. Since its formation, BGA1 L.P. has not engaged in any business other than acquiring containers and arranging for the management and financing of these containers. The issuer is structured as a single trust (not a master trust). On the closing date, the issuer will issue three classes of notes (the class A-1, A-2, and B notes) and two classes of common shares (the class A and B shares). The trustee will pay principal and interest due on the rated notes from the payments of net operating income and net sales proceeds received from each manager, the earnings from any invested funds, and the amounts on deposit in the specified cash accounts. Please see chart 2 below for the transaction structure. DECEMBER 17,

10 Servicer BUSS Global Management Pte. Ltd.(BGM; the servicer) was established as a Singapore private limited company in February BGM was formerly known as BC Management Services Pte Ltd., a Singapore private limited company incorporated in November Since inception, BGM has managed approximately $1.2 billion in investor equity from 28,000 individual investors, acquired approximately $3 billion of containers and negotiated, closed, funded, and serviced multiple debt financing structures under its managed funds. As of 30 June 2014, BGM was managing container portfolios consisting of approximately 640,000 cost equivalent units (CEUs). BGM's servicing functions include receiving reports from managers and aggregating the reports, monitoring each manager's performance, monitoring each manager's financial health, preparing financial statements, reviewing the depreciation policy and asset fair value, and managing tax exposures for the issuer's containers. Managers As of Dec. 16, 2014, the 11 managers will manage the container portfolio as follows (by NBV): Textainer, 44.1%; Raffles, 24.8%; Cronos, 7.9%; SeaCo, 7.3%; Florens, 5.4%; TAL, 4.4%; CAI, 1.6%; Dong Fang, 1.6%%; SeaCube, 1.6%; Taylor Minster, 0.8%; and UES, 0.3%. Standard & Poor's has rated ABS transactions backed by marine cargo containers for Textainer, Cronos, SeaCo, TAL, CAI, Dong Fang, and SeaCube. The managers are responsible for undertaking all duties involved in leasing the containers; arranging for the container's inspection, repair, service, and storage; and selling the containers in the ordinary course of business. Managers earn a management fee equal to a percentage of net operating income (see the Management Fees section for more information), which can incentivize the managers to control operating expenses. Textainer, which began operations in 1979, is the world's largest marine cargo container leasing company based on total assets owned and managed. As of June 2014, Textainer operates more than 1.9 million container units representing 3.1 million TEUs in its owned and managed fleet and has 14 regional and area offices and seven agents worldwide. Since 2001, Textainer has issued six container securitization transactions and has served as the manager for these transactions. The performance of these transactions has been stable. Raffles, established in 2006 and headquartered in Singapore, is a majority-owned subsidiary of Buss Capital. Raffles manages and offers for lease worldwide predominantly dry box containers on behalf of various asset owners. Raffles currently operates a container fleet of approximately 120,000 TEUs. Cronos is the successor to Intermodal Equipment Associates (IEA) and Leasing Partners International (LPI). IEA, one of the first marine cargo container leasing companies, began managing and leasing dry cargo containers in 1978 primarily under master leases. LPI was organized in 1983 to manage and lease refrigerated marine cargo containers. In 1990, LPI acquired IEA, and the two companies combined their operations. As of August 2014, Cronos Group's combined fleet of containers (both managed and owned) consisted of approximately 823,293 TEUs with an approximate NBV of $2.6 billion. Since 2011, Cronos has issued six container securitization transactions for which it DECEMBER 17,

11 serves as the manager. The performance of these transactions has been stable. SeaCo was formed as a joint venture between General Electric Capital Corp. (GECC) and Sea Containers Ltd. in On Dec. 15, 2011, subsidiaries of GECC and SeaCo Ltd., successor to Sea Containers, sold SeaCo and its related assets to HNA Group Co. Ltd. (HNA). HNA is headquartered in the People's Republic of China (PRC) and has subsidiaries engaged in air transportation, logistics and shipping, hotel investments, financial services, tourism, and other related businesses. As of May 2014, SeaCo operated a fleet of 821,980 units (1,281,704 TEUs). SeaCo has issued four container securitization transactions since 2012 for which it has served as the manager. The performance of these transactions has been stable. Florens, the container leasing subsidiary of China Ocean Shipping Co. (Cosco, one of the major global container shipping lines), is the world's third-largest container lessor. Established in 1987, Florens currently operates a container fleet of approximately 1.8 million TEUs. It focuses on the supply of containers on long-term leases for Asian-based accounts, particularly Cosco. TAL, founded in 1963, is one of the oldest and largest marine cargo container lessors. As of September 2014, TAL's owned and managed fleet comprised 1,354,305 units (2,220,853 TEUs). TAL operates through 17 offices in 11 countries and at approximately 230 third-party container depot facilities in 40 countries. TAL has issued six container securitization transactions since 2012 for which it has served as the manager. The performance of these transactions has been stable. CAI, founded in 1989, is one of the world's leading intermodal freight container leasing and management companies. As of June 2014, CAI's container fleet was approximately 1.17 million TEUs. CAI has issued two container securitization transactions, for which it has served as the manager. The performance of these transactions has been stable. Dong Fang commenced its container leasing business in Dong Fang initially only provided container leasing service to its affiliated company, China Shipping Container Lines Co. Ltd. but began its container leasing business with other international customers in As of Sept. 30, 2014, Dong Fang's fleet comprised approximately 482,165 containers with a weighted average age of 4.6 years; they represent 757,516 TEU. Dong Fang owns approximately 91.1% of the fleet by TEU and manages the remaining 8.9% on behalf of container investors. Dong Fang operates through depots in 130 locations worldwide, and its average utilization rate for its total fleet, as measured by TEU, is 98.9%. Dong Fang currently serves more than 60 shipping lines; in particular, it serves the top Asia-based shipping lines, as well as many leading intra-asia regional shipping lines. Intra-Asia regional trade has demonstrated strong growth in recent years. Dong Fang has issue two container securitization transactions. SeaCube is one of the world's larger container leasing companies based on total assets owned or managed, but it has a larger market share in refrigerated containers (reefers). As of June 2014, SeaCube's owned or managed fleet comprised 819,188 units, representing 1,271,544 TEUs of containers and generator sets. SeaCube has issued six container securitization transactions since 2012 for which it has served as the manager through Container Leasing International LLC. The performance of these transactions has been stable. Taylor Minster was founded in 1975 as a tank-container lessor. Its fleet covers a wide spectrum of capacities and types DECEMBER 17,

12 for the carriage of foodstuffs, general and specialized chemicals, and liquefied and cryogenic gases. UES, whose predecessor was Grand View Development (HK) Ltd., was founded in UES is China's third-largest container lessor overall, and China's largest independent container lessor. According to industry statistics as of June 2014, of the 10-largest marine cargo container lessors based on TEUs, Textainer is the largest marine cargo container lessor (18% market share), followed by Triton (15%), TAL (12%), Florens (12%), SeaCube and CAI (each 7%), Seaco (6%), and Cronos (5%). Portfolio Characteristics The issuer's portfolio includes 192,856 units that comprise nine different marine cargo container types. Of these units, 181,373 units are currently out on lease, and 11,483 units are depot units that are not currently on lease. The initial fleet, based on a $ million NBV, includes 40-ft. high-cube dry containers (42.4%), 20-ft. standard dry containers (35.1%), 40-ft. standard dry containers (12.5%), 40-ft. high-cube reefer containers (3.8%), specials (3.4%), tanks (1.9%), 45-ft. standard dry containers (0.6%), 20-ft. high-cube reefer containers (0.2%), and 20-ft. standard reefer (0.2%), most of which benefit from relatively stable demand (see table 1). The weighted average age of the fleet in this transaction is 7.04 years based on NBV, which is relatively older for assets that typically have 15-year useful lives. The issuer's fleet comprises (by NBV) 61.3% long-term leases, 26.0% master leases, and 6.7% DFLs. This portfolio includes a larger proportion of shorter-term master leases than typically seen in container portfolios, which increases re-leasing risk in terms of containers that are not re-leased or potentially lower pricing if they are re-leased. Table 1 Container Categories Equipment type Dry-freight containers Refrigerated containers (reefers) Specials Open-top containers Flat-rack containers Typical use Manufactured goods, furniture, appliances, clothing, raw materials, and agricultural produce. Frozen and chilled food products, meat, fish, fruit, and vegetables. Plate glass, marble slabs, plasterboard sheets, large machines, and motor vehicles. Oversized cargo such as large industrial vehicles, logs, steel coils, or some food products (e.g., onions) that need constant ventilation. The advance rate for the issuer's notes, is lower than other recent Standard & Poor's-rated ABS transactions (see table 2). This partially reflects the portfolio's relatively low average per diem rate, which is likely a result of the fleet's high concentration in dry cargo containers. In addition, the relatively older age of the container boxes and a significant portion of short-term leases contribute to the lower advance rate. DECEMBER 17,

13 Table 2 Advance Rates Among Container Transactions Transaction Global Container Assets 2014 Ltd. Dong Fang Container Finance II (SPV) Ltd. (Series ) Textainer Marine Containers III Ltd. (Series ) Cronos Containers Program I Ltd. (Series ) CLI Funding V LLC (Series ) Global SC Finance II SRL (Series ) TAL Advantage V LLC (Series ) Total NBV ($) 429,432, ,508, ,832,962 1,072,409,213 1,390,025,963 1,413,667,511 1,172,571,077 Total units 192,856 72, , , , , ,808 Weighted average age (by NBV) Weighted average per diem rate (by unit) ($) Lease type (%) Long-term Direct finance leases Master Off-hire Container type (%) Dry Reefer Tank Special (including gensets) Senior advance rate (%) Utilization break-even (%) Re-lease rate break-even (%) Standard & Poor's rating Preliminary A (sf) A (sf) A (sf) A+ (sf) A (sf) A (sf) A (sf) Closing date 17-Dec-14 4-Dec Nov Nov Oct Jul May-14 NBV--Net book value. N/A--Not applicable. Portfolio distribution by equipment type and age Table 3 shows a breakdown of the issuer's fleet by major equipment category as of Sept. 30, Table 3 Portfolio Distribution By Equipment Type And Age Equipment type No. of units % of units NBV ($) % of NBV Weighted avg. age (years)(i) 40' HC dry 66, ,972, DECEMBER 17,

14 Table 3 Portfolio Distribution By Equipment Type And Age (cont.) 40' HC reefer 1, ,297, ' dry 95, ,573, Tanks ,945, ' dry 24, ,865, ' dry 1, ,583, ' reefer , Specials 3, ,689, ' HC dry , Total 192, ,432, (i)weighted by NBV. NBV--Net book value. HC--High-cube. Portfolio distribution by contract type Table 4 details the breakdown of the pool's issuer containers by lease type as of Sept. 30, Table 4 Portfolio Distribution By Lease Type Lease type NBV ($) % of NBV Long-term lease 263,384, Finance lease 28,941, Master lease 111,455, Offhire 25,650, Total $429,432, NBV--Net book value. Portfolio distribution by customer Table 5 details the issuer's expected lessee exposure by NBV for the pool of containers as of Sept. 30, Table 5 Portfolio Distribution By Customer Customer No. of units % of units NBV ($) % of NBV 1 30, ,769, , ,761, , ,332, , ,431, , ,914, , ,012, , ,990, , ,713, , ,789, , ,620, Other(i) 77, ,445, Off-hire 11, ,650, Total 192, ,432, DECEMBER 17,

15 Table 5 Portfolio Distribution By Customer (cont.) (i)other lessees, factory units, and off-hire units. NBV--Net book value. Portfolio distribution by remaining term to maturity of the fleet term leases Table 6 shows the expected portfolio distribution of leases by expiration year as of Sept. 30, Table 6 Distribution Of The Collateral By Lease Expiration Year(i) Lease expiration year NBV ($) % of NBV Pre ,090, ,244, ,855, ,438, ,735, ,473, ,387, ,100, Total 292,326, (i)long-term and finance lease only. NBV--Net book value. Portfolio distribution by utilization, per diem rate, and original equipment cost (OEC) Table 7 shows the expected portfolio distribution of containers by utilization, per diem rate, and OEC as of Sept. 30, Table 7 Portfolio Distribution By Utilization, and Per Diem Rate Equipment type No. of units Utilization (%) Weighted avg. per diem(i) 40' HC dry 66, ' HC reefer 1, ' dry 95, Tanks ' dry 24, ' dry 1, ' reefer Specials 3, ' HC dry Total 192, (i)weighted by units. HC--High-cube. TEU--20-ft. equivalent units. Cash Flow Assumptions The transaction's cash flows depend on a number of key inputs, some contractual (e.g., lease rates) and some modeled based on historical performance, rating-dependent economic scenarios, and our expectations of the containers' life DECEMBER 17,

16 spans. We have incorporated our stresses for each of those components into two sector downturns (one is four years long, and the other is three years long) during the fleet's life. The depth, length, and starting time of the downturns are rating-dependent, which means that to assign a higher rating, we assume deeper and longer downturns within a shorter time frame. Our internal cash flow model includes input assumptions, among them: Fleet utilization; Lease rates (both long-term and per diem); Operating expenses (repair and storage); Container useful life and residual value; Lessee defaults; Container loss rate upon lessee defaults; DFL buyback rates; and DFL recharacterization risk for pools where this risk is significant. Under our stress assumptions for the preliminary ratings assigned, we expect that the transaction will pay timely interest and full principal by the final maturity date. Beginning with the TAL transaction that closed in February 2014, we introduced a few incremental refinements to our stress assumptions. Although we kept the overall stress level approximately the same, as measured by the amount of cash flow reduction under our breakeven stress runs, we believe these refinements will more closely align the assumptions with recent container collateral performance trends. For example, we are seeing lower lease rates, particularly for the reefer containers. On the other hand, container residual value, particularly for the dry vans, are holding up well and at levels considerably above what we assumed in our stress scenarios. The updated assumptions, outlined below, reflect these trends. Modeled the loss of containers following lessee default; Raised the residual value for dry vans; and Lowered the re-leasing rate for reefer containers. Utilization Utilization is one of the most important performance metrics for a container fleet. When a container is off-lease, it ceases to generate income while incurring storage and other expenses. The utilization rate for containers depends largely on the rate of world trade and economic growth. Economic downturns in the U.S., Europe, Asia, and other regions with consumer-oriented economies could reduce world trade volume and demand for leased containers. Other general variables affecting utilization include: Competitive pressures and consolidation in the container shipping industry; The availability and terms of container financing; and Over/under-capacity or consolidation of container manufacturers. DECEMBER 17,

17 Utilization Rate Assumptions For short-term leases, we assume a 90% starting point base utilization, and we apply all stresses using this base utilization. During a downturn, we assume that fleet utilization steps down to, and then recovers from, depressed levels between mid-40% and mid-60% for the 'A' rating stress scenario and between 15% and 30% for the 'BBB' rating stress scenario. The stress curve severity depends on the container type with reefers subjected to less stressful curves than dry boxes. During a four-year downturn, we assume beginning (year one) and ending (year four) utilizations to be halfway between the bottom and base levels. During the recent sector downturn, certain container types saw utilizations dip briefly below 60%. In our view, stressing utilization at similar levels lasting two years is commensurate with an 'A' stress scenario. Fleet utilization is a function of several operating parameters, among them lease term, downtime in transit between lessees, and assumption about lessee defaults. Chart 3 shows the utilization stress curves (haircuts to the base short-term utilization rate) assumed for a 40-ft. high-cube reefer and a 40-ft. high-cube dry box. Chart 3 DECEMBER 17,

18 Lease Rates Container leasing businesses, such as TICC, compete mostly on price and the availability of containers. We believe lease rates for containers depend on many factors, including the following: The availability of containers in the market, including containers for lease by other competitors; The price of new containers; Lessors' general financing and interest rates; Container age; The lease's type and length; and Whether the container is in a high- or low-demand location. Because containers are generally commoditized products, we believe that one container leasing business' lease rates are heavily influenced by those of its competitors. For example, to determine our lease rate assumptions for TAL V, we considered its current and average lease rates, as well as the historical lease rates charged by other container leasing businesses. For short-term (per diem) rates, we generally use a five-year average taken from a number of lessors. These rates, in our view, are a good approximation of what "market rates" will likely be when we assign our preliminary ratings. We calculate these rates for all major containers and set them as constants for the remainder of the transaction. This set of rates forms our base case. We have observed that after gradual long-term secular declines during the past 20 years, per diem rates have stabilized. For the 'A' stress scenario, we lowered per diem rates by 35% during the two downturns. For the 'BBB' stress scenario, we lowered per diem rates by 23.33% during the two downturns. During the first and last year of the modeled downturns, the rate steps down between the base and bottom levels. We also modeled a six-month lag between the drop in utilization and in short-term rates (see chart 4 for the stress curve for the per diem rates of a 20-ft. dry box). DECEMBER 17,

19 Chart 4 For long-term rates, or the rates lessors charge on an operating lease with a lease term longer than one year, we model the starting rates as they are in place for the initial portfolio. For the 'A' stress, we default up to 15% of the lessees on a long-term lease per year for four years during the first recession. For the 'BBB' stress, we default up to 11.25% of the lessees on a long-term lease per year for four years during the first recession. Half of the defaulted leases will then become short-term leases and will be subject to the utilization and lease-rate stresses. The other half will enter into a three-year term lease subject to up to a 30% haircut in lease rate. If the original long-term lease expires during a recession, the expired lease will be renewed under the same terms as those of the defaulted leases. Outside a recession in scenarios where we assume long-term leases are renewed after expiration, they are renewed at our base long-term lease rate. We assume that the renewed term will be three years if renewed in a recession and five years if renewed outside a recession. Useful Life And Residual Cost Most containers--dry vans and reefers--generally have an economic life considerably shorter than their physical lives; many retired containers have found alternative uses that last years, or even decades, beyond their useful lives as shipping containers. Most leasing companies begin to consider selling containers after 10 years of service because the DECEMBER 17,

20 accumulated effects of salt water corrosion and rough handling begin to make maintaining the containers uneconomical. The price paid for container fleets, according to various industry sources (for example, Drewry Maritime Research: Container Leasing Market 2012), ranged from slightly more than book value during weak market conditions to more than 1.5 times book value during strong market conditions. Individual and small lots of containers showed greater price variability. The residual value on containers can be a significant portion of cash flows: A container sold toward the end of its useful life can typically be sold at 35% of its OEC depending on the type of container (see table 8 for the expected recovery from the sale of containers from ). Table 8 Comparison Of Container OECs And Possible Resale Values New-build dry freight container prices ($) Year 20-ft. dry 40-ft. dry 40-ft. dry HC ,450 2,320 2, ,350 2,160 2, ,400 2,240 2, ,850 2,960 3, ,100 3,360 3, ,850 2,960 3, ,950 3,120 3, ,350 3,760 4, ,950 3,120 3, ,500 4,000 4, (expected) 2,700 4,320 4,600 Annualized resale prices for standard dry freight containers ($) Year 20-ft. dry 40-ft. dry 40-ft. dry HC ,100 1, ,120 1, ,100 1, ,000 1,280 1, ,150 1, ,200 1,480 1,620 Mid ,400 1,750 1,900 Residual value as a percent of OEC for standard dry freight containers (%) Year 20-ft. dry 40-ft. dry 40-ft. dry HC DECEMBER 17,

21 Table 8 Comparison Of Container OECs And Possible Resale Values (cont.) OECs--Original equipment costs. HC--High cube. For our assumptions, we used straight-line depreciation with a 20% OEC residual value for dry vans and 10% OEC residual value for all other container types in our model. Containers are typically sold during a specific time period toward the end of a 15-year useful life except tank containers, which are assumed to have a 20-year useful life. Sales during a recession are subject to the per diem lease rate stress. Performing DFL containers are not sold but remain in the pool until the buyout option is exercised. Operating Expenses Operating expenses typically include maintenance, storage, and repositioning and handling expenses (i.e., when customers drop off containers at depots around the world and those containers need to be moved to other locations), among others. Generally, operating expenses are directly related to the fleet's size but inversely related to the utilization rate. In our cash flow modeling exercise, we separate the storage expenses from the remaining operating expenses. For storage, we model these expenses for short-term leases at $0.40 per day for 20-ft. boxes and $0.80 per day for 40-ft. boxes. Because the historical data show storage expenses to be inversely correlated to the utilization rate, storage costs will rise, and utilization rates will fall in our modeling assumptions during downturns. During downturns in our models, when a higher level of container returns would lead to higher maintenance, repair, and reposition costs, other operating expenses also tend to increase. In our cash flow modeling, we assume an 8.00% base-level operating expense-to-revenue ratio, which is in line with the historical average during the past five years. This level doubles to approximately 15.00% and 12.67% at the peak of a downturn for the 'A' and 'BBB' rating stresses, respectively. We do not model operating expenses on DFLs because they are borne by the lessee of each lease contract. This transaction's management fees are based on the net operating income, which can incentivize managers to control their operating expenses. Management Fees The 11 managers receive monthly management fees after their respective management agreements. The management DECEMBER 17,

22 fees are calculated as a percentage of the net operating income generated from the subportfolio under management. The percentage varies per manager and per lease type. For long-term leases, the percentage ranges from 1.18%-15% among the 11 managers; for master leases, the percentage ranges from 1.18%-15%; for finance leases, the percentage ranges from 1.18%-%; for sales, the percentage ranges from 2%-15%. As the management fee varies quite significantly among the 11 managers, if a low-fee manager defaults, the servicer may have a hard time finding a replacement manager who is willing to be compensated at a low rate. To address this replacement risk due to the lower-than-market-rate management fees, we modeled market prevalent management fees for two managers (whose management fees are below portfolio average) in this transaction. Lessee Defaults And Container Loss Both long-term leases and DFLs are subject to the risk of lessee default. Short-term leases are less susceptible to this risk as the lessee can simply return the container. The risk of short-term lease default is essentially covered in our utilization assumptions; however, for long-term and finance leases, we model lessee defaults: 60% cumulative default rates for 'A' and 45% for 'BBB' scenarios, based on our view of the lessee credit quality of the initial and the future lease pool. In our cash flow model, half of the containers that experience a long-term lease or DFL default are assumed to roll into the short-term lease pool. For operating leases, the other half are assumed to continue on a long-term lease paying a reduced rate until the earlier of the defaulted lease's expiration and 36 months. At the end of the reduced rate period, these containers will be assumed to have the same characteristics as containers on a non-defaulted long-term lease. Container leasing data have shown that, historically, lessee default will sometimes lead to equipment loss. Our data analysis shows that on average, the container recovery following lessee default (as measured by equipment units) is about 88.00%. For the 'A' stress scenario, losses for long-term leases are 20.00% and 47.00% for finance leases. For the 'BBB' stress scenario, losses for long-term leases are 16.67% and 42.00% for finance leases. The lower recovery assigned to finance leases reflects our assumption that they face recharacterization risk in a lessee's U.S. bankruptcy filing where the container owner can be treated as a secured creditor. Cash Flow Results 'A' and 'BBB' stress scenario and sensitivity analysis We ran a number of stress tests in which we stressed cash flow through economic downturns, where both fleet utilization and re-leasing rates decrease while operating expenses increase. The magnitude of these stresses is rating-dependent, as described in the Cash Flow Assumptions section above. For our cash flow runs, we grossed up the portfolio to account for the prefunding account. Given that the prefunding account will be used to purchase containers newly received from the factory, we assumed that these containers are new. We modeled all stresses assuming that all of the buyouts are taken. Under all stress scenarios, the bonds paid timely interest and ultimate principal according to the payment priority (see tables 9 and 10). DECEMBER 17,