Triton Container Finance VI LLC.

Transcription

1 Presale: Triton Container Finance VI LLC (Series ) This presale report is based on information as of Aug. 10, 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 Class Preliminary rating(i) Preliminary amount (mil. $) A A (sf) B BBB (sf) (i)the rating is preliminary and subject to change at any time. Profile Expected closing date August Legal final maturity date Collateral Initial purchasers and bookrunners Issuer Seller and manager Indenture trustee and transition agent August A $785.4 million NBV portfolio containing 197,912 containers. Triton Container Finance VI LLC has the right to net operating income from the portfolio and any net residual cash flows from the sale of containers. RBC Capital Markets LLC., Mizuho Securities USA LLC, and MUFG Securities America Inc. Triton Container Finance VI LLC. Triton Container International Ltd. Wells Fargo Bank N.A. NBV--Net book value. Primary Credit Analysts: Steven Margetis, New York (1) ; steven.margetis@spglobal.com Jie Liang, CFA, New York (1) ; jie.liang@spglobal.com See complete contact list on last page(s) AUGUST 10,

2 Rationale The preliminary 'A (sf)' and 'BBB (sf)' ratings assigned to Triton Container Finance VI LLC's (TCF VI's; the issuer) $ million fixed-rate asset-backed notes series reflect: Our view of the portfolio characteristics, including the asset quality and lease terms; The initial and future lessees' estimated credit quality; The payment structures and waterfall mechanism; Our analysis of the projected cash flows supporting the series notes' timely interest payment and ultimate principal payment on or before the legal final maturity; Certain compliance tests and early amortization events included in the transaction documents, as described below; A reserve account that covers nine months of the series notes' interest; and The manager's experience in managing the container portfolio. Transaction Strengths We consider the following to be transaction strengths: The container leasing market's relatively stable utilization rates. Despite only modest growth in global trade and the liquidation of a major shipping line customer, reduced levels of capital spending in 2016 have resulted in relatively stable supply recently. Performance tests including asset base compliance, concentration limitations, and early amortization event tests. Concentration limitations include special containers (25% of the portfolio), single lessee (7%, with certain specified exceptions), top three lessees (60%), finance leases (20%), finance lease single lessees (10%), non-marine cargo users (7%), nonmonthly rental payments (5%), and non-u.s. currency rentals (2%). Early amortization events for series , which include a manager default, the weighted average equipment age exceeding 8.5 years, EBIT ratio of less than 1.1x, an excess funding account balance greater than 50% of the net book value (NBV) of all eligible containers, and the unpaid principal balance for any series of outstanding notes exceeding that series' asset base. Some early amortization events may vary by series, including for future series. If any of the concentration limitations are breached, the excess concentration will be subtracted from the asset base. Approximately 84% of the issuer's portfolio represents long-term leases, which are shielded from rate reductions during a downturn. The interest reserve account, which equals nine months of note interest due. The relatively low age of the issuer's pool. Transaction Weaknesses We consider the following to be transaction weaknesses: Global, regional, or local economic downturns could reduce the issuer's revenue because leased containers are deployed worldwide. The relatively high concentration of standard dry containers, which have historically been more sensitive to sector downturns. Approximately 34% of the series pool is held by the three largest customers, whose performances may affect AUGUST 10,

3 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. Because of the pooling mechanism (see the Transaction Structure section below), a portion of the cash flow received and owed by TCF VI is exposed to performance fluctuations in the broader combined pooling fleet, and not just the issuer's portfolio. Unlike some other recently rated container securitizations, this transaction does not have cash flow-based performance triggers such as a debt service coverage ratio trigger. Any direct finance leases (DFLs) (0% by NBV expected at closing, but up to 20% allowed) in the transaction may be recharacterized as secured debt if the lessee files for bankruptcy. Because 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. The issuer may rely on Triton Container International Ltd. (TCIL) to manage the transaction's inventory, billing, and rental payment collections. Mitigating Factors We believe the following factors partly mitigate this transaction's weaknesses: 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 in between lessees; in this case, we increased our typical stresses to account for the relatively high concentration in certain lessees. We incorporated the stress scenarios 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--over the fleet's life. We recently updated our container lease rate assumptions to reflect the average lease rate in our rated container transactions. Different modeling assumptions are applied to the various container types, based on their characteristics and historical performance. The transaction documents include manager events of default, based on Triton's financial performance, whereby if a manager event of default is triggered, the transition manager will assist in locating a suitable successor manager for this transaction. The transaction also has a liquidity account to cover nine months of note interest throughout the transaction's life and while a replacement manager is sought. Furthermore, the manager, the issuer, the indenture trustee, and Wells Fargo Bank N.A. (as the transition manager) have entered into a manager transition agreement to mitigate the risk of an interruption in the manager's services and to facilitate the orderly transition to a successor manager. Under this agreement, the transition manager has agreed to provide certain essential services until a new successor manager is located. Our analysis explicitly captures the pooling mechanics in our cash flow modeling; we apply stresses to the entire combined fleet and then allocate resulting cash flows according to the pooling methodology. Because we found no evidence of attempts by shipping lines to recharacterize DFLs as secured debt, we used recovery delay assumptions consistent with other business loan-backed securitizations. In those cases, for 'A' category ratings, we assumed a 24-month delay. We modeled the loss of container assets following lessee defaults in our stress scenarios. AUGUST 10,

4 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 customers), the available supply and cost of equipment, and the availability of capital to purchase or lease the needed equipment. Historically, the leased container fleet has accounted for approximately 45%-50% of the total fleet, a trend we expect to continue. 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 that 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 2013, marine cargo container lessors have added more modestly to their container fleets to meet weaker, albeit still growing, demand. Shipping lines also began to acquire more containers on their own to take advantage of favorable pricing, though this trend has recently reversed due to shipping lines' constrained liquidity. Leasing provides more financial flexibility relative to the capital investment necessary to outfit a fleet. Over the foreseeable future, we expect global trade to increase in the low-single-digit percentage range. In 2016, the industry was negatively affected by the liquidation of Hanjin, a large container shipping line. In addition, market conditions remained relatively sluggish, with strong demand from the U.S. offsetting weaker demand from China and the eurozone. This trend, as well as the ongoing retirement of older equipment and multiyear leases, which currently account for approximately 75% of the total lease fleet, has resulted in relatively stable utilization rates. However, lease rates have yet to recover because of the weaker-than-anticipated demand, the lower cost of new equipment (which affects lease rates for both new and older equipment), and the cost of capital, which, in our view, still remains lower for the container lessors than for the mostly less-creditworthy shipping lines. We believe the cost of capital is lower for the marine cargo container lessors because they have taken advantage of increased asset-backed securities (ABS) financing. Beginning in late 2016, industry fundamentals began to improve. Demand has increased, inventory has declined because fewer containers have been built to offset the continuing improvement in global economies (e.g., the U.S.), and new container prices have increased significantly. We expect these factors, in addition to the ongoing retirement of older equipment, to result in stable to moderately higher utilization. As a result, we expect some improvement in lease rates, although we don't expect rates to return to the high levels seen in If marine cargo container lessors see weaker-than-expected demand, they could reduce capital spending fairly quickly because the lead times to order equipment tend to be only 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 AUGUST 10,

5 even in periods of weak demand. For more information on our current view on the container leasing market, please see "Marine Shipping Container Transactions Are Holding Steady In A Challenging Pricing Environment," published May 31, Chart 1 Transaction Structure The issuer is intended to be a bankruptcy-remote limited liability corporation organized under Delaware law. The issuer's primary assets are the containers acquired by the issuer from TCIL. AUGUST 10,

6 TCIL manages a combined fleet of intermodal marine cargo containers owned by Triton Container Finance LLC (TCF), TCF II, TCF III, TCF IV, TCF V, TCF VI, Triton Container Investment LLC (TCI), and TCIL. Certain cash flows generated by the combined fleet and associated expenses are allocated to these owners according to the pooling methodology. About 19% of the issuer's portfolio (by NBV) will be part of the combined fleet. Under the pooling methodology, revenues from the combined fleet are aggregated monthly, and then allocated by equipment categories, based on TCIL's original equipment cost (OEC) of these categories. Once the aggregate revenues have been allocated to each equipment category, the revenues within each category are allocated to the owners of the containers within each category based on the number of 20-foot equivalent units (TEUs) owned by each. In contrast, operating expenses are allocated to the owners based on TEUs without considering the equipment category. Because of this mechanism, the cash flow received and owed by TCF VI is exposed to performance fluctuations in the broader combined fleet, not just the issuer's portfolio. We believe our analysis explicitly captures these mechanics in our cash flow modeling because we apply stresses to the entire combined fleet and then allocate resulting cash flows according to the pooling methodology. AUGUST 10,

7 Related Corporate Entities TCIL, the manager, is a wholly owned subsidiary of Triton International Ltd. (Triton), which was formed in 2016 after TCIL and TAL Group merged. TCIL is one of the oldest marine cargo container lessors. According to industry statistics, as of Dec. 31, 2016, Triton was the largest marine cargo container lessor based on cost-equivalent units (CEUs), with a 26% market share. The other large container lessors are Textainer Marine Containers Ltd. (14% market share), Seaco (14)%, and Florens Container Services (15%). TCIL calculated the NBVs of the portfolio and its fleet; as of March 31, 2017, based on (CEUs), approximately 73.8% of Triton's fleet was leased through long-term leases and DFLs. The average remaining lease term was approximately 39 months for long-term leases and finance leases. Triton owns a portion of its fleet directly or through its subsidiaries, another portion through its securitizations, and manages additional containers for others. Approximately 67.9% (by CEUs) of Triton's on-hire fleet are leased through long-term leases ranging from three to eight years with an average term of approximately five years at lease inception. Approximately 26.2% are leased through service leases, which allow customers flexibility regarding pick-up and drop-off terms (the higher lease rates for this flexibility somewhat offset the lower utilization in periods of weaker demand), and approximately 5.9% are finance leases, which provide the customer with a purchase option when the lease term ends. TCIL's fleet includes dry containers (the most widely used type of equipment), refrigerated containers (reefers), special containers, and tanks (see table 1). Portfolio Characteristics TCF VI's portfolio includes 197,912 units of 10 different marine cargo equipment types. Approximately 3.6% of the portfolio is currently off lease. The initial fleet, based on a $785.4 million NBV as of Aug. 2, 2017, includes 40-ft. high-cube dry containers (46.1%), 40-ft. high-cube reefer containers (34.6%), 20-ft. standard dry containers (11.3%), 20-ft. standard reefer containers (3.4%), 40-ft. standard dry containers (3.0%), 40-ft. flat-rack containers (0.9%), and others (0.7%), most of which benefit from relatively stable demand (see table 1). The fleet's weighted average age in this transaction is 1.96 years based on NBV, which is relatively low for assets that typically have 15-year useful lives. The issuer's fleet comprises 83.7% long-term leases, 12.7% service leases, and 3.6% depot units. Table 1 Container Categories Equipment type Dry-freight containers Refrigerated containers (reefers) Tank containers 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. Liquids including portable (food grade) liquids, nonhazardous, and hazardous liquids. Specialized uses, such as rolltrailers, generator sets, and others. 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, at closing, is comparable to the most recent S&P Global Ratings-rated ABS transactions (see table 2). The transaction's weighted average container age is low compared with those transactions, AUGUST 10,

8 and the concentration in long-term leases is relatively high. Table 2 Advance Rates Among Container Transactions Triton Container Finance VI LLC (Series ) Textainer (Series ) Triton Container Finance VI LLC (Series ) CLI Funding VI LLC (Series ) Textainer (Series ) Global SC Finance IV Ltd. (Series ) TAL Advantage VI LLC (Series ) Total NBV ($) 785,419, ,136, ,345, ,242, ,406, ,065, ,457,599 Total units 197, ,207 97,207 66, ,312 90,852 86,750 Weighted-average age (year, by NBV) Weighted-average per diem rate (by unit) ($) Lease type (% of NBV) Long-term (iii) (iii) Short-term N/A N/A 2.0 N/A N/A Direct finance leases N/A 0.81 N/A Master N/A Off-hire Container type (% of NBV) Dry Reefer Tank 0 0 N/A N/A Special (including gensets) Senior advance rate (%) Utilization B/E (%) Re-lease rate B/E (%) S&P Global Rating' credit rating 1 (class A)/13 (class B)(ii) 1 (class A)/12 (class B)(ii) Preliminary A (sf) / BBB (sf) (class A/class B) less than 1 (class A)/3 (class B)(ii) less than 1 (class A)/2 (class B)(ii) Preliminary A (sf) / BBB (sf) (class A/class B) 15 (class A)/30 (class B)(ii) 15 (class A)/24(class B)(ii) A (sf) class A /BBB (sf) class B 14 (class A)/less than 13 (class B)(ii) 11 (class A)/less than 8 (class B)(ii) A (sf)/bbb (sf) (class A/class B) 6 (class A)/4 (class B)(ii) 5 (class A)/3 (class B)(ii) A (sf) / BBB (sf) (class A/class B) Closing date Aug. 23, 2017 June 27, 2017 June 15, 2017 May 31, 2017 May 17, 2017 April 25, 2017 April 7, 2017 CLI Funding VI LLC (Series ) Global SC Funding Two Ltd. (Repack of Global SC Finance II SRL) Global Container Assets 2014 Ltd. Dong Fang Container Finance (SPV) II Ltd. (Series ) Textainer Marine Containers III Ltd. (Series ) 12(ii) 11(ii) A (sf) Cronos Containers Program I Ltd. (Series ) 3(ii) 3(ii) A (sf) CLI Funding V LLC (Series ) Total NBV ($) 175,861,356 1,235,445, ,432, ,508, ,832,962 1,072,409,213 1,390,025,963 Total units 38, , ,856 72, , , ,623 Weighted-average age (year, by NBV) AUGUST 10,

9 Table 2 Advance Rates Among Container Transactions (cont.) Weighted-average per diem rate (by unit) ($) Lease type (% of NBV) Long-term Direct finance leases Master Off-hire Container type (% of NBV) Dry Reefer Tank Special (including gensets) Senior advance rate (%) (i) Utilization B/E (%) Re-lease rate B/E (%) S&P Global Rating' credit rating A (sf) BBB (sf) A (sf) A (sf) A (sf) A+ (sf) A (sf) Closing date Feb. 11, 2016 Jan. 15, 2015 Dec. 18, 2014 Dec. 4, 2014 Nov. 25, 2014 Nov. 18, 2014 Oct. 20, 2014 (i)88% for the series 2015-B1 notes is based on S&P Global Ratings-derived NBV. Advance for Global SCII is 82%. (ii)the B/E rate reflects 2017 lease rate assumptions. (iii)includes factory units with long-term lease commitments. NBV--Net book value. B/E--Break-even. N/A--Not applicable. Portfolio distribution by equipment type and age Table 3 shows a breakdown of the issuer's fleet by major equipment category as of May 31, Table 3 Portfolio Distribution By Equipment Type And Age As of May 31, 2017 Equipment type No. of units % of units NBV ($) % of NBV Weighted avg. age (years) 40-ft. HC dry 114, ,774, ft. HC reefer 20, ,698, ft. dry 47, ,047, ft. reefer 2, ,642, ft. dry 9, ,363, ft. flat rack 1, ,215, ft. open top 1, ,265, ft. flat rack ,018, ft. open top , ft. HC dry , Total/weighted avg. 197, ,419, HC--High cube. NBV--Net book value. AUGUST 10,

10 Portfolio distribution by contract type Table 4 details the breakdown of the issuer's containers by lease type as of May 31, Table 4 Portfolio Distribution By Lease Type Lease type NBV ($) % of NBV Long-term lease 657,329, Service Lease 99,489, Depot 28,600, Total 785,419, NBV--Net book value. Portfolio distribution by customer Table 5 details the issuer's expected lessee exposure by NBV for the pool of containers as of May 31, Table 5 Portfolio Distribution By Customer Customer No. of units % of units NBV ($) % of NBV 1 10, ,283, , ,160, , ,707, , ,480, , ,339, , ,091, , ,288, , ,266, , ,764, , ,463, Other 70, ,574, 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 May 31, Table 6 Distribution Of The Collateral By Lease Expiration Year Lease expiration year NBV ($) % of NBV Pre ,379, ,586, ,707, ,441, ,676, ,678, ,690, ,626, AUGUST 10,

11 Table 6 Distribution Of The Collateral By Lease Expiration Year (cont.) Lease expiration year NBV ($) % of NBV ,427, ,891, , , , Off-lease 28,600, Total 785,419, NBV--Net book value. Portfolio distribution by utilization and per diem rate Table 7 shows the expected portfolio distribution of containers by utilization and per diem rate as of May 31, Table 7 Portfolio Distribution By Utilization And Per Diem Rate Equipment type No. of units Utilization (%)(i) Weighted avg. per diem ($)(i) 40' HC Dry 114, ' HC Reefer 20, ' Dry 47, ' Reefer 2, ' Dry 9, ' Flat Rack 1, ' Open Top 1, ' Flat Rack ' Open Top ' HC Dry Total 197, (i)by units. HC--High cube. Cash Flow Assumptions The series transaction's cash flows depend on a number of key inputs: some are contractual (e.g., lease rates) and some are modeled based on historical performance, rating-dependent economic scenarios, and our expectations of the containers' life 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, including: Fleet utilization; Lease rates (both long-term and per diem); Operating expenses (repair and storage); AUGUST 10,

12 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. 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 more detail in our criteria (see "Global Container Lease-Backed ABS Methodology And Assumptions," published June 5, 2015). 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 table 8). Table 8 Series Cash Flow Results Description 'A' roll stress case 'A' DFL stress case 'BBB' roll stress case 'BBB' DFL stress case Stress modeled 60% applied default rate. Cut utilization to between 50% and 60%, reduce the base-case lease rates by between 25% and 50%, and increase operating expenses by up to 15% during two sector downturns. 20% loss of containers following lessee default. No operating expenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes, and 10% for others. Residual haircut only happens during downturns; haircut level follows the same pattern as reduced re-lease rate. 25% LT leases roll to LT leases. 60% applied default rate. Cut utilization to between 50% and 60%, reduce the base-case lease rates by between 25% and 50%, and increase operating expenses by up to 15% during two sector downturns. 47% loss of containers under DFLs, and 20% loss of containers under operating leases. No operating expenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes; 10% for others. 70% LT leases roll to LT leases. Residual haircut only happens during downturns, and haircut level follows the same pattern as reduced re-lease rate. 24-month default delay for FL containers. 50% applied default rate. Cut utilization to between 66% and 82%, reduce the base-case lease rates by 25% during phase II of the recession, and increase operating expenses by up to 12.7% during two sector downturns. 16% loss of containers following lessee default. No operating expenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes, and 10% for others. Residual haircut only happens during downturns; haircut level follows the same pattern as reduced re-lease rate. 50% LT leases roll to LT leases. 50% applied default rate. Cut utilization to between 66% and 82%, reduce the base-case lease rates by 25% during phase II of the recession, and increase operating expenses by up to 12.7% during two sector downturns. 42% loss of containers under DFLs, and 16% loss of containers under operating leases. No operating expenses on DFLs. 90% ST utilization rate. 20% final depreciated value for dry boxes; 10% for others. 80% LT leases roll to LT leases. Residual haircut only happens during downturns, and haircut level follows the same pattern as reduced re-lease rate. 18-month default delay for FL containers. Maximum haircut/cost increase where noteholders are paid in full Timely interest and ultimate principal paid. Timely interest and ultimate principal paid. Timely interest and ultimate principal paid. Timely interest and ultimate principal paid. DFL--Direct finance lease. ST--Short term. LT Long term. FL--Finance lease. AUGUST 10,

13 Break-even analysis We also performed break-even tests to provide information about the transaction's cash flow to the key stress factors discussed above (see table 9). Table 9 Series Break-Even Results Description Class A utilization stress break-even analysis Class A re-lease rate break-even analysis Class B utilization stress break-even analysis Class B re-lease rate break-even analysis Stress modeled Cut performance figures using the 'A' roll stress with the additional stress to the utilization rate. Cut performance figures using the 'A' roll stress with the additional stress to the re-lease rate. Cut performance figures using the 'BBB' roll stress with the additional stress to the utilization rate. Cut performance figures using the 'BBB' roll stress with the additional stress to the re-lease rate. Maximum haircut/cost increase where noteholders are paid in full 1% haircut to utilization. 1% haircut to re-lease rate. 11% haircut to utilization. 10% haircut to re-lease rate. Payment Priority On any payment date, the trustee will distribute the available distribution amounts for this series according to the payment priority in table 10. Table 10 Payment Waterfall Priority Payment 1 Indenture trustee for trustee fees (not to exceed $40,000 annually per series) and certain reimbursable expenses. 2 Director services provider fees (not to exceed $5,000 annually). 3 To the manager for the management fee, any excess deposits, and any management fees in arrears. 4 To the manager to reimburse manager advances. 5 Issuer expenses, such as transition agent fees (maximum $6,000 annually per series), back-up manager fees, and out-of-pocket expenses and indemnities (capped at $35,000) for the transition agent that are related to the back-up manager fee. 6 Auditing expenses and other issuer expenses not to exceed $50,000 annually. 7 Series class A interest, pro rata. 8 Series class B interest, pro rata. 9 To fund the restricted cash account so that the total amount on deposit is equal to the interest due on the notes for the next nine months. 10 Series class A minimum principal amount, pro rata. 11 Series class A scheduled principal amount, pro rata. 12 Series class A supplemental principal amount, pro rata. 13 Series class B minimum principal amount, pro rata. 14 Series class B scheduled principal amount, pro rata. 15 Series class B supplemental principal amount, pro rata. 16 Shared available funds to the series account for the other series then outstanding in an amount sufficient for those other series to pay amounts described in items 1-11 above. 17 Series class A default fees, if any. 18 Series class B default fees, if any. 19 To the transition agent to the extent not paid in item 5 above and to the back-up manager, if any, pro rata. AUGUST 10,

14 Table 10 Payment Waterfall (cont.) Priority Payment 20 To the indenture trustee for amounts not paid in item 1 above. 21 To the director services provider any unpaid amounts due. 22 Issuer and manager indemnified amounts. 23 To the excess funding account if the aggregate asset base is less than the required aggregate asset base, until remedied. 24 Any remaining fees, indemnities, or other amounts due to the noteholders, director services provider, the manager, the back-up manager, or the transition agent. 25 Remaining proceeds distributed to the issuer. Payment priority after an early amortization event If an early amortization event has occurred but no event of default is continuing, collections will be distributed according to the payment priority outlined in table 11. Table 11 Payment Waterfall After An Early Amortization Event Priority Payment 1 Indenture trustee for trustee fees (not to exceed $40,000 annually per series) and certain reimbursable expenses. 2 Director services provider fees (not to exceed $5,000 annually for all series). 3 To the manager for any excess deposits and any management fees in arrears. 4 To the manager to reimburse manager advances. 5 Issuer expenses, such as transition agent fees, back-up manager fees, and out-of-pocket expenses and indemnities (capped at $35,000) for the transition agent related to the back-up manager fee. 6 Auditing expenses and other issuer expenses not to exceed $50,000 annually. 7 Series class A note interest, pro rata. 8 Series class B note interest, pro rata. 9 To fund the restricted cash account so that the total amount on deposit is equal to the interest due on the notes for the next nine months. 10 Series class A note principal, pro rata, until zero. 11 Series class B note principal, pro rata, until zero. 12 Series class A default fees, if any. 13 Series class B default fees, if any. 14 Shared available funds to the series account for the other series then outstanding in an amount sufficient for those other series to pay amounts described in items 1-10 above. 15 To the transition agent to the extent not paid in item 5 above and the back-up manager, if any, pro rata. 16 To the indenture trustee for amounts not paid in item 1 above. 17 To the director services provider any unpaid amounts due. 18 Issuer and manager indemnified amounts. 19 To the excess funding account if the aggregate asset base is less than the required aggregate asset base until remedied. 20 Any remaining fees, indemnities, or other amounts due to the noteholders, the director services provider, the manager, the back-up manager, or the transition agent. 21 Remaining proceeds distributed to the issuer. AUGUST 10,

15 Payment priority after an event of default If an event of default occurs, collections will be distributed according to the payment priority outlined in table 12. Table 12 Payment Waterfall After An Event Of Default Priority Payment 1 Indenture trustee for trustee fees and certain reimbursable expenses. 2 Director services provider fees (not to exceed $5,000 annually for all series). 3 To the manager for any excess deposits and any management fees in arrears. 4 To the manager to reimburse manager advances. 5 Issuer expenses, such as transition agent fees, the back-up manager fee, and out-of-pocket expenses and indemnities for the transition agent that are related to the back-up manager fee. 6 Auditing expenses and other issuer expenses not to exceed $100,000 annually. 7 Series class A interest, pro rata. 8 Series class B interest, pro rata. 9 Series class A principal, pro rata, until zero. 10 Series class B principal, pro rata, until zero. 11 Series class A default fees, if any. 12 Series class B default fees, if any. 13 Shared available funds to the series account for the other series then outstanding in an amount sufficient for those other series to pay amounts described in items 1-9 above. 14 To the transition agent to the extent not paid in item 5 above and the back-up manager, if any, pro rata. 15 To the indenture trustee for amounts not paid in item 1 above. 16 To the director services provider any unpaid amounts due. 17 Issuer and manager indemnified amounts. 18 To the excess funding account if the aggregate asset base is less than the required aggregate asset base, until remedied. 19 Any remaining fees, indemnities, or other amounts due to the noteholders, the director services provider, the manager, the back-up manager, or the transition agent. 20 Remaining proceeds distributed to the issuer. Events Of Default Under the transaction documents, each of the following constitutes an event of default: A default on interest payments due on a class of notes (subject to an applicable grace period), as well as a default on payments on the final maturity date of those notes' unpaid principal balance; A default in the performance or a breach of any issuer or seller covenants that materially and adversely affect noteholder interests (subject to an applicable grace period); A breach of any issuer or seller representation and warranty included in the transaction documents that materially and adversely affects noteholder interests; The issuer's involuntary or voluntary bankruptcy (subject to an applicable grace period); The manager's termination without appointing a replacement manager within 90 days; The aggregate required asset base of all series of outstanding notes is higher than the aggregate asset base for 60 days, and the requisite global majority votes to declare this an event of default; and Any transaction document ceases to be the legal, valid, and binding obligation of the issuer, unless it expires. AUGUST 10,

16 Early Amortization Events Under the transaction documents, an early amortization event will occur if any of the following events or conditions occur on a payment date (and has not been cured): An event of default has occurred and is continuing; A manager default has occurred and is continuing; The unpaid principal balance for any series of notes exceeds its asset base, and that condition remains unremedied for 30 days; Any additional early amortization event occurs, as specified in any series' related documents; and The balance in the excess funding account is greater than 50% of the NBV of all eligible containers. In addition, each series may have its own specific early amortization events. At the closing date for series , it is not expected that there will be any other series outstanding. The early amortization events for series include: the EBIT ratio is less than 1.1x, and the weighted average age of all eligible containers exceeds 8.5 years. Legal Matters In rating this transaction, S&P Global Ratings will review the legal matters that it believes are relevant to its analysis, as outlined in its criteria. Surveillance We use surveillance data to perform periodic reviews on all rated container securitizations to identify potential and emerging trends. Our ratings reflect our opinion of the transaction's ongoing risk profile. Our surveillance group undertakes a number of steps to determine whether the ratings we assigned to a transaction continue to reflect our view of that transaction's performance. These steps include: Analyzing the manager reports that detail the underlying collateral's performance; Making periodic telephone calls and holding meetings with the issuer's and manager's key management personnel to identify any emerging trends or changes in servicing standards; and Remaining informed of related industry developments and events that may affect a rated transaction's overall performance. Our surveillance group will continue to develop and provide performance information, research, and analysis to increase the level of transparency, as well as information on our methodology, ratings, and rated transactions' performance. Related Criteria Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And Assumptions, Aug. 8, AUGUST 10,

17 Criteria - Structured Finance - ABS: Global Container Lease-Backed ABS Methodology And Assumptions, June 5, 2015 General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 General Criteria: Understanding Standard & Poor's Rating Definitions, June 3, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006 Related Research 2017 Lease Rate Assumptions For Rating Container Lease-Backed ABS Transactions, Jan. 20, 2017 Marine Shipping Container Transactions Are Holding Steady In A Challenging Pricing Environment, May 31, Lease Rate Assumptions For Rating Container Lease-Backed ABS Transactions, Feb. 8, 2016 Credit Rating Model: Container Assumptions Analyzer, Sept. 8, 2015 Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, Analytical Team Primary Credit Analysts: Steven Margetis, New York (1) ; steven.margetis@spglobal.com Jie Liang, CFA, New York (1) ; jie.liang@spglobal.com Secondary Contact: Kate R Scanlin, New York (1) ; kate.scanlin@spglobal.com Corporate & Government Credit Analyst: Betsy R Snyder, CFA, New York (1) ; betsy.snyder@spglobal.com Lead Analytical Manager, U.S. Commercial Credit: Stephen A Anderberg, New York (1) ; stephen.anderberg@spglobal.com AUGUST 10,

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