8/4/2019 Nahass_2_12_09

1/13

NationalCoalTransportationAssociation

StatusoftheRailcarLeasingMarketplace

David

G.

Nahass Senior

Vice

President

8/4/2019 Nahass_2_12_09

2/13

RFCBackground

RFCisafinancialadvisoryfirmfoundedin

1989

(Twenty

Years!): Theonlyfirmfocusedsolelyontheglobalrail

industry

Arrangedover$15billioninfinancing

primarilyrelatedtorollingstock

TheprincipalsinRFChavemorethanthirty

yearsrailequipmentfinancingexperience

8/4/2019 Nahass_2_12_09

3/13

WhatdoesRFCdoforitsclients?

FinancialAnalysis(before,duringandaftertransactionsarecompleted)

TransactionStructuring Recentlyrestructuredfleetof2,500railcarsforshipper

Currentlyrestructuringfleetof10,000railcarsforchemical

shipper Handledmorenewcoalequipmentfinancingthanany

otherthirdpartyadvisorinlastthreeyears

LeaseDocumentation

LogisticsCoordination

FleetPlanningandAnalysis

Market

Survey,

Input

and

Study

8/4/2019 Nahass_2_12_09

4/13

UpdateontheRailcarLeaseMarketplace

Topicstobecovered: Financialenvironment

ImpactonBanksandBankfinancing

Impactonoperatinglessors

Interestrateandcapitalcostvolatility

Financingandrailcarbuilding CommodityPricevolatility

Whoisbuyingrailcars?

Current

rental

market Numberofsetsparked

Currentleaserates

Strategiesfordealingwiththismarketplace

8/4/2019 Nahass_2_12_09

5/13

CurrentFinancialEnvironment TheBanks

Currentfinancialcrisishasdiminishedthenumberofbanksthat arefinancingequipmentintraditionalUStaxleases. Financingfortransactionsofallsizes,includingthebigticket transactions

usuallyassociatedwithrailequipment,havebeenaffected.

Numberofactiveparticipantshasdecreased(inroughnumbers)fromthirtyinstitutions

to

about

ten. Bankconsolidationisafactor. Waveofconsolidationlikelynotover.

Allcompanieshaveseenadramaticchangeintheincreasesincostofcapitalandinuseoftaxdepreciation. Creditspreads(Creditspreadreflectstheadditionalnetyieldaninvestorcan

earnfromasecuritywithmorecreditriskrelativetoonewithlesscreditrisk.Source,Wikipedia),especiallyintheutilitymarket,havestartedtoshrinkeveninthelastfewdays

Longterm,bankswilllooktobemorewellcompensatedforrisksassociatedwithleasingequipment.

Additionalbankregulationsmaycontinuetodecreasealreadydiminishedlendingcapacity.

Numberofinstitutionswillingtoleaseequipmenttolesseesfor longerleaseterms (greaterthen15years)hasdecreased.

Banklosseswilldiminishthevalueoftaxdepreciation. Depreciationisan

importantmotivatorintaxleasing.

8/4/2019 Nahass_2_12_09

6/13

CurrentFinancialEnvironmentOperatingLessors

Financialcrisishascauseddramaticchangesinrailcaroperatinglease

marketplace Severaloperatinglessor companiesarerumoredtobeforsale

Salestransactionsforseveralcompaniescouldnotbecompletedinthecurrenteconomicenvironment

Severalcompanieschangedhandsasaresultofmergers,bankruptciesandacquisitionsthatoccurredin2008

Decreasesinrailcarloadingshavecausedanincreaseinthepercentageofequipmentoffleaseandinstorage. Storagecostshavebeenontherise

Mostlessors aretreadingwater, thatis workingtomaintainahigh

percentage

of

equipment

on

lease

rather

than

pursuing

new

investment

opportunities

Oncethecapitalmarketssettle,furtherconsolidationandadditionaltransferofassetsislikely

Asaruleofthumb,operatinglessors sufferthesameeconomicconsequencesasthoseoffinancialinstitutionsandindustriallessors

Leaseratefactorsonnewequipmentordersarelikelytobehigheronshortandmediumtermleasesthantheratesofrecentyears

Arisinginterestrateenvironmentdoesnotfavortheoperatinglessors

8/4/2019 Nahass_2_12_09

7/13

8/4/2019 Nahass_2_12_09

8/13

UtilityBondYields

8

8/4/2019 Nahass_2_12_09

9/13

FinancingandRailcarBuilding

Whipsawingcommoditypricesmakepurchasersandmanufacturersvulnerabletounexpectedsurprises

Howlongwilltheglobalslowdownlast?

Forhowlongwillcommoditiesbedepressed?

Is

bonus

depreciation included

in

the

governments

$790Millionstimulusplan(stimulusplannumberone)

Aretherailroadsbuying?

Are

the

operating

lessors buying? Areusedcarpricesdropping?

8/4/2019 Nahass_2_12_09

10/13

Surcharge Summary by Category based on

AutoFlood III and BethGon II

Estimates

$0

$200

$400

$600

$800

$1,000$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

$2,400$2,600

$2,800

$3,000

$3,200

$3,400

$3,600

$3,800

$4,000

$4,200

$4,400

$4,600

$4,800

$5,000

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Castings

Wheels

Axles

RollerBearingsSprings

Brake

SystemForgings

BrakeBeamsFasteners

Misc/Fuel

Source - Supplier

Announcements

8/4/2019 Nahass_2_12_09

11/13

Steel Price per Ton

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Jan-07

Mar-07

May-07

Jul-0

7

Sep-07

Nov-0

7

Jan-08

Mar-08

May-08

Jul-0

8

Sep-08

Nov-0

8

Jan-09

Source AMM Steel Plate

8/4/2019 Nahass_2_12_09

12/13

RailcarLeaseMarketplace Setsinstorage

WesternU.S.: Inroughnumbersapproximately85aluminumsetsareinstorage. ThistotalcontainssetsstoredformechanicalreasonsandsetsinstorageasaresultofmineloadingproblemsinUtah.

EasternU.S.:Againroughnumbersofupto20setsofcarsareparked.Ibelievethesearemostlyaluminumcars,thoughsomesteelcars maybemixedintothattotalnumber. Thisdoesnotincludethe2,000orsocars(mostlysteel)rumoredtobeintheprocessofbeingreturnedbytheCSX.

RentalMarket Amoredifficultnumbertopegisthecurrentrentalmarketforaluminum

equipment. Currentdatasuggeststhefollowing:

Shortterm/tripleases Ratesaretrendingdown

Medium

term

(less

than

three

years)

rates

are

stable

at

levels

slightly

lowerthanthelast24months

Longerterm(fiveyears) similartothreeyears,rentsarestableatlevelsslightlylowerthanthelast24months

Allratesseemtobehighlynegotiableatthepresenttime. Indicationsare

that

for

the

near

term,

lessees

have

the

upper

hand.

8/4/2019 Nahass_2_12_09

13/13

HowtoRespondtotheCurrentEconomicEnvironment

Inacrisisdrivenmarketplace,opportunitiesabound. Iaskmyselfandmyclientstwoquestions:

1. How

long

will

an

opportunity

(or

opportunities)

remain

available?2. WhatisthemaximumbenefitIcanreceivefromavailableopportunities?

HerearestrategiesRFCiscurrentlyemploying

Right

now,

there

is

a

difficult

financial

market,

soft

commodityprices,softleasingmarket.Dontgosoftwiththemarket. Beproactiveinmanagingyourcurrentandfutureequipmentneedsandleaseobligations.

AnaluminumgondolarailcarorderedinJanuary2008anddelivered

in

July

2008

saw

a

price

increase

of

15%

20%

in

delivered

cost

at

themanufacturingfacility(notincludingtransportationcostsandapplicablefuelsurcharges). Dontbeavictimofcircumstance. Beawareoftherisksyouaretaking.

Youarealwaysinthemarket!