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Rail Group On Air Podcast
Ocean of Capital Chasing Trains, With Eric Marchetto, David Nahass and Will Geiger

Ocean of Capital Chasing Trains, With Eric Marchetto, David Nahass and Will Geiger

Rail Group On Air vor 6 Monaten

This edition of Rail Group On Air features Trinit…

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Rail Group On Air

150 Episoden

Podcast by RT&S, Railway Age, IRJ

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This edition of Rail Group On Air features Trinity Industries Inc.
Chief Financial Officer Eric Marchetto, Railroad Financial
Corporation President and Railway Age Financial Editor David
Nahass, and Railroad Financial Corporation Senior Vice President
Will Geiger. It’s a companion to Nahass’s “Financial Edge” column
in the March issue of Railway Age. “The abundance of capital
chasing investment opportunities in rail spans the industry from
railroads to maintenance and repair to—what else?—railcars and
locomotives,” notes Nahass. “However, for industry veterans, the
current era’s investment patterns differ from historical investment
interest. Formerly, highly structured tax-affected (often
leveraged) leases and Equipment Trust Certificates (ETCs, a
sophisticated word for a well-collateralized loan) were the
investment products of choice for asset acquisition and finance.
During this time, shorter term operating leases were the province
of a handful of investors taking above average risk and receiving
above average, but occasionally slightly erratic, returns that
followed the cyclicality of the rail equipment marketplace. “Eric
Marchetto notes that today’s capital ‘stack’ looks very different.
One difference is the types of capital coming into the rail market
today, including long horizon passive capital from infrastructure
funds and insurance companies. These are potentially very large
investors that can use one billion in equity to buy three to four
billion in railcar assets. Furthermore, there are shorter-term
investors repackaging rail asset backed loans as collateralized
debt obligations parsing out portfolios into credit-rated
tranches.This is all in the shadow of an industry expected to build
25,000 railcars in calendar year 2026. “What do these investors
love about rail? Marchetto notes that ‘rail assets represent an
attractive risk-adjusted investment.’ There is low default risk,
and the long-lived nature of railcars represents an inflation
hedge. Marchetto sees, directly and anecdotally, more funds looking
to get into the rail equipment leasing business. He sees growing
demand from these investors looking for attractive returns.
Investors see an opportunity for steady and consistent returns in
the railcar leasing space. Think of it this way: While many railcar
owners may feel that post-COVID railcar prices have risen
dramatically, Marchetto notes that new railcar prices have risen 3%
to 4% annually over the past 20 years. Contrast this against lease
rates that have risen 1% to 2% over the same 20-year period. This
gives conviction in the long-term returns and the opportunity for
lease rates to continue to increase to match the rise in asset
value. Couple that with the abundance of liquidity available in
today’s market, which when it gets deployed will have to assume
that lease rates will rise in the future to justify paying today’s
prices.”