Transportation Flashcards
AIR LEASE CORPORATION (AL)
Leading aircraft leasing company that purchases commercial aircraft and leases them to airline customers worldwide. It is known for its modern fleet and strong relationships with major airlines. Strengths: AL’s diversified customer base and young fleet enhance its market position and reduce risk. Weaknesses: High capital expenditure requirements and exposure to cyclical airline industry trends can impact its financial stability.
Strong mgmt w/ 474 owned planes at avg age 4.7yrs (younger of comps), 307 order book (100% placed thru 2025); Lev 2.63x (tgt 2.5x), low sec debt and liquidity $8.2B. With AL trading at 111bp; solid fundamentals, good investment for defensive portfolios. With the u/g AER, AL should trade wide AER but rating upside remains.
BBB/BBB/A-
Airlines - Americas
$12.50bn in index across 18 issues
DELTA AIR LINES INC (DAL)
Major American airline headquartered in Atlanta, Georgia, providing scheduled air transportation for passengers and cargo across the United States and internationally. Two segments: Airline and Refinery, with the latter supplying jet fuel to its airline operations. Delta is known for its extensive route network, operational efficiency, and customer service, which help it maintain a strong market position. Extensive route network and operational efficiency enhance its creditworthiness. Exposure to fuel price volatility and economic cycles.
Upgrade candidate. Some noise related to the Crowdstrike issues but expect impact to be minor in grade cscheme. Leverage projected to fall toward 2x with agencies already on positive outlook. Benefitting from scale and diversification within the industry.
Baa3 (Pos)/BB+ (Pos)/BBB-
Airlines - Americas
$6.81bn in index across 6 issues ($4.46bn 144a)
MACQUARIE AIRFINANCE HOLDINGS LTD (MCAIRH)
Dublin-based global aviation lessor providing aircraft leasing and asset management services to airlines worldwide. Offers a diverse fleet of commercial jet aircraft and provides capital solutions, leveraging its expertise in finance and asset management. Strong financial backing and strategic partnerships, which support its growth and stability in the aviation leasing market.
Upgraded to IG by S&P in September 2024
Baa3/BBB-/BB+
Airlines - Europe
$2.00bn in index across 4 issues
AerCap Holdings NV (AER)
One of the largest aircraft leasing companies globally, with a diverse portfolio of aircraft and a broad customer base. It stands out due to its scale and comprehensive service offerings, including leasing, trading, and asset management. Strengths: AerCap’s extensive fleet and global reach provide significant market leverage and operational flexibility. Weaknesses: Integration risks from acquisitions and high debt levels can affect its credit profile.
1,529 owned planes (signif scale) avg age 7.4yr; solid liquidty plus unenc assets; NTM S/U 1.7x. Given its size and scale should trade only slightly inside of AL (current -10bp). Net leverage is 2.38x with target of 2.7x. Continue to think AER is a solid credit but less attractive inside of SMBC
Baa1/BBB+/BBB
Airlines - Other Developed
$25.25bn in index across 18 issues
AVIATION CAPITAL GROUP LLC (ACGCAP)
Full-service aircraft lessor with a focus on building long-term partnerships with airlines and investors. It benefits from its strategic relationship with Tokyo Century Corporation, which provides financial backing and stability. Strengths: ACG’s strong investment-grade credit profile and diversified funding sources support its financial resilience. Weaknesses: Dependence on parent company support and exposure to market fluctuations can pose risks.
Acq by Tokyo Century which prompted a d/g from S&P (A- to BBB-); 315 planes owned avg age 6.1yrs; low sec debt and low leverage. Leverage at 2.49x is high vs historical ~2x. Should trade inside AVOL, close to AER. No benefit in rating from parent support but expect upside. Add’l issuance will help liquidity. With ACG trading 141bp (30bp wide of AER) it is a solid credit and good investment for defensive portfolios.
Baa2/BBB-
Airlines - Other Developed
$5.25bn in index across 9 issues ($5.25bn 144a)
AVOLON HOLDINGS FUNDING (AVOL)
Prominent aircraft leasing company that focuses on investing in young, fuel-efficient aircraft to lease to airlines globally. It is known for its modern fleet and strategic growth initiatives. Strengths: robust liquidity and investment in modern aircraft. Weaknesses: High leverage and exposure to the cyclical aviation market. Owned by Bohai which is owned by Chinese conglomerate HNA. Improving financials
542 owned planes with avg age 6.3yrs RLT 7.0yrs; solid leverage 2.3x (tgt 2-2.5x) and liquidity $8.2B, NTM S/U 2.1x. The refi of GALC 2024 bond issued by Bohai (70% owner) has removed an overhang. Should trade well inside AYR, closer to AER
Baa3/BBB-/BBB-
Airlines - Other Developed
$9.85bn in index across 10 issues ($9.85bn 144a)
BURLINGTON NORTHERN SANTA FE LLC (BNSF)
Major freight railroad network in North America, wholly owned by Berkshire Hathaway. Operates one of the largest railroad networks in the U.S., covering 28 states and three Canadian provinces. Extensive network and strong market presence. Strengths: Backed by Berkshire Hathaway, BNSF has robust financial support and stability. Weaknesses: Its large-scale operations can lead to higher operational costs and complexities.
Benefits from ownership by BRK/B. BNSF not as focused on PSR as peers so OR improvement should lag. FCF is typically dividended to BRK but levered dvds are unlikely near term. Should trade tightest of the rails and fundamentals solid. Viewed as defensive holding.
A1(Pos)/AA-
Railroads - Americas
$20.78bn in index across 29 issues
CANADIAN NATIONAL RAILWAY COMPANY (CNRCN)
Leading North American transportation and logistics company, operating the only transcontinental network in North America. CN connects three coasts: the Atlantic, the Pacific, and the Gulf of Mexico. Strengths: CN’s strategic network provides significant competitive advantages in terms of market reach and efficiency. Weaknesses: Exposure to regulatory changes and labor disputes in Canada can impact operations and financial performance.
Largest Canadian rail. 2Q24 results below cons still Rev/Carload was +3% with vol +4%. FY24 guidance now EPS +M-HSD% yoy. Investor Day 5/3/23 guided to higher Lev tgt (~2.5x). Should trade slightly inside UNP and wide of BNSF.
A2/A-
Railroads - Americas
$6.83bn in index across 13 issues
CANADIAN PACIFIC KANSAS CITY (CP)
First and only single-line railway connecting Canada, the U.S., and Mexico, following the merger of Canadian Pacific and Kansas City Southern. This unique positioning enhances its cross-border trade capabilities. Strengths: The merger creates significant growth opportunities and operational synergies. Weaknesses: Integration risks and potential regulatory hurdles could affect short-term performance.
CP closed its acq of KSU in April 2023. Mgmt focused on tgt leverage 2-2.5x (guided to 2.5x by FYE24) and Baa1/BBB+ rating. Integration and Mexico will remain potential headwinds in the near term, though our base case assumes low risk potential. At 109bp trading 7bp wide of CSX despite ratings and leverage differential, in the near term would not expect much upside. Hwvr, given lev focus I would expect CP to trade inside of CSX over time so potential for longer term defensive portfolios.
BBB+
Railroads - Americas
$11.54bn in index across 17 issues
CSX CORP (CSX)
Provides rail-based freight transportation services. It operates primarily in the eastern U.S. and has a strong presence in intermodal and bulk commodity transport. Strengths: CSX’s focus on efficiency and technology investments enhances its operational performance. Weaknesses: Its reliance on coal transportation exposes it to market volatility and environmental regulations.
CSX 2Q24 results were slightly better than expectations; 2H24 guidance for rev +LSD-MSD%. CSX will likely continue to return cashflow to shareholders . Target leverage <2.75x. Given scale and solid mgmt team CSX is strong fundamentally. CSX should trade wide of CNR and UNP. At 102bp adj spread CSX is 19bp behind UNP and 35bp wide of CNR so could be attractive for defensive portfolios
A3/BBB+/A-
Railroads - Americas
$17.31bn in index across 27 issues
NORFOLK SOUTHERN CORPORATION (NSC)
Operates a comprehensive rail network in the eastern U.S., serving major ports and industrial centers. It is known for its strong intermodal and coal transportation services. Strengths: NSC’s strategic network and focus on operational efficiency drive strong financial performance. Weaknesses: High exposure to coal markets and recent operational disruptions can pose risks to stability.
2Q24 results were above expectations with volume +5% and price -3%. NSC reiterated its Baa1/BBB+ rating with leverage in mid-2x with excess cash flow to be used for share repo so leverage impact to be relatively neutral. Derailment overhang has pressured bonds. Further, activists have pressured to change mgmt though they were recently unsuccessful. At 106bp adj spread, solid credit for defensive portfolios but likely slightly tight to CSX.
Baa1/BBB+
Railroads - Americas
$16.32bn in index across 29 issues
UNION PACIFIC CORPORATION (UNP)
One of the largest freight railroads in North America, operating primarily in the western two-thirds of the U.S. It is known for its extensive and efficient rail network. Strengths: UNP’s strong market position and continuous investments in technology and infrastructure support long-term growth. Weaknesses: Operational challenges and exposure to economic cycles can impact short-term financial performance.
UNP 2Q24 results were mixed as OR better than cons with vol flat. Still FY24 guidance was for ‘uncertain’ volume. I still expect leverage to remain around their LT target of 2.7x. With their A- rating and scale, should trade inside CSX and NSC, slightly wide of CNR. Solid holding for more defensive portfolios
A3/A-/A-
Railroads - Americas
$28.81bn in index across 40 issues
ELEMENT FLEET MANAGEMENT CORP (EFNCN)
Largest pure-play automotive fleet manager, offering fleet management services globally. It benefits from a scalable operating platform and resilient cash flow. Strengths: Strong recurring revenue and investment-grade credit rating. Weaknesses: High competition in the fleet management industry and reliance on vehicle manufacturers.
Largest fleet management company in the U.S. with diversified client base and high retention rates. Well-positioned following a strategic refocus, separation of the non-fleet business in 2016, and completion of transformation program. Committed to IG ratings. 2Q24 results were solid with mgmt raising FY24 guidance (Rev +11-13% yoy). Vehicles under mgmt was up slight seq but originations were +5% yoy. Tangible lev of 6.5x at 2Q24 (target 6.25-6.75x).
BBB/BBB+
Transportation Services - Americas
$2.25bn in index across 3 issues ($2.25bn 144a)
ERAC USA FINANCE LLC (ENTERP)
Special purpose entity formed to issue debt securities for refinancing and acquisition purposes, indirectly owned by Enterprise Holdings. It benefits from the strong market position of its parent company in the car rental industry. Strengths: Backed by a financially stable parent company, providing credit support. Weaknesses: High leverage and reliance on the performance of the car rental market.
ERAC is the largest rental car company. Family owned and carries no secured debt. ERAC has seen a strong recovery back to pre-pandemic results. Available liquidity at 3Q24 was $5.1B. Still net lev is 1.0x. More comfortable with ERAC over FDX so at 91bp relative value is attractive
A3/A-
Transportation Services - Americas
$9.35bn in index across 12 issues ($9.35bn 144a)
FEDEX CORP (FDX)
Global logistics and transportation company, providing courier delivery services. It is well-positioned with a vast network and strong brand recognition. Strengths: Strong cash flow generation and diversified revenue streams. Weaknesses: Exposure to economic cycles and high operational costs.
FDX 4Q24 results were slightly better than expectations. FY25 guidance for Rev +LSD-MSD%. Implementing $6.5B cost out 3yr initiative (realized $1.8B benefits in FY24). Guided $2.5B share buyback in FY25. 4Q24 announced a review of the FedEx Freight business incl sale or spinoff. Solid name for defensive accts, but prefer ERAC
Baa2/BBB
Transportation Services - Americas
$15.69bn in index across 20 issues
