Sunday, October 5, 2014

PEU Tank Cars

Toss a rock in any direction in today's economy and you're likely to hit a private equity underwriter (PEU).  That includes train cars.  .

Railway Age reported:

The railcar market continues to follow a trend of outrageous demand in some car types mixed with tepid demand in others. With a current backlog (as of the end of 1Q2014) of almost 82,000 cars, demand is strong for covered hoppers and tank cars with light to no building of other car types.  There are new operating lessors funded by a variety of monetary sources, private equity firms, and bank leasing companies—all competing for the same transactions in the marketplace.

All in all, the leasing marketplace for rail equipment is volatile, aggressive, and hungry.

Reuters reported:

Axeon Specialty Products, which leases about 1,200 tank cars to transport heavy crude south from Canada to East Coast asphalt plants, said it does use some AAR 211W tank cars, but it was as yet unclear how much it would be impacted.

"Some of them are the AAR cars and that is why we are working with the cars owners to determine what we can and cannot do," said Axeon spokeswoman Claire Riggs. She was unable to say how many AAR 211 cars the company leased.

Axeon, owned by New York private equity firm Lindsay Goldberg, was until this week known as NuStar Asphalt.
PEU money is behind a new crude-by-rail facility proposed for Colorado’s booming Niobrara field.

It costs $1,300 a month to lease a tank car, which requires only $20 a month in maintenance.  That car can hold between $1.5 and $3 million in oil.  A tank car ordered today will roll off the line in summer 2016.  There are 77,000 new tank cars produced a year.

Limited supply, huge operating margins, and massive demand from the oilfield as far as the eye can see.  This is a PEU's dream.  

Part of U.S. Commerce Secretary Penny Pritzker's massive fortune came from Union Tank Car.  She omitted a portion of it in her $80 million error in her federal financial disclosure.  

The Carlyle Group revealed it would shed public infrastructure in favor of the energy kind:  WaPo reported:

Carlyle is exiting business of bridges, water and highway stops after eight years. It’s going into energy infrastructure instead.

One has to wonder how multiple layers of massive profits works it way through to the price consumers ultimately pay.   Not to worry as long as the greed and leverage boys (and girls) get their grand returns.  Old McDonald had a farm, PEEEU.