2019 was fulfilled with new exchange-traded fixed income securities. There were a total of 124 issues from 97 different issuers. One of which is Triton International that listed its first preferred stock, TRTN.PA, in March 2019. For the last year, along with Public Storage (PSA), it is the company with the most issued exchange-traded fixed income securities, as it is now releasing its fourth preferred stock IPO. In this article, we want to shed light on the newest Preferred Stock issued by Triton International Ltd. (TRTN). Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.
The New Issue
For a total of 6M shares issued, the total gross proceeds to the company are $150M. You can find some relevant information about the new preferred stock in the table below:
Triton International Limited 6.875% Series D Cumulative Redeemable Perpetual Preference Shares (NYSE: TRTN-D) pays a fixed qualified dividend at a rate of 6.875%. The new preferred stock is expected to be rated with a ‘B+’ Standard & Poor’s rating and is callable as of 03/15/2025. The newly issued preferred stock is currently trading above its par value at a price of $25.39. This translates into a 6.77% Current Yield and a 6.68% Yield-to-Call.
Here is how the stock’s YTC curve looks like right now:
Triton International Limited is the world’s largest lessor of intermodal containers, with a fleet of over 5.5 million twenty-foot equivalent units (“TEU”) of containers. We lease containers to nearly every major container shipping line in the world and believe we are the leading container provider to most of the top 10 global container shipping lines. We believe that our leading scale, extensive container supply capability, global footprint, access to capital, experienced management team and strong track record make us a preferred container lessor in the industry. We manage our business through our global network of 26 offices in 14 countries, and we offer our customers access to our containers through approximately 470 third-party owned container depot facilities across 46 countries.
Source: Company’s website | Investor Overview
Below, you can see a price chart of the common stock, TRTN:
TRTN has performed well since its IPO in July 2016, paying a regular quarterly distribution. For 2019, the company paid $2.08 yearly dividend that with a market price of $38.39 the current yield of TRTN is at 5.41%. As an absolute value, this means it pays $153.7M in dividends yearly. For comparison, the yearly dividend expense for all outstanding preferred stocks (with the newly issued Series D preferred stock) of the company is around $39.6M.
In addition, with a market capitalization of around $2.78B, TRTN is the largest Non-US “Rental & Leasing Services” company, listed on the New York Stock Exchange (according to FINVIZ).
Below, you can see a snapshot of Triton International Ltd.’s capital structure as of the time of its last quarterly filing in September 2019. You also can see how the capital structure evolved historically.
Source: Morningstar.com | Company’s Balance Sheet
As of Q3 2019, TRTN had a total debt of $6.93B, ranking senior to the newly issued preferred stock. The rank of the new Series D preferred shares is junior to all outstanding debt and equal to the other preferred shares of the company, the Series A, Series B, and Series C, that totals $405M.
The Ratios Of Triton International Which We Should Care About
Our purpose today is not to make an investment decision regarding the common stock of TRTN but to find out if its new preferred stock has the need quality to be part of our portfolio. Here is the moment where I want to remind you of two important aspects of the preferred stocks compared to the common stocks.
- Preferred shareholders have priority over a company’s income, meaning they are paid dividends before common shareholders.
- Common stockholders are last in line when it comes to company assets, which means they will be paid out after creditors, bondholders, and preferred shareholders.
Based on our research and experience, these are the most important metrics we use when comparing preferred stocks:
- Market Cap/(Long term debt + Preferreds). This is our main criteria when determining credit risk. The bigger the ratio, the safer the preferred. Based on the latest annual report and taking into consideration the latest preferred issue we have a ratio of 2,780/(6,930 + 555) = 0.37, indicating the company is highly leveraged, as it has 2.7x more debt than equity.
- Earnings/(Debt and Preferred Payments). This is also quite an easy to understand approach. One can use EBITDA instead of earnings, but we prefer to have our buffer in what is left to the common stockholder. The higher this ratio, the better. The ratio with the TTM results is 330/(330 + 39) = 0.89, which is satisfying and despite the high leverage, the cost of that leverage is relatively low.
The Triton International Limited Family
TRTN has two more outstanding preferred stocks, listed on the NYSE:
- Triton International Ltd. 8.50% Series A Cumulative Redeemable Perpetual Preference Shares (TRTN.PA)
- Triton International Limited 8.00% Series B Cumulative Redeemable Perpetual Preference Shares (TRTN.PB)
- Triton International Limited 7.375% Series C Cumulative Redeemable Perpetual Preference Shares (TRTN.PC)
The other two “relatives” also pay a qualified fixed-rate dividend, pays quarterly distributions and bear a “B”+ Standard & Poor’s rating. However, they have a higher nominal yield than the new IPO, 8.50% for TRTN.PA, 8.00% for TRTN.PB, and 7.375% for TRTN.PC. With a market price of $27.96, TRTN.PA has a Current Yield of 7.60% and Yield-to-Call of 5.66%, while TRTN.PB with the price of $26.95 has 7.42% and 6.44% yields, respectively. The most recently issued, TRTN.PC, in turn, costs $26.32 which becomes a Current Yield of 7.01% and YTC of 6.46%. If we compare them to the 6.77% CY and 6.68% YTC, we can see TRTN-D having the lowest current yield, but also the highest Yield-to-Worst of the family, with the longest term to its call date.
In addition, in the following chart, you can see a comparison between TRTN’s preferreds and the fixed-income securities benchmark, the iShares Preferred and Income Securities ETF (PFF). As we can see, for the humble trading history of several months, TRTN.PA and TRTN.PB categorically outperform the benchmark, while TRTN.PC with its almost three months of trading is the worst performer in the chart.
The chart below contains all preferred stocks and baby bonds in the “Rental & Leasing Services” sector (according to Finviz.com).
There are a total of 11 outstanding fixed-income securities, issued by a Rental & Leasing company. Two are baby bonds, 5 fixed-to-floating preferred stocks, and 4 fixed-rate preferreds, one of which with a par value of $100. Except for the baby bonds and AL-A that is a higher quality preferred stock, TRTN-D has the lowest current yield when compared to the other issues.
The Full List
Optional Redemption Upon A Change of Control Triggering Event
Upon the occurrence of a Change of Control Triggering Event (as defined below), we may, at our option, redeem the Series D Preference Shares, in whole or in part, within 120 days after the first date on which such Change of Control Triggering Event occurred, by paying $25.00 per Series D Preference Share, plus all accumulated and unpaid dividends to, but not including, the redemption date, whether or not declared. If, prior to the Change of Control Conversion Date (as defined herein), we exercise our redemption rights relating to the Series D Preference Shares, holders of the Series D Preference Shares that we have elected to redeem will not have the conversion right described under “Description of the Series D Preference Shares-Conversion Right Upon a Change of Control Triggering Event.” Any cash payment to holders of Series D Preference Shares will be subject to the limitations contained in any agreements governing our indebtedness.
Source: 424B5 Filing by Triton International Ltd
Use of Proceeds
We intend to use the net proceeds of the sale of the Series D Preference Shares, which are expected to total approximately $144,834,000 after deducting the underwriting discount and estimated offering expenses payable by us, for general corporate purposes, including purchasing containers, repurchasing outstanding common shares, payment of dividends and repaying or repurchasing outstanding indebtedness.
Source: 424B5 Filing by Triton International Ltd
Addition to the ICE Exchange-Listed Preferred & Hybrid Securities Index
With the current market capitalization of the new issue of around $150M, TRTN-D is a possible addition to the ICE Exchange-Listed Preferred & Hybrid Securities Index during some of the next rebalancings. It will also be included in the holdings of the main benchmark, the iShares Preferred and Income Securities ETF which is the ETF that seeks to track the investment results of this index, and which is important to us due to its influence on the behavior of all fixed-income securities.
The past year has been very active from Triton International, as TRTN-D is its fourth preferred stock IPO for that period. During this time frame, a significant decrease in the cost of financing is being observed, from 8.50% for TRTN.PA a year ago, through 8.00% and 7.375% for “B” and “C”, to the current level of 6.875% for TRTN-D. This also gives the new IPO the lowest Current Yield of the family but also with the current prices, the best Yield-to-Worst, equal to its Yield-to-Call. Since its IPO in 2016, the company performs well, pays its common stock dividend regularly, 4x times more than it needs for its preferreds, and has a decent Earnings-to-Creditor payments ratio of 0.89. However, it is pretty leveraged, having almost 3x times more debt and preferred stocks than equity.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.