TAL International's (TAL) CEO Brian Sondey on Q1 2016 Results - Earnings Call Transcript

| About: Triton International (TRTN)

TAL International Group (TAL) Q1 2016 Results Earnings Conference Call April 28, 2016 9:00 AM ET

Executives

John Burns - SVP & CFO

Brian Sondey - President and CEO

Analysts

Derek Rabe - Raymond James

Vincent Caintic - Macquarie Capital

Doug Mewhirter - SunTrust

John Humphreys - Bank of America

Helane Becker - Cowen & Company

Operator

Good morning and welcome to the TAL International Group First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, that this event is being recorded.

I would now like to turn the conference over to John Burns, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

John Burns

Thank you, Chad. Good morning and thank you for joining us on today’s call. We are here to discuss TAL’s first quarter 2016 results, which we reported yesterday evening. Joining me on this morning’s call from TAL is Brian Sondey, President and CEO.

Before I turn the call over to Brian, I’d like to note that our prepared remarks will follow along with a presentation that can be found on the webcast or the company presentation section of our website. I would like to point out that this conference call may contain forward-looking statements as the term is defined under the Private Securities Litigation Reform Act of 1995. It is possible that the company’s future financial performance may differ from expectations due to a variety of factors. Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company that it believes are appropriate and any such statements are not a guarantee of future performance and actual results may vary materially from those projections.

Finally, the company’s views, estimates, plans and outlook, as described in this call, may change subsequent to this discussion. The company is under no obligation to modify or update any or all the statements that are made herein despite any subsequent changes. These statements involve risks and uncertainties are only predictions and may differ materially from actual future events and results. For a discussion of such risks and uncertainties, please see the risk factors located in the company’s Form 10-K filed with the SEC.

With these formalities out of the way, I will now turn the call over to Brian.

Brian Sondey

Thanks, John. Welcome to TAL International’s first quarter 2016 earnings conference call. We have included a presentation to go along with this call. I will start with Slide 3 of the presentation.

TAL's financial performance continues to be impacted by very difficult market conditions. TAL generated $14.6 million of adjusted pretax income in the first quarter, which was down 64% from the first quarter of last year.

TALs leasing revenue was $149.2 million up slightly from the first quarter of last year. While trade growth has been unusually weak, TAL's utilization remains over 90% due to our strong lease portfolio. We continue to generate sizable cash flows and TAL declared a dividend of $0.45 per share this quarter.

We're making good progress on our announced merger with Triton, to form the world’s largest, most capable and most efficient container leasing company. We're targeting a closing date for the merger in June. The final timing will be driven by the S4 approval process with the SEC.

I will now turn to Slide 4 and talk more about the current challenging market environment and TALs operating performance. Over the last 18 months our market has been characterized by low trade growth and deflationary pricing.

Containerized trade growth was fairly positive in 2015 and 2015 represented one of the few years in our history where containerized trade growth was less than global GDP growth. We've been expecting trade growth to rebound to more normal levels in 2016. Our leasing demand has been disappointing so far this year.

We have recently started to see some signs of improved activity and we'll have better visibility while the overall market will shape up this year as we get closer to the summer peak season for dry containers.

Deflationary pricing pressures continued in the first quarter. New container prices fell below $1,300 during the quarter before increasing slightly to roughly $1,400 and market leasing rates in the first quarter reached new all-time lows.

However, steel prices in China rebounded toward the end of the first quarter and they jumped sharply in April, briefly reaching $500 per ton where steel price had been at the end of 2014, but new container prices do not yet reflect the recent rebound in steel prices, probably due to uncertainty about future steel prices and the current low volume of new container orders.

The charts on Slide 4 show that TALs key operating metrics continue to decrease starting the first quarter. Our utilization has been eroding steadily due to increased off hires and limited pick-up activity, but our utilization remains above 90%.

Our average lease rates pushed lower during the quarter and used container sale prices continued to decrease, due to the decrease in new container prices and a continued build up of container inventories especially in Asia.

Turning to Slide 5, it seems the foundations for a significant improvement in market conditions are in place, but we need renewed trade growth to spark a meaningful recovery.

The global container fleet has been shrinking since the middle of last year. New container production has been low for the last three quarter and disposal volumes have been high.

As a result, increased trade growth should quickly lead to improved leasing demand. The recent rebound in steel prices will likely lead to a significant increase in new container prices if the market steel rebound is sustained. Higher new container prices would result in higher market leasing rates, increase demand for our depot units and likely an improvement in used container sale prices.

Increased utilization and the improvement in disposal prices would add significant upside leverage for TALs financial performance. Slide 6, shows some of the data on new container production volumes and pricing trends.

The chart on the left shows quarterly production volumes of new dry containers for leasing companies and shipping lines. You can see that production volumes have been below estimated disposal volumes for the last few quarters.

The chart on the upper right shows the price for new 20 foot dry container over the last 10 years, as well as our estimates for the input cost of the steel. The chart on the lower right shows the difference between the price of the 20 foot containers and our estimates for the input cost of the steel.

You can see in the chart that the non-steel component of the container price typically is ranged from $800 to $1,200. After the recent sharp rebound in steel prices, containers are currently selling for less than $500 above the current spot market input cost of the steel.

Well our profitability is under pressure as we wait for the eventual market recovery, our cash flows remain strong and our utilization continues to be protected by our strong lease portfolio.

You can see on Slide 7 that over 76% of TAL's on-hire containers are on hire under multiyear, long term of finance leases and these leases have an average remaining duration of 3.5 years.

In addition, TAL is highly focused on lease structuring discipline, especially in ensuring that the vast majority of our containers need to be returned to traditionally strong export areas. Over 95% of TAL's off-hired dry containers on Asia right now which should allow us to quickly push them back on hire when market conditions improve.

Turning to Slide 8, we're making good progress on our merger with Triton. The strategic benefits of the merger and compelling. The combined company will have the leading operating scale in our industry. It will be the clear cost leader and I think we'll be widely recognized as the best operator and as having the closest customer relationships.

The merger continues to be well received by our customers and other key business partners. We expect the merger will create larger financial benefits for TAL shareholders and lead to significant EPS accretion.

We believe we're on track to achieve $40 million in annual cost savings. The merged company will also retain Triton's Bermuda domicile and we expect the GAAP tax rate for the combined company will reduce over time with minimal impact on combined cash taxes.

The merger process is also moving along on target for second quarter close. We've received all needed antitrust approvals, organizational planning is mostly complete and we're hopeful that the S-4 registration statement will be declared effective by the SEC shortly facilitating a closing date of June.

I'll now hand the call over to John Burns, our CFO.

John Burns

Thank you, Brian. As shown on Page 9 of the presentation and as reported in our earnings release, TAL posted adjusted pre-tax income for the first quarter of $14.6 million or $0.44 per share down 64% from the prior year quarter, reflecting the accumulation of the weak demand environment we've experienced over the last year.

The first quarter adjusted pre-tax income excludes $2.2 million of expenses incurred as part of the pending merger with Triton.

Turning to Page 10, the $26 million decline in first quarter pre-tax income from the prior year quarter was driven by three main items: decreasing lease rates, decreasing utilization and lower disposal prices. These items were partially offset by higher re-delivery fees.

The decline in lease rates negatively impacted our first quarter results by approximately $8.5 million versus the prior year as leases were re-priced for containers returned from high rate leases. An increase in container prices in line with the recent increase in steel prices will provide some relief from this re-pricing pressure.

However for the next several years we faced the exploration of a large number of high priced leases written in 2010 and 2011 and container prices and lease rates were very high.

The weak demand environment we've experienced since the beginning of 2015 has led to declining utilization levels, which has negatively impacted leasing revenue and operating cost by approximately $11 million, but trade growth is at least moderately positively positive during this year's peak season. We expect that the supply and demand of containers will tighten, which could lead to the recapture of this impact.

The third major driver of the decline in our earnings is a relatively 20% drop in disposal prices, which led to a $12.5 million increase in loss on the sale of containers from the prior year quarter.

When you think of the change in disposal income from the prior year in two buckets, first, there is the impact of designating containers coming off hire as disposal candidates. At the time units are moved to sales status, we mark the unit's book value down to the estimated disposal price.

This impairment of book value is recorded as a loss on sale in our income statement. This marking to market of units flowing from the lease fleet into the sales fleet accounted for approximately $4.5 million of the negative change from the prior year. Disposal prices will need to increase to reduce the impact of this item.

The second bucket represents the ongoing mark-to-market, reflecting further declines in sale prices per units previously moved into sales status. This represented approximately $8 million of the change in pretax income from the prior year and is also included in the loss on sale in our income statement. This impact will go away as soon as disposal prices stabilize, even if they were to remain at the current low levels.

On Page 11 is a summary of our first quarter and yearend balance sheet. Despite the challenging market conditions, we were able to continue to invest in our business and pay $77 million in dividends over the last year, all while maintaining constant leverage of 76% debt to revenue earning assets.

In addition, although our customers are experiencing very difficult market conditions, we've not experienced deterioration in customer collections.

On Page 12 we show our cash flow statement for the first quarter and the prior year quarter. Despite the challenging market conditions, our operating cash flows remained very strong and continue to provide us with a significant financial flexibility.

In the first quarter, we were able to invest $100 million in the business, pay a substantial dividend and reduce our overall net outstanding debt despite the difficult operating environment.

Turning to Page 13, here we've presented a table that highlights the well-structured nature of our debt facilities. We've sufficient cash flows to meet our debt service requirements and no significant near term maturity quest.

Triton’s debt portfolio is similarly well structured. Both companies are well protected from an increase in interest rates with long term fixed rate debt facilities where interest rate hedges covering the majority of the outstanding debt.

As previously highlighted, the merger with Triton is a staff-to-staff transaction, so no incremental debt is required and there was no change of control issues with existing facilities. Therefore the existing debt facilities will remain in place.

I will now return you to Brian for some additional comments.

Brian Sondey

Thanks John. I'll wrap up our presentation with Slide 14. As I mentioned earlier, TAL’s operating and financial performance continue to be impacted by extremely difficult market conditions in the first quarter.

We've seen some recent uptick in activity and the foundation for an improvement in market condition seem to be in place. While we would need to see increased trade growth, through the summer peaks in order to benefit from a meaningful recovery in 2016.

We expect our adjusted pretax income will decrease from the first quarter to the second quarter of 2016. The trajectory of our earnings after the second quarter will depend on whether and how strongly market conditions recover. We believe improved market conditions will have significant upside leverage for our financial performance.

Finally, we're making good progress on our announced merger with Triton. The merged company will have significant scale, cost and capability advantages compared to everyone else in our industry.

We expect the transaction will lead to $40 million of annual cost savings and significant accretion to earnings per share for TAL's shareholders. The benefits of the merger will improve our ability to manage through the current difficult environment and position us well to maximize the benefit from the eventual market recovery.

I’ll now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Derek Rabe with Raymond James. Please go ahead.

Derek Rabe

Yeah good morning, guys.

Brian Sondey

Good morning, Derek

Derek Rabe

I wanted to look real quick at the dividend and it may just be I can’t recall the timing of your Board Meetings with the dividend and the reassessment. So if you could just remind me on that.

But as we look at the payout ratio, I think when you cut it last time in 3Q of ’15 you had said that you should be comfortable over the next five years with the adjusted pretax income over that period and where the dividend might stand.

I know it's only one quarter, but we did see the dividend payout ratio pick up significantly. Can you just talk about how comfortable you are in the near term or is it kind of a wait and see to what the peak season looks like before you make any long-term changes to the dividend.

Brian Sondey

So when we cut the dividend, I think it was in October of last year, we set it at a level that we felt comfortable as you said, that we'll be able to maintain through a whole range of financial forecast that we put together.

I think all of those financial forecasts that we've done included a recovery in trade volumes to a more normal relationship to GDP growth and so even in some of the downside cases, even though pricing was weak say for lease rates and maybe used container sale prices, in all the cases we assume that would be able to push utilization back up just as we saw supply and demand return to normal based upon an expectation for trade growth to be at least somewhat positive.

We continue to think that the dividend is comfortable assuming that we do see demand return the leased containers and as we said, we were little surprised I think by just how far lease rates fell in the first quarter, how far disposal prices fell in the first quarter and especially on the disposal price with the mark-to-market on the inventory that created a large extra negative hit in the first quarter of this year that will go away once even sale prices if they stabilize at a very low level.

And so again we're expecting to see trade growth eventually return to normal. When that happens we're going to get a lot of benefit from lifting utilization and again even just a stabilization of used container sale prices and if all that happens again we feel comfortable on the dividend.

On the other hand, if we end up seeing entire another year of effectively no demand for our equipment and we see what's been an 18 month lack of demand or into something much longer than that, eventually we will come under enough pressure that we need to reconsider.

Derek Rabe

So just following up on the equipment losses, as you look out over the next few quarters, if you assume that prices are going to stabilize here, when would you expect those losses to breakeven again.

Brian Sondey

Yes so breaking even depends on sale prices coming back over our residuals. As we look back over a very long period of time say over the last 10 years, there has only been a few quarters probably less than five where our sale prices have been less than our accounting residuals and it just all happens that two of those quarters are the last two.

And so as long as the sale prices stay below the accounting residuals there is going to be losses. I think John pointed out in his presentation that of the very large loss we saw in the first quarter, something like two thirds of the loss related not to what I think if there is kind of the slow loss of having containers coming into sale and then selling them for below book value, two thirds was like an inventory loss of having to mark the inventory that we carry down.

And so even if prices stabilize below our accounting residuals, we're going to see that second that two thirds of what we saw in the first quarter go away, but to have the whole thing go away we're going to need to see sale prices again return to the above the residual.

Derek Rabe

Thanks for that. I got one more and then I'll get back in queue. You did mentioned the nice rebound in steel prices. Have there been any early indications from the manufacturers that they're ramping up production because it would seem if production remains at this 1Q run rate for the rest of the year the supply, at least the supply side of the equation entering 2017 will look quite favorable for your business.

Brian Sondey

For sure, so the manufacturers don't produce containers on speculation for the inventory. The manufacturers are only produced orders from leasing up [finance and shipping line]. And so again the volume of production really isn't driven by the manufacturers, it's driven by us.

And so far I think both leasing companies and shipping lines have remained cautious about building because frankly the leasing companies we have enough existing containers mostly are depot units awaiting to be picked up and for shipping lines, I think they're just staying cautious just given the pressure that they are under.

We do think that if production stays very low even if trade growth doesn't recover, eventually supply and demand comes back into balance and that's one of the strength of our business. We do think though for that to happen in 2016 we're going to need to see an improvement in trade growth.

But for sure there is going to be a point in time here where again the market normalizes and we see that the supply and demand balance for containers back as it usually is and see demand for equipment.

Derek Rabe

Thanks for the time this morning.

Brian Sondey

Yeah thanks Derek.

Operator

The next question comes from Vincent Caintic Macquarie. Please go ahead.

Vincent Caintic

Hey thanks very much. Good morning, guys. Just wanted to touch back with steel prices again, from historical -- your historical perspective, how quickly does it take when steel prices move to the upside when container prices would also move? And how does that affect your thinking on CapEx spend for the next couple of quarters, thanks.

Brian Sondey

Sure. Usually there is a very quick connection between steel prices and container prices. As I mentioned, the manufacturers don't produce containers to inventory. And so usually when they quote for container orders, they're quoting based upon the replacement cost of the steel.

What we're seeing now though, is just the container production volumes are so low that I just don’t that any manufacturers are out there right now actively trying to buy steel today. And so yeah I think also just given that the rebound in steel prices was so sharp, I'm not sure that everyone is fully confident that steel prices are going to stay at today's spot level for the next number of months.

So again I think it's a very good sign, certainly that they probably got too low, but I don't think there is a huge certainty around just where steel prices will be three months from now or four months from now.

And so I think the manufacturers are taking a wait and see approach and if someone came in with a large order for containers that it's going to be produced immediately, I think they would reflect today's spot prices in that container price, but for small orders my guess is producing from inventory of the steel, not from container but inventories.

And as volumes reach the point where they have to go out and actively buy large volumes of steel, that's when I think we'll see the connection again return.

Vincent Caintic

Got it. And then how does that -- what do you think about your CapEx spend in the near term?

Brian Sondey

So our CapEx spend is we've spent I think committed to $134 million of CapEx in 2016 and I think as John mentioned, we've paid $100 million with that already, which is not in substantial, but it's also below where we've been for the last four or five years.

We remain active in the business. Our customers continue to rely on us to be there for them when and where they have requirements and even though there is too many containers searching for dry containers generally there still are locations where the market is short and if we top up.

So we're being very thoughtful on pricing. We see lease rates for plain vanilla deals for factory units being I think relatively unattractive right now. But on the other hand, we see fairly attractive opportunities on sale leasebacks and especially for longer duration deals.

And TAL operates a whole variety of equipment types and it's really just the dry containers that we're seeing very severe pressure in terms of supply and demand and lease rates and so on. And maybe rephrase a little bit as well, but the other types of containers that TAL operates are we're actually seeing better market. So we expect some CapEx spend, but well down from where it's been over the last four or five years.

Vincent Caintic

Got it, thanks. And just one last one from me, you mentioned that some of your shippers or some of your customers might be experiencing some pressure because of the demand and I was just wondering if you could go over just broadly how you look at your exposure, how you evaluate and monitor that and how you potentially criticize some of the lease exposures you have thanks.

Brian Sondey

Yeah so certainly our customers are under a lot of pressure that with the low trade growth while it's a problem for us in the container leasing business it's even a larger problem for the shipping lines, just given that the production cycle for vessels is so much longer and we continue to see the vessels fleet growing, despite the pullback in trade growth.

And so a very wide divergence is opened up between the amount of vessel capacity available and the amount that's needed by people moving cargo. And so of course the result of that is just very weak freight rates. And we're seeing for a lot of the shipping lines very poor profitability since the first quarter of 2015.

We've always founded at TAL that we almost never take credit losses for large shipping lines that own a larger number of vessels and have made significant land side investments and we found in 2009 and we found over our history and so far on this tough market again that when large shipping lines that are major asset owners, line of structure, typically they involve the vessel owners, they involve banks and bond holders, but they really involve the leasing industry, mostly just because they can create a lot of problems if leasing companies are out there trying to repossess their containers if it’s a huge operating problem for the shipping line.

And the amount of savings you can get from the leasing industry isn’t huge that typically for a shipping line leasing payments for containers might make up perhaps 2% of the operating cost.

And so usually what we see and we’ve continued to see is that while shipping lines might try to do some pretty aggressive restructuring we’re not a participant in those things and that’s our assumption of what’s going to happen.

And so we're certainly remindful of what’s happening in the industry and we don’t want to rely on that sort of the dynamics I was just describing to protect us and we do underwrite the credits and we like to see profitable customers of course, but I wouldn’t say we’re an inactive a recovery situation with any of the major shipping lines.

Vincent Caintic

Got it. That’s really helpful thanks so much John.

Operator

The next question is from Doug Mewhirter with SunTrust. Please go ahead.

Doug Mewhirter

Hi good morning, just a couple of questions. First when you talked about your adjusted pretax income being down sequentially in the second quarter versus the first quarter, what assumptions did that have for loss on sale? I assume there would be some realized losses, but did you assume any inventory adjustment in that figure?

Brian Sondey

So it’s -- I think as you're getting at, it’s very dependent on what sale prices you assume and I think our sense that at least what we’re expecting for the next couple of months is that hopefully we’ll see steel price for sale prices stabilize and if steel prices stay higher, we’ll start to see them recover.

But until we see a lot of container demand that recovery might be a gradual process, if we were to see a sharp recovery in container demand it might happen a lot faster.

But our comments around expecting to see second quarter down a little further, I think it was premised on more of a stabilization or slight improvement in container selling prices and what we see though is even if they stabilize, there’s actually one extra quarter of inventory losses and it's just because when we mark the container, the steel portfolio to market, our steel inventory to market, we do so on the average prices of the quarter.

It’s sort of like a rolling three month average of selling prices and in that market where our container prices have been going down month over month, there is a little bit of a lag in the assumptions we’re using in that estimate of inventory losses.

And so again if steel prices were to stabilize entirely at today's level, there’ll be one more quarter where if the inventory losses smaller than it was in the first quarter, but still there and that’s what’s baked into the second quarter.

Doug Mewhirter

Okay. Great. My second question I'm not sure how much you can comment on Triton, in terms of their, what’s happening with their quarter? I assume that they’re hitting the same general trends.

Are there any divergences positively or negatively compared to yours? I know their portfolio is not exactly a match for yours. They have a few more refers and they're in different geographies. I don't know if you could comment on what’s their profitability trend look like?

Brian Sondey

Sure, I don’t want to comment too much because obviously we don’t speak for them at this point. But I think if you look back over the last couple of quarters and couple of years you'll see that our profitability and our operating trends very much are in sink.

Again not always exactly because as you’re pointing out, we have a different mixture of container types. Sometimes we have different operating strategies and those get reflected in some differences in the reported results and trends, but broadly speaking the trends are very similar.

Doug Mewhirter

Okay. Thanks. And my last question before I get back in the queue is a very quick question for John on Page 18 of the presentation the pro forma and the purchase accounting assumptions, you had some figures listed for 2016 total adjustments to the leasing revenue and depreciation etcetera what closing date did that assume for those pro forma in 2016? Did it assume a June close?

John Burns

It assumed a full year. So that really should be year one, year two, year three rather than the actual dates.

Doug Mewhirter

Okay. So it would be like first 12 months, second 12 months from the time of closing?

John Burns

That’s correct.

Doug Mewhirter

Okay. That’s very helpful. Actually just one more question John, I know if the tax rate was strange and your deferred tax liability also ticked down, did you actually pay cash taxes this quarter?

John Burns

We do not pay any cash taxes and the tax rate was up because we had a one-time item with the vesting of restricted shares in January that are priced well below what they were originally issued at three years ago.

Doug Mewhirter

Okay. Great. Thanks. That’s all my questions.

Operator

[Operator Instructions] The next question is from John Humphreys with Bank of America. Please go ahead.

John Humphreys

Hi, good morning, guys. My question is around what you've laid out on Slide 10 and I appreciate you breaking out the disposal prices into two buckets. And you mentioned that the $8 million hit to pretax income will be eliminated when prices stabilize.

But when that really just cause a shift into the other bucket where those losses are going to remain, as long as prices are low. So just want to get an idea around if let's just say they stabilize where they are right now, in the aggregate do you see that number actually going down or just the amount in those two buckets shifting?

Brian Sondey

No. I would say, as you know, the inventory item, once the inventory stabilizes, there will be no incremental hit to the inventory, as units continue to flow into the sales deck from the lease fleet they would be mark-to-market.

So it’s the flow of 4.5 if prices stay where they are, would stay in that ranges assuming the flow is about the same number of units where the bottom number or the inventory would go to zero because prices will be flat.

John Humphreys

Okay.

Brian Sondey

So, it would be a net reduction in the loss.

John Humphreys

Because, the prices would be stabilized.

Brian Sondey

That’s correct.

John Humphreys

Okay. Great. And then next one is Triton related just getting an idea around what kind of cadence adjustment we might see in CapEx and disposal activity as you merge the Triton are you able to comment around that, would it be materially different from the levels that you guys are doing right now?

Brian Sondey

So I think each one is slightly different. In terms of disposals, I would say Triton right now is probably selling a little more than we are in terms of overall volume and again just slightly different operating strategies, slightly different structures of our businesses.

But, roughly speaking again it’s not crazy to think of the volume being one plus one in terms of where it will be after the close. From an investment standpoint, that’s also what we expect that both of us and Triton have very strong franchises in this business.

I think we actually have a relatively complementary product strength as well as customer strength and so certainly our plan is to have one plus one also equal to from a CapEx standpoint over the long-term and we’re going to have work hard of course to make sure that that happens but we’ll have a lot of pricing advantages and I think again relationship advantages to make that happen.

In the near-term I think bigger mining companies is going to be as opportunistic. We’re going to see how trade growth progress. If it progresses well, I think we’ll be in there and hopefully be in there aggressively. If things remain slow, we’re going to continue to be cautious.

John Humphreys

Great. Thank you. And then my last is a macro question with the fed coming out yesterday indicating leaving the door open to not raising rates in June, as far as what’s driving supply is lower financing cost or is it the demand side of the equation? What’s driving your business more financing…

Brian Sondey

Right now let's say for the last 18 months or maybe last 15 months or so, the excess supply of containers or lack of demand for lease containers has been much more driven by the demand side rather than the supply side.

Container production, really from the last three quarters has been very low and so even with low interest rates, there is just not an incentive for leasing companies to produce containers just because there’s hasn’t been demand.

Previously certainly in 2012 and '13 and '14, we were probably complaining every quarter about too much container production and too aggressive pricing fueled by very low financing cost, lost of access to capital, especially for players that we don't consider top tier and highly capable, but that hasn’t really been the main driver over the last three quarters. It really has just been the lack of trade growth.

John Humphreys

Great. Thank you very much, That's it for me.

Operator

The next question is from Helane Becker with Cowen & Company. Please go ahead.

Helane Becker

Thanks operator. Hi. Thank you very much for the time here. So Brian I think the treasury did a new role with respect to tax inversions and mergers and so on and so forth and I am just kind of wondering, I know you guys have to pick one fleet to value going after the Triton merger.

And I am just wondering if this new treasury rule is going to affect decision making or the merger at all or how are we supposed to think about that?

Brian Sondey

Sure I guess there is a couple of questions there. In terms of the new treasury rules, we do not think that they have much impact on what we're trying to achieve in structuring the transaction. I think we're going to move to Triton's Bermuda domicile, but again I think our transaction is very different than a lot of the transactions that were attracting scrutiny and disfavor.

First, this is obviously a real business merger being driven by real business needs and also other Triton shareholders are going to be 55% of the combined shareholder base. So it's a real acquisition. It's not sort of a backdoor.

Similarly we are not a cash tax payer at TAL and so we don't need to try to do fancy dead strategies or intercompany arrangements to try to protect cash taxes. And so a lot of things that were specifically targeted as part of the recent rules aren’t so relevant to us we don't think.

And then in terms of that which fleet is the -- which company is the acquirer or the acquiree, that really I think is just for purchase accounting and is just going to be done at the parent company level and doesn’t impact the main asset owning subsidiaries that we have. so I think even if they did, it probably wouldn't impact anything on the tax front. So I don't think it implies for taxes anyway.

Helane Becker

Okay. And then just on this one slide here, I don't know what page it is, let's see if I can figure it out, Page 6 one in the top right hand corner, it looks like new container prices just picked up a little in the last month, is that continuing I guess with higher steel prices into April and any visibility to May?

Brian Sondey

So they picked up a little bit and again just the chart on the upper right is driven by our best estimates and so these are based on conversations that we're having with container manufacturers and so this is not like an outside service that forces, but we did see say if the container prices bottom out somewhere below $1300 and we believe if we went to the manufacturers today or within the last couple of weeks and had to try to buy large volumes of containers, we could have done do maybe in the $1400 range.

That said, if you look at the bottom right chart, we try to show that that's a current spot steel prices, that's a very, very low price for containers relative to the current spot price of steel and so our expectation is that if we went for a very large order right now, that actually forced the manufacturers to buy steel at today's prices or if we just saw orders in general, yet to the level where manufacturers had to buy today's steel prices that the $1400 is way too low for a container prices at this steel.

Helane Becker

Great. Okay. That's really helpful. Thank you.

Brian Sondey

Thanks Helane.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Brian Sondey for any closing remarks.

Brian Sondey

Just thank all of you for your continued support of TAL. And we look forward to talking with you in the future. Thank you.

Operator

Thank you, sir. The conference has now concluded. Thank you for attending. You may now disconnect.

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