CAI International: This 8.5% Fixed-To-Floating Preferred Stock Started Trading On The NYSE

Summary

• Overview of CAI International's new preferred stock - CAI-A.
• Brief look at the company.
• Comparison with the sector.
• Where in the context of all Fixed-to-Floating securities does the new IPO stand?

Introduction

In this article, we want to shed light on a new preferred stock issued by CAI International (CAI).

Our main goal is purely to inform you about the product while refraining ourselves from an investment recommendation. 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

Before we submerge into our brief analysis, here's a link to the 424B5 Filing by CAI International - the prospectus.
_{Source: SEC.gov}

For a total of 1.6M shares issued, the total gross proceeds to the company are $40M. You can find some relevant information about the new preferred stock in the table below:

_{Source: Author's spreadsheet}

CAI International 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock (NYSE: CAI-A) pays a qualified fixed dividend at a rate of 8.50% before 04/15/2023 and then switches to paying a floating rate dividend at a rate of the Three-month LIBOR plus a spread of 5.82%. The new issue bears no S&P rating, pays quarterly dividends and is callable as of 04/15/2023. Currently, CAI-A trades close it its par value at a price of $25.10 and has a current yield of 8.47% and YTC of 8.40%.

Here is the product's yield-to-call curve:

_{Source: Author's spreadsheet}

The Company

CAI International, Inc., incorporated on January 30, 2007, is a transportation finance and logistics company. The Company purchases equipment, primarily intermodal shipping containers and railcars, which it leases to its customers, and also manages equipment for third-party investors. The Company operates through three segments: Container leasing, rail leasing and logistics. In operating the Company's fleet, it leases, re-leases and disposes equipment and contracts for the repair, repositioning and storage of equipment. The Company also provides domestic and international logistics services.

The Company leases its container equipment to lessees under long-term leases, short-term leases and finance leases. The Company's long-term leases have terms of one year or more and specify the number of containers to be leased, the pick-up and drop-off locations. It enters into long-term leases for a fixed term ranging from 3 to 8 years, with five-year term leases being most common. Short-term leases include both master interchange leases and customized short-term leases. Finance leases are long-term lease contracts that grant the lessee the right to purchase the leased containers for a nominal amount.

The Company also operates a fleet of railcars that are used to transport industrial goods, materials and other products on railroad tracks throughout North America. The Company owns a fleet of railcars of various types, including 50 feet and 60 feet box cars for paper and forest products; covered hoppers for grain, cement, sand, plastic pellets and many other industrial products; general purpose tank cars that are used to transport food-grade and other non-hazardous commodities; gondolas for coal, and general service flat cars. As of December 31, 2016, the Company owned 6,459 railcars. It offers multiple lease options to its railcar customers, including full service and net operating leases and per diem leases. Its full service leases provide customers with management services, including maintenance and the payment of taxes. Net operating leases allow customers to manage and pay the cost of operating and maintaining railcars themselves. Its per diem lease product enables customers to pay through a settlement process on an hourly and mileage basis.

The Company offers logistics services, including intermodal, truck brokerage, port drayage, warehousing, international ocean freight and freight forwarding, as well as the arrangement and coordination of international air freight services and customs brokerage. The Company contracts with railroads to provide transportation for the line-haul portion of the shipment and with local trucking companies, known as drayage companies, for pickup and delivery. The Company offers a range of transportation management services and technology solutions, including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and Web-based shipment visibility.

_{Source: Reuters.com | CAI International, Inc}

Below, you can see a price chart of the common stock, CAI:

_{Source: Tradingview.com}

We have never declared or paid dividends on our capital stock. Our board of directors may consider adopting a dividend policy in the future. Any determinations by us to pay cash dividends on our common stock in the future will be based primarily upon our financial condition, results of operations, business requirements, tax considerations and our board of directors’ continuing determination that the declaration of dividends under the dividend policy are in the best interests of our stockholders and are in compliance with all laws and agreements applicable to the dividend program. In the absence of such a policy, we intend to retain future earnings to finance the operation and expansion of our business, and to repurchase our common stock. Our financing arrangements also contain restrictions on our ability to pay cash dividends and repurchase our common stock.

_{Source: Company's 2016 Annual Report}

In addition, CAI has a market capitalization of around $432M.

Capital Structure

Source: Morningstar.com | Company's Balance Sheet

As of December 2017, CAI International had total debt of $1.6B ranking senior to the newly issued preferred stock. The new Series A preferred stock rank is junior to all outstanding debt and equal to the other preferred stock of the company. The Series A is currently the only preferred stock issued by CAI.

Sector Comparison

The chart below contains all preferred stocks and baby bonds in the "Rental & Leasing Services" sector (according to Finviz.com).

_{Source: Author's database}

• The Full List

_{Source: Author's database}

There are two more baby bonds and a $100 fixed rate preferred stock in the sector, which are not comparable to the newly issued fixed-to-floating preferred stock.

All Fixed-to-Floating Securities

The next two charts present all fixed-to-floating securities with non-suspended distribution:

• By Years-to-Call and Yield-to-Call

_{Source: Author's database}

• By Yield-to-Call and Current Yield

_{Source: Author's database}

Special Considerations

Nothing out of the ordinary.

Use of Proceeds

We intend to use the net proceeds from the sale of the Series A Preferred Stock offered hereby, which are expected to total approximately $38.1 million (or approximately $44.0 million if the underwriters exercise in full their option to purchase additional Series A Preferred Stock), after deducting underwriters’ commissions, the structuring fee payable to B. Riley FBR, Inc. and offering expenses, primarily to repay debt under one or more of our senior secured revolving credit facilities and for general corporate purposes, which may include share repurchases, investments in containers and other assets or acquisitions.

Source: 424B5 Filing by CAI International

Addition to the S&P preferred stock index

With the current market capitalization of around $39M, the newly issued preferred stock cannot be an addition to the S&P preferred stock index (NASDAQ: PFF).

Conclusion

This is an informational article about the new preferred stock issued by CAI. With these articles, we want to pay attention to all new preferred stocks and baby bonds, and they are a good guide to what to expect from your income portfolio.

Analyst’s 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.