Trinity Industries Leasing Company signaled its asset-backed bonds are turning green as it became the first North American railcar leasing company to develop a framework that will enable it to issue debt linked to reductions in greenhouse gas emissions.
On Monday, Trinity Industries' financing unit released its "Green Financing Framework" that is supported by a second-party opinion from ESG data and ratings firm Sustainalytics.
The framework enables the company to issue green financing instruments including non-recourse green ABS and green loans, backed by eligible assets.
Eight of Trinity's outstanding railcar ABS, totaling more than US$4bn, already meet the criteria and qualify for the green financing designation, the company said, meaning investors could buy the bonds for their ESG portfolios in the secondary market.
"Over time, it opens up a new pool of capital for us," said Jessica Greiner, Trinity's vice president of investor relations and communications.
Crédit Agricole CIB will act as Trinity’s green structuring advisor and facilitate its sustainable finance efforts.
Trinity said proceeds from its green program will be used to improve the energy efficiency of its freight railcars. It will exclude railcars that transport fossil fuels like crude oil, coal, refined products and natural gases from being used as collateral for its ESG borrowing.
On average, railroads are three to four times more fuel efficient than trucks so using rail freight instead of trucks would cut greenhouse gas emissions by up to 75%, according to Trinity.
Trinity's foray into ESG financing comes as investor appetite to invest in endeavors that address environmental, social and governance issues outpaces supply.
"From an investor standpoint, you don’t see a lot these bonds available. There is more demand than supply," said Eric Souza, senior portfolio manager at SVB Asset Management.
The Dallas-based company, which has BB+/Ba2/BB corporate ratings, had US$1.4bn in new leases it had not securitized at the end of its fiscal third quarter as the railcar industry has been recovering from a decline last year.
North American rail traffic totaled 726,433 cars in the week ended January 16, up 8.6% from the comparable week in 2020, according to the Association of American Railroads.
Greiner declined to elaborate on Trinity's ABS activity in 2021, though she added the company has room to add leverage on the leasing unit's balance sheet over the next few years.
Trinity tapped the ABS market twice last October, raising a combined US$526.3m, IFR data show.