Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On May 25, 2022 (the “Closing Date”), Tribute Rail LLC, a Delaware limited liability company (“Tribute Rail”), issued (i) an aggregate principal amount of $290.0 million of Tribute Rail’s Series 2022-1 Class A Green Secured Railcar Equipment Notes (the “Class A Notes”) and (ii) an aggregate principal amount of $37.0 million of Tribute Rail’s Series 2022-1 Class B Green Secured Railcar Equipment Notes (the “Class B Notes”) (the Class A Notes and the Class B Notes are, collectively, the “Notes”). The Notes were issued pursuant to a Master Indenture, dated as of the Closing Date (the “Indenture”) between Tribute Rail and U.S. Bank Trust Company, National Association, as indenture trustee, as supplemented by a Series 2022-1 Supplement dated as of the Closing Date. The Class A Notes will bear interest at a fixed rate of 4.76%, will be payable monthly, and will have a stated final maturity date of May 17, 2052. The Class B Notes will bear interest at a fixed rate of 5.75%, will be payable monthly, and will have a stated final maturity date of May 17, 2052.
Tribute Rail is a wholly-owned subsidiary of Tribute Rail Holdings LLC (“Tribute Holdings”); Tribute Holdings is a wholly-owned subsidiary of TRIP Rail Holdings LLC (“TRIP Holdings”); the equity members of TRIP Holdings are Trinity Industries Leasing Company (“TILC”) (owner of 42.6% of the equity interests) and other investors. Concurrently, Tribute Holdings purchased Tribute Rail’s Series 2022-1 Class E Certificates (the “Class E Certificates”). TILC is a wholly-owned subsidiary of Trinity Industries, Inc. (the “Company”).
The Notes and the Class E Certificates are obligations of Tribute Rail only. The Notes and the Class E Certificates are secured by approximately 6,466 railcars and operating leases thereon (the “Railcar Portfolio”).
Tribute Rail used the proceeds from the sale of the Notes and the Class E Certificates to purchase the Railcar Portfolio and other assets from TRIP Railcar Co., LLC (“TRIP Railcar”), a wholly-owned subsidiary of TRIP Holdings, pursuant to a Purchase and Sale Agreement dated the Closing Date, by and among TRIP Holdings, Tribute Holdings, TRIP Railcar, and Tribute Rail (the “Purchase Agreement”).
TRIP Railcar used the proceeds from the sale of the Railcar Portfolio to Tribute Rail to repay in full all amounts currently outstanding under its Term Loan Agreement dated May 18, 2021 (the “Loan Agreement”) among TRIP Railcar, as borrower, TILC, TRIP Holdings, the lenders party thereto (the “Lenders”), Credit Suisse AG, New York Branch, as agent for the Lenders, and U.S. Bank National Association, as collateral agent and depositary. As of the Closing Date, the amount outstanding under the Loan Agreement was approximately $319.4 million.
The Notes were offered and sold in a private placement solely to qualified institutional buyers in reliance on Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), and to persons who are not U.S. persons in offers and sales that occurred outside the United States in reliance on Regulation S under the Securities Act, pursuant a note purchase agreement as described in the Company's Form 8-K filed May 23, 2022.
While the stated final maturity of the Notes is May 17, 2052, cash flow from the assets of Tribute Rail will be applied, pursuant to the payment priority of the Indenture, so as to amortize the Notes to achieve monthly targeted principal balances. If the cash flow assumptions used in determining the targeted balances are met, it is anticipated that the Notes will be repaid well in advance of their stated final maturity date. There can be no assurance, however, that such cash flow assumptions will be realized. In addition, the Notes may be subject to acceleration upon the occurrence of certain events of default under the Indenture, including a failure to pay interest on the Notes, and a failure of the Notes to amortize to the extent that, over time, the outstanding principal balance of the Notes was to eventually exceed the sum of the depreciated value of the Railcar Portfolio and the amounts on deposit in certain accounts of Tribute Rail. The decision whether to accelerate or exercise other remedies against Tribute Rail and its assets will be under the control of holders representing a majority of the senior class of the outstanding principal balance of the applicable Notes issued on the Closing Date together with any subsequent issuances of notes under the Indenture and, after payment in full of all of such notes, holders representing a majority of the outstanding principal balance of the Class E Certificates.
As noted above, the Notes and the Class E Certificates are solely the obligations of Tribute Rail. TILC has, however, entered into certain agreements relating to the management and servicing of Tribute Rail’s assets. These agreements contain certain representations, undertakings and indemnities customary for service providers in transactions of this type.
The foregoing descriptions of the Indenture, the Series 2022-1 Supplement, and the Purchase Agreement are summaries and are qualified in their entirety by the terms of the Indenture, the Series 2022-1 Supplement, and the Purchase Agreement, copies of which are attached to this Current Report on Form 8-K as Exhibits 10.1, 10.2 and 10.3, respectively, and are incorporated herein by reference as though fully set forth herein.