Friday, January 18, 2013

ARI in tank car pact with ACF Industries

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American Railcar Industries, Inc. late Thursday said it has entered into a purchasing and engineering services agreement with ACF Industries, LLC. ACF will build rail tank cars at its Milton, Pa., plant, under the agreement.

KeyBanc Capital Markets Inc. analyst Steve Barger, in a note to investors early Friday, observed, "The agreement gives ACF the exclusive right to manufacture and sell subject tank railcars for any new orders scheduled for delivery on or before January 31, 2014. After that, ARII will have the exclusive right to any sales opportunities for tank cars with delivery dates through December 31, 2014. During that latter time period ARII will also have the right to assign any sales opportunities to ACF (which ACF may or may not accept)."

ARII will receive a royalty, and a 30% share of net profits, if any, earned on each railcar, and ARII will not share in any losses that might be incurred by ACF, Barger said.

American Railcar Industries, controlled by well-known investor Carl Icahn, last month offered to buy The Greenbrier Cos. Inc. for about $543 million. Lake Oswego, Ore.-based The Greenbrier Cos. spurned the offer. Icahn also controls ACF.

"Given the current strong demand for tank cars and the capacity constraints that exist among the tank car OEMs, we think it makes sense that ACF would seek to benefit from providing some swing capacity," Barger said, adding, "While it is not clear how much incremental capacity this move could add, we think the combination of a relatively limited time window in conjunction with normal production ramp time suggests it will be relatively insignificant vs. industry deliveries.

"That said, we remind investors that both The Greenbrier Companies, Inc. and Trinity Industries, Inc. are currently working to add tank car capacity as well, which means that if tank car orders moderate and production increases, backlog visibility will decrease," the KeyBanc Capital analyst said.