Textainer Group Holdings Ltd (TGH) 2015 Q4 法說會逐字稿

Welcome to the fourth quarter 2015 Textainer Group Holdings Limited earnings conference call. My name is Katie and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Executive Vice President and Chief Financial Officer, Hilliard Terry. Mr. Terry, please go ahead.

Thank you, Katie, and welcome to Textainer's 2015 fourth quarter and full-year conference call. Joining on this morning's call are Phil Brewer, TGH President and Chief Executive Officer. After the end of our prepared remarks, Robert Pedersen, TGH President and Chief Executive Officer will join us for the Q&A.

Before I turn the call over to Phil, I would like to point out that this conference call includes forward-looking statements in accordance with US securities laws. These statements involve risks and uncertainties, are only predictions, and may differ materially from actual future events or results. Finally, the company's views, estimates, plans, and outlook, as described within this call, may change subsequent to this discussion. The company is under no obligation to modify or update any or all statements made.

Please see the company's annual report on form 20 F for the year ending December 31, 2014, filed with the Securities and Exchange Commission on March 13, 2015. And going forward, any subsequent quarterly filings on form 6 K, for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

I would also like to point out that during this call, we will discuss non-GAAP financial measures. As such measures are not prepared in accordance with generally accepted accounting principles, a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure will be provided, either on this conference call or can be found in today's earnings release.

At this point, would now like to turn the call over to Phil for his opening comments.

Thank you, Hilliard. I would like to welcome all of you to Textainer's fourth-quarter and full-year 2015 earnings call. The fourth quarter was a challenging quarter, just as 2015 was a challenging year. We have stated the reasons many times already.

New container prices declined about 25% during 2015, primarily due to falling steel prices and limited demand for new containers. The decline in new container prices, combined with continued low interest rates, resulted in low rental rates, not just for new containers but also for containers being extended under maturing leases. Low new container prices also push down used container prices.

Additionally, container demand was weaker than expected, due largely to trade growth of approximately half the 4.5% rate predicted at the beginning of the year. There was no third quarter peak in demand and only a limited pickup prior to lunar new year.

Notwithstanding the difficult environment, 2015 lease rental income was up 1% compared to the prior year. Total revenue declined 4%, largely as a result of lower resale prices and reduced trading containers sold. Operating expenses increased primarily due to large increases in depreciation and container impairment. SG&A increased due to non-recurring professional fees and severance costs.

The result is that adjusted net income totaled $108.7 million for the year, or $1.90 per share. We declared a quarterly dividend of $0.24 per share in line with the previous quarter. As already stated, container impairments had a significant effect on our results. For the year, these non-cash impairments reduced our adjusted net income by $30.4 million.

The majority of these impairments stem from containers that are meant to sales inventory. As a reminder, when a container is returned from lease, we decide whether to sell or keep it, based on its condition, location and age. If we decide to sell the container, we immediately write down the value to the expected sales price, at its current location, even though we may not sell the container for some time or may move it to another location for sale.

A lessor could avoid taking this write down if it were to take the container in its lease out fleet. This would eliminate the need to recognize an impairment but lead to an increase in storage costs and a further decline in utilization. We believe our policy is disciplined and provides investors with the most accurate view of our performance.

Furthermore, we are unlikely to lease out an older container for a long time given the challenging market we see today. Delaying sales is almost always the wrong business decision.

Utilization remained relatively high, notwithstanding the unexpected weakness in demand, following only 2.9 percentage points over the year to 94.6% at year-end. Because of the long-term nature of our leases, average rental rates declined only 4.8%, even though new container prices fell 22%.

85% of our fleet is subject to long-term leases and finance leases with an average remaining term of 40 months. Only 8.5% of this fleet matures in 2016, which will mitigate the impact of the downward repricing risk we face this year.

The level of new dry container inventory at factories continues to decline and is now around 770,000 TEU. Approximately 510,000 TEU of this total is leasing company inventory, which is only two months demand during normal market conditions.

Lessors have shown restraint in ordering new containers. Dry freight production totaled 2.4 million TEU between 2015, compared to more than $3 million TEU the prior year. The manufacturers are currently closed for lunar new year, and expect to remain so through the end of the month.

We invested more than $600 million in containers for lease out in 2015. We purchased more than 235,000 TEU of new and used containers, of which 97% was for our own fleet. We invested relatively more in refrigerated containers and less in dry freight containers when compared to prior years.

Forecasts for global trade growth for 2016 are in the range of 3% to 4%. Container ship capacity is projected to grow 4.6%, after adjusting for expected delivery deferrals. However, idle capacity currently totals more than 6% of the container ship fleet. As a result, freight rates are expected to remain under pressure for 2016.

Attempts by the shipping lines to enforce GRIs have generally failed within a week of their commencement, leading to freight rates at or close to loss-making levels. We expect container demand to remain sluggish through at least the second quarter of 2016. On a positive note, we expect the strong demand for reefers to continue throughout the year.

New container prices continue to decline and are below $1400 per CEU currently. The last time container prices were at this level was 2002 to 2003. The containers we purchased at that time proved to be very good investments. We have said before and will say again, we believe containers purchased at today's prices will generate attractive returns over their lives.

Textainer's retail team sold 160,000 containers last year, a record pace of sales. While the prices were disappointing, down 10% to 15% over the last six months, and 15% to 20% over the last year, we continue to demonstrate that we are able to sell containers when the cash flow analysis indicates that selling maximizes the return on assets. We do not expect used container prices to recover prior to an increase in new container prices and an improvement in utilization.

The outlook for the first half of 2016 remains challenging. Improved performance requires an increase in demand, container prices, and/or interest rates. We do not foresee any of these occurring in the near term.

Demand remains muted. Neither container prices nor interest rates are expected to increase materially in the near term. And maturing leases that are extended will be repriced at lower rental rates. These factors are expected to result in lower financial results in 2016.

We must keep in mind that our industry is and always has been cyclical. We have been in business for 35 years and have successfully managed through many ups and downs. We have the lowest leverage and operating costs of any of our public competitors.

We have a reputation as the most reliable supplier and have established rating and resale operations. We believe our share price does not properly reflect these factors and the contracted and projected cash flows over the 13 plus year useful lives of our containers. We believe we are well-positioned for the challenging market conditions we expect.

I will now turn the call over to Hilliard.

Thank you, Phil.

I will now review several key factors influencing our results this quarter. Lease rental income was $124.6 million, down 3.7%, due to an increase in average per diem rental rates. And a decline in utilization, partially offset by an increase in the size of our own fleet.

Having a fleet of which 85% is on long-term and finance leases, with an average remaining term of 40 months, helps to mitigate the effects of changes to new container rental rates. Also, as leases re-price, they generally do not re-price at the rate for new container lease outs due to repair, repositioning, and related costs. Lower sales prices resulted in a small loss on fleet container sales in spite of record sales volume.

The larger impact of lower sales prices is the resulting container impairments. As I mentioned last quarter, we saw a significant amount of container impairments resulting from a write down or mark-to-market of containers held for sale to their net realizable value. This quarter, we saw a further increasing container impairments, which totaled $15.2 million or $0.25 per share. On a go forward basis, we will separate out the container impairments on our income statement so that you can clearly see the effects, which we expect could continue at this level as used container prices remain low.

On the expense side, direct container expenses increased $4.7 million or 46%, to $14.9 million for the quarter. $2.9 million, or more than half of the increase, was due to higher storage costs due to lower utilization and an increase in daily depot storage rates. Repair and recovery costs for slow paying or bankrupt lessees also increased.

Depreciation expense was $51.6 million for the quarter, up $8.9 million year over year. Included in the increase was the $4.7 million of additional expense resulting from the Q3 change and residual values of our 40-foot-high cube containers. The remaining portion of the increase was due to the larger fleet size of our own fleet, partially offset by lower new container prices.

Annualized depreciation expense for the quarter was 4.5% of average container costs. And we expect annualized depreciation expense to be 4.6% to 4.8% of average container costs.

This quarter, we posted $133,000 recovery, due largely to lower loss provisions for slow paying customers. We continue to believe that our bad debt expense should, on average, run within 0.5% to 1% of revenue.

Our interest expense, including realized hedging costs, but excluding the write-off of unamortized bank fees and unrealized losses on interest rate swaps, $22.1 million for the quarter, up 3.2% versus the year ago quarter. This is less than the 5.4% increase in our average debt balance. We continue to benefit from our refinancing activities over the past year or so. Our average effective interest rate which includes realized hedging costs is currently 2.9%, a decline of 6 basis points when compared to the year ago quarter.

As of quarter end, approximately 80% of our debt is fixed or hedged, consistent with the percentage of our owned fleet subject to long-term and finance leases. The weighted average remaining term of our fixed and hedged debt is 47 months, and the weighted average remaining term of our long-term and finance leases is 40 months.

Income tax expense for the quarter was $2.4 million, resulting in higher than normal effective tax rate given our lower net income and discrete one-time items. Adjusted net income for the quarter was $12.7 million or $0.22 per common diluted share. This number includes $0.08 per share of the increased depreciation expense, as a result of the Q3 change in the residual values of our 40-foot-high cube containers.

Additionally, the container impairments resulting from a write down of containers held for sale, reduced our earnings by $0.25. We can see a high level of container impairments continuing into 2016, if disposals continue and resell prices remain at current levels.

Turning to the balance sheet, as of December 31, 2015, our cash position was $116 million, with standby liquidity of approximately $600 million. Total assets were $4.4 billion, container contracts payable were down due to the year over year lower level of container purchases. And again, there is an $11 million receivable for insurance proceeds the we talked about last quarter, which includes additional recovery expenses incurred the fourth quarter.

We continue to generate strong cash flow. Depreciation expense and container impairments resulted in an additional $50 million of non-cash expenses, affecting our P&L. In fact, our cash flow from operations increased year over year in spite of our lower adjusted net income.

We're confident in our ability to continue to generate strong cash flow during this challenging environment, given that approximately 85% of our fleet is subject to long-term and finance leases. Another indication of our strong cash flow is that adjusted EBITDA was 80% of total revenue, compared to 78% in the year ago quarter.

We declared a dividend of $0.24 per share in spite of lower net income. While this is slightly over 100% of our adjusted net income, we do not believe large non-cash items should be factored into the payout. In fact, if you exclude the non-cash items such as depreciation, impairments, long-term incentive pay, and unrealized gain on interest rate swaps, from our adjusted EPS, you will see that we are paying out roughly 18% of our cash earnings, which is the same as last quarter.

As a reminder also, some or all of our distributions may be treated by US shareholders as a return of capital rather than dividends. Last quarter, the board authorized the repurchase of up to 100 million of the company's common shares. During the fourth quarter, we repurchased 630,000 shares at an average price of $14.49, for a total amount of $9.1 million.

Thank you for your attention and now I'd like to open the call up for questions. Katie, can you inform the participants of the procedures for the Q&A?

(Operator Instructions)

Helane Becker, Cowen and Company.

Thanks very much, operator. Hello, guys. Thank you very much for your time. I just have a couple of questions.

The first question is with respect to values of used containers. A few years ago, you had increased the values when new container prices were substantially higher. Is that something we should think about as a readjustment factor going forward? That you would bring those values back down?

Hello, thank you for joining the call. This is Phil. We are obviously looking at our residual values. When we took action last year in the third quarter, we reduced the residual values of 40 foot high cube containers, and that's something we continue to look at. If it's necessary to do so, we will certainly do so, if we think we need to change residual values for any of the other container types.

Okay and then my other question is with respect to the long nature of the leases and so on, so Phil, you've been around this industry for a while. And I'm just wondering-- the last time dividends came down or we went through this major recession in 2008, 2009, they kind of bottomed-- the stocks kind of bottomed and then started to improve within six or nine months later.

And I'm wondering, does it feel to you like we're seeing a bottom, when you compare this to other downturns or does it feel like things are still -- things still have a ways to go?

As we said in our opening remarks, Helane, I think 2016 is going to remain a challenging year. As far as container prices, we see them continuing to decline on the new container side, although the rate of decline has clearly slow down and the data we have would indicate that current prices are around the cost of production, perhaps even slightly below the cost of production.

So there is some room to think that new container prices themselves may be around a level at which, while I think they could decrease a bit more, I don't think we are going to see dramatic decreases. Used container prices, as you know are often based off new container prices.

Right, okay.

As far as the market picking up, as we said I think this year itself is still going to remain a challenging year.

Still another tough year. Okay and then finally, the last question that I tend to get from investors is with respect to your debt levels. I know I asked this on a conference call last time, but do we have to be concerned that your debt is getting upside down? That you owe more than the containers are worth?

When you look at our debt covenants, we are in compliance with all of our debt covenants, and what you are referring to really is probably the leverage covenant. Relative to our public company peers, we have the lowest amount of leverage, we stress test our covenants and in particular to leverage, we think we are fine.

Okay. Thank you very much, gentleman.

Thank you.

Art Hatfield, Raymond James.

Good morning, everyone. I wanted to follow up on one of Helane's questions about the cycle. In the past, when you've seen things bottom out and pick up, what's the first metric the typically turns that gives you confidence that things are better?

This is Robert Pedersen here. The first thing is we start seeing some demand for containers. And as soon as we start seeing some pull, then the other fundamentals generally follow at some interim afterwards. Now, we talked about cycles.

In the Chinese new year, the period right now, we did actually see some interesting demand in January that we had not seen last year. We had several global carriers actually running short of containers.

They were not fundamental shortages but they were ad hoc shortages. But just by the fact that it happened was a little bit of encouragement, if I could put it that way, because honestly we have not seen that in the last year.

Many containers have been sold, disposed of in 2015 and new building was down compared to 2014. So, with new container prices, seeming to level out, there could be some demand coming up in the future but, with the shipping line operating vessel, that relatively low slot utilization, it still easy for our customers to move there inventory around, get their containers back from surplus locations to demand locations. So, seeing and expecting that we are going to see very strong demand certainly in the first half is probably a long shot.

Okay. That's very helpful. I want to follow on with that, with looking out over the course of the year. If we get the levels of growth that are expected this year, and they come in as expected, and let's say container volumes-- I don't know what we will end up building this year, it's really kind of hard for everybody to project that. But if we get those levels of growth that are projected, do you think that really works out the imbalances within the industry, or is this something that may have to take multiple years to correct?

Well, you probably noticed that the world's largest shipping line came out with their financial result yesterday, and they stated that they expected 1% to 3% growth in 2016, compared to less than 1% in 2015. That's obviously a positive sign but is that sufficient to pull the market and our business through the cycle? Probably not this year.

I think we need greater growth there. There's also still surplus inventory on the ground, probably about 770,000 TEU of new production sitting at factories, awaiting leases on the dry container side. And, many depots are pretty full, so it takes a while before the replenishment will take place. On a positive note though, the reefer market is very different than that, was strong all 2015 and we expect a strong 2016 as well.

Great, thanks for your time this morning. I will jump back in line.

Thank you. Operator, next question.

Doug Mewhirter, SunTrust.

Hello, good morning. What is your utilization right now? Or as of December 31, if you prefer that figure?

Our utilization as of last week is 94.2%.

Okay. Thanks for that. You still have a pretty large stock repurchase authorization and it seems like you have a lot of flexibility in terms of CapEx because there's not -- I mean there is not a lot of demand out there. $100 million of buyback authorization. You can buy 20% of your company now at a 10% un-levered yield and you would probably still have some left over for CapEx. So I'm a little surprised that you weren't quite as aggressive in the fourth quarter, given that you really didn't have to make a lot of CapEx.

Well, during that fourth quarter, we actually had not filed a plan, so we were not repurchasing shares during the blackout period, which is part of the explanation for the quantity of shares purchased. However, we will-- our plan has a two-year life. We will continue to monitor our share price and act under the plan as we see makes sense going forward.

Okay. You said that 8.5% of your term lease fleet expires in 2016. What's the approximate figure for 2017? Percentage wise?

For 2017, it's slightly smaller than 8.5%.I think it's six point something percent. Please don't quote me on that exactly but it's a little bit less.

Another point to keep in mind is that the average rental rates on the leases that are maturing this year, is actually below the average rental rates on the leases that matured last year. So, we don't have a significant percentage of our fleet that's maturing this year, first. Second, for those leases that are maturing, the rental rates are already lower than what we saw in the maturing leases last year.

Okay, thanks. That's all my questions.

Thank you very much, Doug.

Shawn Collins, Bank of America.

Great, thank you. So you just touched upon current market rental rates so I wanted to ask, on slide 30, you do a great job of laying out the portfolio's average per diem rates. Can you just tell us where market rates are today on a per day basis?

Well, right now rates, maybe the easiest way is we usually talk about what are the cash on cash yields, and I would just say they have come down somewhat over the course of the last year. They still remain in the upper single digits.

Okay. Upper single digits. Got you. Okay, thank you.

A second question I wanted to ask about new boxes purchased this year and boxes manufactured in 2015. You lay this out very well on slide 31. Thank you.

It looks like you purchased a large percentage of reefers, maybe 60%, 65% or more, which relative to the past is quite high, where you purchased maybe 5% to 20% at most. Can you just talk about this dynamic? Obviously, these deals were more attractive than standard containers but do you expect this trend to continue into 2016? Thank you.

Shawn, it was really not by design. On average, we have generally allocate about 20% of our CapEx to reefers. It was just so that we had a some carryover dry containers that we bought at the end of 2014 and our appetite for the purchase of new dry containers was limited. It wasn't really as much of a reflection of how many reefers we bought as we bought fewer dry containers than we normally would.

One other fact that plays into that is dry container prices declined more than refrigerated container prices, so as we spend our CapEx, less of it ends up going for dry containers simply for that reason.

Okay, okay. Understand. Great, and then just one last question. I know you mentioned how much of your portfolio expires in 2016. I missed that, if you could just give me that number again. Also, I'm just curious, with 2016 so far, have you seen any deals, new rental renewals, or does this activity slow down with the Chinese new year?

At about 8.5% of our long-term lease fleet matures this year. Generally, I'm not sure if you are talking about if we've seen much in terms of maturing leases already so far this year. Generally, those negotiations happen later in the year, not prior to Chinese new year, but was that your question?

Yes, exactly. If you had been in the market now and talking to parties and if you had been seeing activity but it sounds like just the way the portfolio goes and the way business goes, that is more likely to happen in the second quarter in the future from now?

That's generally more second and third quarter event, more than a first quarter event.

Okay, that's what I thought. Great. Thank you for the time and the insight. I appreciate it.

Thank you.

Bob Napoli, William Blair.

Thank you and good morning.

Good morning, Bob.

What would be your plans in this environment for CapEx for 2016? How do you think about CapEx?

First I would say our budgeted CapEx is very similar to our CapEx for the prior year. But, as Hilliard already noted, we have lower leverage than our public peers. If the market conditions warrant, we will certainly increase our CapEx, depending on how we see the returns in the market. But right now, our budget is predicting CapEx of pretty similar to what we had last year.

Okay, so if the environment stays the way it is today, essentially you will be replacing -- your assets will stay about flat on the balance sheet is the intention? Would be what your CapEx would deliver, is that right?

That's a fair estimate.

Okay. And then, the dividend, where it's at today, you obviously maintained it for now. If the environment stays the way it is, how long would you expect to maintain that dividend?

We make a very thorough analysis of our dividend on every quarter. It's certainly discussed internally and with our Board. I really can't say any more then we will do exactly the same next quarter and for every quarter of the year.

If we feel it's appropriate to change our dividend in every any direction, we'll make that change, but currently based on our strong cash flow, we believe our dividend level is appropriate.

Okay and then any thoughts on what the merger of TAL Triton means for the industry and for Textainer?

We said many times that we have participated in consolidation ourselves in the past. And, that we think further consolidation for the industry would be beneficial. We also look at opportunities to participate in consolidation ourselves but nonetheless, although this is between TAL and Triton, I believe having the two of them consolidate will be positive for the industry.

With the impairments, and you clearly said you expect impairments to remain high. Assuming we don't go into some deep global recessionary economy, or the global economy stays steady at a low rates and prices stay around where they are now, would you expect those impairments to continue, say through 2017 before they disappeared?

And do you expect to remain GAAP? I understand the cash flow is really strong. Do you expect to remain GAAP cash flow positive? Two questions there.

Yes. Certainly with respect to the container prices, that will depend very much on new container prices and a level of utilization. It depends on what happens to the price of steel.

Right now, you asked me through 2017, we have all seen in this industry, this industry can change pretty rapidly in a pretty short period of time. It's pretty difficult for me to predict what's going to happen more than a year from now. Right now, we are looking at container prices through this year and thinking we are not expecting a dramatic improvement in container prices this year but it's very difficult to say was going to happen next year.

Bob, the toggle on impairments has to do with used container prices. So, if they stay at the same level, and we have the same amount of containers that are going to disposal or sale, then you may see the impairments continue at this level. If we get any relief on used container prices, then you'll see that trend reverse itself fairly quickly.

One of the concerns investors have is that the leases a couple years down the road -- your customers are struggling. It's tough for them and what is the ability, power they would have to come at you to renegotiate leases that are not yet coming off lease?

That seems to be one of the fears that-- one question is, well if you marked your portfolio to market, the only way it would get to mark to market, fundamentally, is if your customers were able to renegotiate those leases. Because those leases have a cash flow attached to them.

What is the ability and have you had any pressure and what would cause-- the [ability] for your customers?

Well, our customers clearly are on a mission to reduce costs but we will evaluate customer by customer individually. Contract by contract. If it makes sense to renegotiate contracts earlier and there is a protection for us in regards to a longer-term, at a rate differential between the expired container rental rates and the current market rates, something that is a win-win situation, we would consider it.

But we have not seen anything different than I would call business as usual so far. Certainly haven't seen the desperate situations that we've had to deal differently than we've done all the other years for we've had 5%, 6%, 7%, 8% of our fleet expiring, in a particular year.

Michael Webber, Wells Fargo.

Good morning, guys. How are you?

Hey, Mike. How are you?

Good. First question is for Hilliard. You kind of addressed it in the last answer, just wanted to make sure I'm clear. Hilliard, you mentioned in your remarks, you mentioned inventory up for sale and the mark downs could continue at this level. You are not referencing new inventory moved to put on the block and a consistent nominal write down each quarter, you are referencing it on a per TEU basis, correct?

I'm just referencing overall the container impairments and there's two things that go into that. It's the number of containers that are being moved to disposal inventory, it's the current inventory and where resale prices are relative to the values of those containers.

Maybe I could just jump in because I'm not sure -- let me make sure this point is understood. I think it is, but let's be clear.

What we are talking about, as I believe you know, we have a model that looks at the container when it comes off lease in a certain location. It looks at the damage of the container, the location, sales price in the container and other factors and makes the decision as to whether the best financial decision is to sell that container, repair it, keep it in our lease fleet, move it to another location, all these variables.

When the model decides that the best financial decision is to sell that container, if its book value at that time is greater than the market price in that location, then we write down the value of that asset to the market price in that location. We haven't sold the container yet and we may not even sell it in that location.

We could actually move it somewhere else where we can get a higher price. But we feel that this is the most appropriate way to disclose information to our investors.

That's helpful and I get that. I guess a better way for me to have asked the question is, does that statement imply that you will be moving more containers to be held for sale and that would drive a similar mark down if we don't get a change in dynamics?

Like a pretty consistent move of containers to be sold quarter on quarter throughout the year? Should we be looking up that as guidance around that kind of a write down each quarter?

Yes, as I said, assuming we have the same volume and the only other incremental comment I would make is, for containers that are in sales inventory, that entire inventory gets revalued as well.

Okay, I can follow-up with you offline on that too. And Phil, you mentioned kind of a comp for this environment being-- I think it was 2002 the last time I saw prices below $1500. I think I ask you something similar last quarter, but if I think about that stretch, that was really the last year of a five-year stretch where we saw box prices at a sub $1500.

If you go back to the beginning of that period, 1999 to 2000, I guess one, how would you comp this environment to that environment and there are lots of things you can't control for, like asset deflation and macro variables, but maybe if you look specifically at excess inventory and it's not big on a global scale, but even just a modest shelf that needs to be burned off, how would you comp this market to what we saw in the 1999 and 2000 era?

Mike, let me answer that question in a slightly different way. What we have done-- look, the container lives for 13 plus years. We are looking at what happens to this asset over its entire life and we're looking at the containers we purchased previously when container prices were at this level, which is in the timeframe that you just mentioned.

And those containers have performed very, very well in our fleet. We are looking at containers today at prices that are certainly on a historically very, very low level. We believe these containers, as they perform over their lives, will provide very attractive return to both Textainer and its investors.

This is Robert here. Could I add to that? One big difference compared to those years that you referred to, is that our fleet utilization has proven to be very, very resilient.

When we were seeing prices at that level, our utilization was dropping down, way down in the 80s and sometimes in the 70s, and we're still in the mid 90s at this stage here. That's a huge difference compared to that and that's obviously the protection we have in the remaining term of unexpired leases and our significant fleet percentage that is covered by a long-term lease and finance lease.

Sure. I guess where I'm going with this is the economics on a box from 2002 is going to look a lot better than the economics on a box of from 1999 when he still had five years of a trough in front of you. I'm trying to figure out what's different between this cycle and last cycle, whether it could be shorter, or if there is anything structurally within the market that would kind of drive some degree of support that would make that economic profile for that box look more like 2002 and not like 1999 or something along those lines.

I guess, one or two more. Someone already touched on the counter party risk, and you guys obviously have a ton of leverage in that scenario around enforcing the contracts. But specifically we've seen HMM come out recently and talk about needing to restructure and they are going back and looking for a 30% haircut from their container ship counter parties.

I'm curious whether you guys have had a dialogue there and maybe if you can give us some color on what your exposure is, and whether amend and extend is in play for at least the ships? And just curious about how you think of that situation particularly with HMM?

You have obviously identified HMM. In the past earnings calls, we have talked about Hanjin as well. Clearly both of the Korean lessors are facing challenging situations. Hanjin seems to have improved and reduced its leverage much more significantly than Hyundai has.

It's a situation that we're continuing to monitor. Our office in Korea is in constant discussion with staff from Hyundai. We look at our un-leased position and make decisions about whether we should or should not lease additional equipment to Hyundai. I can't say much more than that. It's a situation that we're monitoring very closely.

Fair enough. Just one or two more, this is actually simplistic, but you guys in the past have referenced used container pricing as a percentage of new pricing. Where would you put that figure right now?

On a historic basis, it's still very similar to where it's been. If you look at-- we look at used container prices and say that they are low, but if you look at them relative to new container prices, it's actually consistent with what we've seen historically. So that metric hasn't changed much, it's just that new container prices have declined so much.

Okay, all right? That's helpful. One more and I'll turn it over. For Hilliard, maybe more broadly, you mentioned your effective interest rate is actually down year-on-year.

Just curious, what are you hearing from lenders right now? I don't think we have seen an ABF deal yet this year? But just curious as to whether you think the mix shifts a bit in 2016 and then whether you're seeing on the margin, either with yourselves or within the space, advanced ratios coming down a touch or maybe just any increment of color to date through Q1 on what you guys are seeing there?

Sure, Mike. There was an ABS deal that was completed recently and it was a deal that was out in the market previously. I think if you look at the terms that they ultimately got, the advance rate had to be reduced and clearly the pricing of the deal was much higher than what they had gone out with previously.

As you know, I believe that you should see more differentiation between folks like ourselves and some of the smaller and mid tier players. And frankly the ABS market has not really showed much difference between the companies, but as time goes on, I think you may see more differentiation going forward. And with respect to the bank markets, I think the lenders are paying close attention to what's going on in the market, and monitoring things closely. But I like the position with respect to what we've been able to do in this market.

Okay. Thanks for the time guys. I appreciate it.

Thank you, Mike. Appreciate your joining.

Thank you. This concludes the question and answer session. I will now turn the call back over to Hilliard Terry for closing remarks.

Katie, thank you very much, and I want to thank everyone for joining us on this call. If you have further questions or would like to talk to any of us, we are around and feel free to give us a ring. Thank you and we will speak with you soon.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.