S&P Lowers Interpool’s Credit Rating to ‘BB’

January 9, 2004

Standard & Poor’s Ratings Services announced that it has lowered its ratings on chassis and marine cargo container lessor Interpool Inc., including the corporate credit rating to ‘BB’ from ‘BB+’. All ratings remain on CreditWatch with negative implications, where they were placed Oct. 10, 2003.

“The downgrade reflects Interpool’s weaker financial flexibility due to the continuing delay in filing its restated 2000 and 2001, and 2002 and 2003 audited financial statements,” stated S&P credit analyst Betsy Snyder. “While the company still has an adequate unrestricted cash position of over $100 million, it has limited access to other funding sources until its audited financial statements are complete. As a result, it has had to forego some business opportunities in a strong demand environment.”

S&P noted that the problems Interpool is having date back to March 2003, when it indicated that “any restatements were expected to be modest–resulting in an equity decline of around 1 percent—2 percent from the 2001 year-end previously reported amount, and an immaterial impact on previously reported cash flow.”

A more recent announcement on Dec. 29, 2003 noted a continuing delay “due to the accounting for an insurance claim receivable that it booked in 2001 when a large customer became insolvent. Interpool now expects its restated equity to decline by over 2 percent.” It has “been forced to seek waivers three times from its banks regarding the filing of its restated 2000 and 2001 financial statements and its 2002 and 2003 audited financial statements, and will likely have to do so again, since current waivers expire Jan. 9, 2004,” said S&P. “In addition, the delay of the audited financial statements has resulted in a suspension of trading in its shares on the New York Stock Exchange.”

The rating agency stated, however, that “Interpool continues to have strong market positions in chassis and marine cargo container leasing, as well as an adequate financial profile for a transportation equipment lessor. Interpool is the largest chassis lessor in North America, with a fleet of over 200,000 units. Chassis are wheeled frames attached to cargo containers that, when combined, are equivalent to a trailer that can be trucked to its destination. Interpool’s only major competitor in this business is privately held Flexi-Van Leasing Inc. The chassis leasing business has tended to generate strong and stable cash flow, even in periods of economic weakness.”

Interpool is also one of the larger participants in marine cargo leasing, with a fleet of approximately 800,000 units. It owns 50 percent of Container Applications International Inc. (CAI). “Marine cargo container leasing is a more cyclical business, dependent on global economic merchandise trends,” said S&P. “However, Interpool’s earnings and cash flow from marine cargo container leasing are somewhat more stable than those of most industry participants because it concentrates on multiyear term leases, rather than short-term ‘master leases.’ As a result, its revenues have been affected to a lesser extent than its major competitors over the past several years, a period in which most of the industry had suffered from overcapacity along with weakness in global trade, a trend that began to reverse in mid-2002. Since then, the industry has benefited from strong demand and utilization rates have increased substantially.”

S&P said it would continue to monitor Interpool’s situation regarding its completed audited financial statements and the ongoing support of its lenders to resolve the CreditWatch.

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