Sterne Agee Comments On TAL International's Five Million Share Offering

Yesterday after the close, TAL International TAL announced a 5 million share common stock offering consisting of 2.5 million primary shares and 2.5 million secondary shares. The selling stockholders intend to grant the underwriters a greenshoe of 750,000 shares. TAL intends to use the proceeds for general corporate purposes, including purchases of additional containers. Assuming the deal is priced at $35 and the greenshoe is exercised, the deal size would be ~$200M, ~$88M of which is the primary portion. Risks to TAL's target price include a decline or even a reduction in the growth rate of containerized volumes would reduce the recent shortage of containers and liner companies' demand for leasing containers. This would have a triplebarreled impact on lessor profitability due to a reduction in lessor fleet utilization rates; lower per diem rates on both lessors' short-term master leases and the long-term leases entered into on new container purchases; and lower utilization that would drive higher operating expenses in the form of higher direct container expenses. Sterne Agee has a Buy rating and $42 PT on TAL TAL closed Monday at $36.29