Textainer Group Holdings (NYSE:TGH) continued its abysmal year, sinking another 13.3% in September. Driving that sell-off were the same concerns that pushed the stock down 22% in August, including the deepening of the financial distress in the shipping sector.
The current stress in the containership sector was summed up in August by Brian Sondey, the CEO of rival containership leasing company Triton International Limited (NYSE:TRTN). He noted in Triton's earnings release that not only are industry conditions challenging for container rental companies but that,
Business conditions are also challenging for our shipping line customers, and several of our customers are in active financial restructuring negotiations. While our collections performance generally has been strong, credit risks will remain elevated until freight rates and the financial performance of the container shipping lines improve.
As Sondey noted, some of Textainer and Triton's customers were actively working to restructure their liabilities to avoid declaring bankruptcy. While one major shipper avoided a financial disaster, South Korean shipper Hanjin did not, which caused major waves in the shipping sector last month. The bankruptcy filing is a huge potential problem for Textainer Group Holdings, which leased 4.8% of its container fleet to the South Korean company. According to a SEC filing by Textainer,
A portion or all of the receivables due from Hanjin may not be collectible... Significant costs may be incurred in recovering, repairing, repositioning and releasing those containers released to Hanjin and the rates achieved for released containers may be substantially below the lease rates paid by Hanjin.
Just recovering the containers could be a problem given what is happening to them. For example, 15,000 containers Hanjin leased or owned are stacking up in ports in Southern California. Meanwhile, container lessor Seaco Global said it has 50,000 containers leased to Hanjin that it cannot account for at the moment. Needless to say, it could take Textainer quite some time to find its containers, let alone put them back to work.
This uncertainty surrounding the Hanjin situation will likely continue to weigh on Textainer's stock. Further, the overall situation could grow worse if the bankruptcy impacts the financial condition of other shippers or lessors. Because of this, the worst might be far from over for Textainer and its peers.