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Edited Transcript of FTAI earnings conference call or presentation 28-Feb-20 1:00pm GMT

Q4 2019 Fortress Transportation and Infrastructure Investors LLC Earnings Call

New York Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Fortress Transportation and Infrastructure Investors LLC earnings conference call or presentation Friday, February 28, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan John Andreini

Fortress Transportation and Infrastructure Investors LLC - IR

* Joseph P. Adams

Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO

* Scott Christopher

Fortress Transportation and Infrastructure Investors LLC - CFO

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Conference Call Participants

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* Ariel Luis Rosa

BofA Merrill Lynch, Research Division - Associate

* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* David Michael Zazula

Barclays Bank PLC, Research Division - Research Analyst

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Frank Galanti

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Giuliano Jude Anderes-Bologna

BTIG, LLC, Research Division - Director & Financials Analyst

* Justin Trennon Long

Stephens Inc., Research Division - MD

* Robert Hudson Salmon

Wolfe Research, LLC - Research Analyst

* Robert James Dodd

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter and year-end Fortress Transportation and Infrastructure Investors conference call. (Operator Instructions)

I would now like to turn the call over to Mr. Alan Andreini. Please go ahead, sir.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [2]

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Thank you, operator. I would like to welcome you all to the Fortress Transportation and Infrastructure Fourth Quarter and Year-end 2019 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. (Operator Instructions) In addition, we will be discussing some non-GAAP financial measures during the call today, including FAD. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements, and to review the risk factors contained in our quarterly report filed with the SEC.

Now I would like to turn the call over to Joe.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [3]

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Thank you, Alan. To start the call, I'm pleased to announce our 19th dividend as a public company and our 34th consecutive dividend since inception. The dividend of $0.33 per share will be paid on March 24, based on a shareholder record date of March 13. The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q4 2019 was $234 million, compared to Q3 2019 of $112 million and Q4 of 2018 of $61.8 million. Note that these figures exclude adjusted EBITDA contribution from the CMQR rail assets as they were sold in Q4 of 2019 and are now classified as discontinued operations.

If contribution from discontinued operations had been included, adjusted EBITDA for Q4 2019 would have been $314.7 million, compared to $114.1 million in Q3 2019 and $63.1 million in Q4 of 2018. FAD was $288.6 million in Q4 2019 versus $120.7 million in Q3 2019 and $57.7 million in Q4 of 2018. During the fourth quarter, the $288.6 million FAD number was comprised of $174.2 million from our aviation leasing portfolio, $167.2 million from our infrastructure business and negative $52.8 million from corporate and other.

Infrastructure business FAD included $94.1 million from discontinued operations, resulting from the sale of CMQR rail assets during the quarter. Also, the FAD number includes 70 -- $67.6 million of proceeds from the sale of aviation assets, $150 million of proceeds from the sale of 50% interest in Long Ridge and $100.8 million proceeds from the sale of CMQR assets, net of debt and transaction costs.

Now let's turn to aviation. For the fourth quarter 2019, annualized adjusted EBITDA, excluding asset sale gains, was $431 million, up from $359 million in Q3 2019 and $291 million in Q4 of 2018. Including gains from asset sales of $21 million in Q4 2019, $37 million in Q3 of 2019 and a loss of $1 million in Q4 of 2018, adjusted EBITDA from aviation was $128 million in Q4 of 2019, compared to $127 million in Q3 of 2019 and $72 million in Q4 of 2018. In other words, even with lower gains from asset sales in Q4 2019 versus Q3 2019, EBITDA was flat due to a larger portfolio and additional income from lease return compensation and additional maintenance reserve collections.

So aviation had a fabulous quarter to cap off a terrific year. We achieved everything we set out to accomplish in 2019 and then some.

Recurring EBITDA and net income for Q4 2019 of $108 million and $65 million, respectively, or an EBITDA yield on equity invested and return on equity of 32% and 20%, respectively, came in well above our targets of 25% and 15%. Asset sale gains of $21 million in Q4 and $82 million for 2019 on book value of assets sold of $170 million also exceeded our expectations. And new investments of over $250 million in Q4 brought the 1-year total to over $500 million, pretty good, especially in light of the returns that we've posted.

Finally, our strategic goal of becoming the leading provider of aftermarket power for the CFM56 engine market by developing proprietary products and practices made great strides that will enable us to pass major commercial milestones in 2020.

Looking ahead to 2020, we see the continuation of strong financial performance and great investment opportunities, but obviously, coronavirus is on everyone's minds. In prior similar epidemics like SARS, long-haul wide-body markets were affected most severely and experienced the longest recovery periods. Therefore, we feel that FTAI is as defensively invested as possible by having focused on lower-priced 737NGs and A320 [CO] aircraft and engines, the largest, most liquid and most profitable aircraft in markets expected to rebound first.

Some airlines are being negatively affected by the coronavirus situation, maybe all airlines, and will need financial assistance. One investment opportunity we are now seeing as a result is airlines looking to sell aircraft to raise cash.

A little over a year ago, we started on a program to lower leverage and increase leverage -- increase liquidity such that if and when markets change, we would be in a strong position to capitalize. Bull markets always end and having access to capital when others don't can be extremely valuable. So we executed the plan, our leverage is now under 50%, which may be the lowest of any major aviation lessor and have ample liquidity and access to multiple capital markets. So here we go.

Turning to Jefferson. If we look exclusively at the core terminal business, we had positive EBITDA in Q4. Excluding results from the Canadian crude marketing program and onetime charges, Jefferson had adjusted EBITDA of $1.6 million. The onetime charges relate to our final shutdown costs from our Canadian crude marketing program. While we netted approximately $5 million from the program over the 15 months we operated, all of the profits were generated in Q4 of 2018 and Q1 of 2019 before the Alberta government imposed export restrictions. The program is now inactive, and we will operate it going forward only on an opportunistic basis.

In Q4, we signed a multiyear agreement with one of the largest producers in Canada for over 900,000 barrels of storage, with a minimum volume commitment. We also closed the acquisition of our interest from our joint venture ethanol partner and have completed the transition of that system from ethanol to crude. As a result, we will make more money going forward with that system, and it will improve our rail capacity.

Importantly, Jefferson refinanced all existing long-term debt of approximately $250 million in Q1 2020 to achieve significant reduction of interest expense and position the company to access attractive long-term debt to fund future expansion projects. Average interest rate on the retired debt was 7.5% as compared to the new debt average rate of 4.5%. New debt included 15-year and 30-year tax-exempt bonds priced at 3.5 -- 3.625% interest and 4%, respectively, both of which were substantially oversubscribed and have traded up since.

Let me conclude the Jefferson discussion with some comments on volume. The throughput numbers at Jefferson were up smartly in Q4. Throughput in Q3 was 9.9 million barrels, while Q4 was up to 12.8 million barrels or a 29% increase, and those numbers continue to increase in the current quarter. With the loss of the drag from the crude marketing program and from continued increase in throughput volumes we are experiencing this quarter, we're now projecting that Jefferson will have positive EBITDA in Q1. With the ramp in volumes we're seeing and with all 3 of our pipeline projects on track to be operational in the second half of 2020, we feel good about exiting 2020 with an EBITDA run rate of approximately $100 million per annum. For sure, Jefferson has taken longer to ramp up than we hoped but the good news is we're now there, and we expect this business, which has been an EBITDA drag for 4 years is now poised to not only be a positive EBITDA contributor but an asset from which we will see material EBITDA growth.

Let's now turn to Repauno. Repauno finished the year strongly with 5.4 million gallons of butane sales, which generated $2.3 million of EBITDA for Q4. We completed construction of dock 1, and we're completing Phase 1 construction of our natural gas liquids export operations, which is our rail-to-ship offering. We're close to signing deals with both European NGL offtakers and domestic producers from the Marcellus and expect that program to be operational in Q3 of 2020 as planned. Once that program has final commitments, we will start the process of putting in place necessary contracts to commence Phase II construction of the 3 million-barrel underground storage cavern which we expect to be operational in 2023.

On Long Ridge, the frac sand business finished the year strongly, handling 900,000 tons on a run rate basis, and January 2020 was a record month with over 100,000 tons loaded. In December, we sold a 50% interest in Long Ridge for $150 million plus in earn-out, which we believe will generate an additional $25 million to $50 million for us. The power plant construction is on time, and we expect that to be operational no later than November of 2021. So in short, Long Ridge is moving along nicely.

In conclusion, aviation has achieved a lot, which was showcased through the 2019 results. But as we've been saying, the best is still to come. 5 years ago, we started dreaming about building the leading aftermarket power provider for the largest commercial engine market in the world, and that dream will become reality over the next 12 to 24 months.

After 4 years of hard work, infrastructure is about to go positive EBITDA, and soon, the strong cash flow and EBITDA from aviation will be joined by the ramp of increasing cash flow from infrastructure. At 1.8x dividend coverage, we are the closest we have been to 2:1 coverage. And all indications are that we will exceed that metric in Q1 or Q2 of 2020.

So we've come a long way since we started FTAI and a long way since we went public. A lot of very talented and hard-working people who were there at the beginning are still with us today. They've done a terrific job of bringing FTAI to this point. And I want to thank everyone, all of them, for their hard work and dedication. It's a very exciting time for us and our shareholders.

With that, I will turn the call back to Alan.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [4]

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Thanks, Joe. Operator, you may now open the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Justin Long with Stephens.

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Justin Trennon Long, Stephens Inc., Research Division - MD [2]

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Congrats on the quarter. So maybe to start with a question on aviation. It was a strong performance for your business. I look at GATX, they also put up a really strong fourth quarter in their engine leasing JV with Rolls-Royce. Can you just talk about the sustainability of this strength as we look into 2020? I just want to get a better sense for what you view as a normalized performance for that business as we look into the first quarter of this year and beyond.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [3]

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Yes. Thanks, Justin. Sure. Seasonally, the third and fourth quarters are always the strongest of the year, so I think that's one point to keep in mind. And obviously, a lot of good things happened in the industry for us being that we didn't have the MAX. So you have a lot of demand for flying and a lot of hours flown, and the parts market is very strong. So everything was -- it was a very, very good quarter for us and for others as well.

So -- but going into 2020, I feel very good about the overall profitability, but since there were some special -- some tailwinds in the fourth quarter, I wouldn't extrapolate that, that's going to continue for the whole -- into Q1 and Q2 on a percentage basis. But obviously, we're adding to the portfolio and we're still growing. And the macro for the CFM56 engine is still great. So all those things are very positive, but it was an exceptionally good quarter.

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Justin Trennon Long, Stephens Inc., Research Division - MD [4]

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Okay. That's helpful. And then maybe to follow-up on Jefferson and some of the commentary there. It sounds like by the end of this year, you're expecting to be at that $100 million EBITDA run rate. Is there any way you could break down the different components of that number as you think about storage, crude, refined products, et cetera?

And then as a follow-up to that, on your last point about dividend coverage, it seems like you'll be at that 2x level here pretty soon. So I wanted to get your thoughts around raising the dividend.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [5]

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Yes. On Jefferson, I would say, the 2 categories for the EBITDA and revenue is going to be crude and refined products. We've now gotten rid of ethanol, and I think crude is going to be the biggest part of that, probably 2/3 of that number and 1/3 in refined products. However, we're sort of agnostic or indifferent as to how we grow that going forward.

And I think there's opportunities we look at today that are -- for both of those categories to grow. But it's -- right now, I think for the near term, it's going to be more crude than refined products.

The -- and then the dividend coverage, I think you're right. I mean, the big swing, if you go from 0 to $100 million on Jefferson, obviously, that will put us well over 2:1. So it's really just a question of when that happens. And it feels like pretty soon.

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Operator [6]

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Your next question comes from the line of Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [7]

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Wanted to touch a little bit on FAA approvals for aftermarket. Can you give us a sense of timing a little bit there? And then maybe more important to that then, what does that mean in terms of unlocking potential revenue streams or business streams, what are you prepared to be able to offer to the market at that point? And ultimately, maybe if we can talk about what that means from a financial perspective for the business.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [8]

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Yes. So good question. I mean, as I've been saying, I think 2020 is a very big year for us to grow our market and have commercially available products for the CFM56 this year. If you break into segments, as you know, we made our initial investment in -- 3 years ago of $15 million, and there's 2 different products. And we hope and expect it based on what we know that those will both be commercially available this year. One of them in the -- we're expecting towards the end of the second quarter and one by the end of the year.

So there could be some revenue from that, potentially, in the later part of this year, but I would expect most of that to be -- to show up in 2021, and ramping that can be pretty quick. As I've mentioned, when I run through the numbers, if -- and then we have Phase 2, which we started in second quarter of last year. So that will not be in the market until 2022. When you put both of those together, and you say, well, what could that mean to us?

If you take a 5% to 10% penetration of the aftermarket shop visits and our 25% ownership in that JV would produce, based on 3,000 shoppers this year, approximately $50 million to $100 million of EBITDA for us per annum. So on a $30 million investment, that's a pretty good return in and of itself. If we achieve that, then that would be fully ramped, I think, by 2022.

The second part of that, which is not necessarily clear how we're going to monetize it. But if we take a fleet and say, we own 300 engines by 2022, which I don't think is much of a stretch, that would represent about 60 shop visits a year. And our discount on those products would save us about $2 million per shop visit. So $120 million of savings per annum on top of that, which we might find -- we could find a way to turn that into EBITDA or we might just end up with a higher ROE. But either way, it's quite real.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [9]

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Okay. Okay. That's really helpful to put those numbers around. I appreciate that. And then, I guess, maybe taking a step back and thinking about this conceptually around the infrastructure side of the business. Feels like you've been a net seller over the course of the last 6 to 12 months on that side.

Can you give us a sense, looking into the crystal ball about 2020, which I'm sure is very clear, given the circumstances that we're in right now. But can you give us a sense of what maybe you think the market looks like in 2020 in terms of being better to buy or sell on the infrastructure side?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [10]

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It's, as you point out, it's pretty hard to tell right now. Surprisingly, we've seen some actually pretty interesting investment opportunities that have started to hit the market. And I don't know if that's because people were trying to get out before it ends or what. But there are some sort of a recent influx of new deals that we're looking at, which I would say we haven't seen for 2 or 3 years.

So there might be some interesting new investment opportunities. And I would say, as opposed to a net seller, I would characterize this as a recycler. The business model we're trying to execute on is to build businesses at 3 to 5x EBITDA. Hopefully, when they trade in the public markets, they would trade at 10 to 12x EBITDA. And if there's a strong bid from private buyers, you could sell them at 15 to 20x EBITDA.

So that's what we try to do. So I think -- and I do think that the infrastructure buyers have raised a tremendous amount of capital. So the private market bids for infrastructure, I expect to stay quite strong. I don't see that diminishing. So net-net, I feel pretty good right now about really both sides of that, the ability to monetize once we've built and maybe the opportunity that might -- some things might shake loose here in the next few months, it could be interesting.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [11]

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Okay. And if you allow me just one quick question, just in terms of the DRU opportunity, is that going to be a Jefferson volume opportunity -- it maybe at the end of 2020, 2021, but will that be a Jefferson story for you guys?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [12]

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We hope so. I mean, I think it's very positive for crude-by-rail from Canada because it creates a permanent flow of product that's better economics than pipeline. So that's what it achieved. So people that are looking at building DRUs and there's at least 2 that are pretty advanced, and there's another 2 that are on the -- that could happen as well, are looking to get 10-year or 15-year commitments from both -- from all -- from the participants.

And obviously, we're not going to plan necessarily in the origination terminal side. But the product is most likely going to end up in refiners in the Gulf. And so that's where we would expect and hope that some of that volume, and it doesn't take a lot, will come to us. So we have a heated system, we have pipeline connectivity, we have water access, so -- and we have tremendous rail, obviously. But -- so we're very keenly focused on that and hope to get some of that volume.

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Operator [13]

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Your next question comes from the line of Devin Ryan with JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [14]

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So first question here, just coming back to aviation, and I guess, one specifically on the coronavirus. I mean, it seems the market knee-jerk reacted and is kind of lumping all aviation business models together, where we've seen a lot of pressure over the past couple of weeks, just given concerns around travel. But I'm assuming that there could actually be some opportunities for business models like yours and especially now that you have quite a bit less leverage than some of your peers and potentially we're not going to be stressed like some others.

And so I'm curious kind of how you guys are thinking about what's going on kind of globally right now with the virus, how the business model is positioned, and if any opportunities actually are starting to come about as a result of it.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [15]

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Yes, sure. There are -- I mentioned in the script that we are seeing airplanes being -- that maybe previously wouldn't have been available, that are being offered. Because airlines, obviously, are the front line and they take the biggest hit on this. And when they are stressed, airlines look to raise cash from every available means, and it will come from potentially government assistance, it'll come from them asking lessors to not pay rent for a few months or they'll sell assets or businesses.

So I think that the selling of older airplanes, if we can buy CFM56 engines by buying older 737 and A320s, we are very, very interested in that. And I think the pricing on it will be quite attractive. So that is just really a question of how long does this persist and it -- as long as the airlines don't liquidate or go out of business, generally, the lessors will be fine. So I think if you believe that people are going to continue to travel and ultimately, this will -- people will get back on airplanes after taking some time and staying in their homes for months, that they'll -- that the industry has always rebounded. So I think it could present some very attractive investment opportunities for us, but we're obviously hoping it doesn't last too long.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [16]

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Got it. Okay. And then just my follow-up on leverage in the system. So you guys have obviously delevered and fortuitous timing here. And it sounds like there may be some new opportunities to put incremental capital to work, and we'll see where markets go here, but to the extent we see more dislocation, I could see there being even more opportunities that don't even exist today.

So how are you guys thinking about kind of the leverage profile of the firm now that you've brought leverage down? Would you be opportunistic and take leverage back up for a moment? Or just more broadly, how are you thinking about it now that you're kind of within the realm of your initial targets of about 50%? So just curious on that.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [17]

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I think we're -- we like the 50%. And I think one of our objectives in that was to get to BB rating. So we want to be BB because BB has, I think, a lot of positive attributes of lower -- probably the lowest rates without sacrificing operational and business flexibility. So we got BB from Moody's and Fitch, and I think S&P, we hope, will get there as well. So I think it will be -- we like to maintain the BB. And I would say, 50% debt to total cap feels good at the moment.

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Operator [18]

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Your next question comes from the line of Giuliano Bologna with BTIG.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - Director & Financials Analyst [19]

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Congratulations on another great quarter.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [20]

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Thanks.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - Director & Financials Analyst [21]

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Kind of digging in a little more on the aviation side of the business as you're targeting the CFM56 engine market, and I think based on some of the commentary from one of your previous calls, you were at, call it, roughly 200 engines. Is there any sense of where you are now and potential deals that could be in the pipeline? And then what you think you could ultimately grow your portfolio of CFM56 engines to over time?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [22]

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Yes. So when we started the business 5 years ago, we said, gee, wouldn't it be great if we got to 100 engines. And now we're 300 engines. And we're saying, wouldn't it be great if we got to 500 engines. And then pretty soon, we might say, wouldn't it be great if we got to 1,000.

So I do think with 22,000 CFM56 engines flying around the world that it wouldn't be crazy for us to expect that we could own as many as 1,000 of those. And if we have -- as I mentioned, an average shop visit costs $6 million in 2022, and we can do that for under $3 million, why wouldn't we want to do that. So -- and we should be able to do that because we have a competitive advantage that no one else can copy.

So I do think the aspirations have grown but we always are return constrained. So we're not just going to go buy engines at any price. So we never budget CapEx on the investment side, and it will be a function of how attractive the market is, and whether we think we can continue to earn 20% unlevered returns.

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Giuliano Jude Anderes-Bologna, BTIG, LLC, Research Division - Director & Financials Analyst [23]

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That makes a lot of sense. And I guess, just even thinking about it, that's coming from a magnitude perspective, at $5 million an engine, 500 would be $2.5 billion of capital and 1,000 would be close to $5 billion of capital, which is multiples of where you are now. And if you do get the advanced engine repair JV off the ground, you should be able to probably generate north of 30% adjusted EBITDA margins with the benefits of the JV. Is that a reasonable way of thinking about the overall end market over time?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [24]

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Yes.

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Operator [25]

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Your next question comes from the line of Rob Salmon with Wolfe Research.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [26]

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Joe, just a quick follow-up in terms of the outlook for the aviation returns profile. Will your return threshold be increasing as the aftermarket CFM business starts to really scale up here?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [27]

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Yes. I mean, I think we should capture -- in other words, if we can save $2 million for a shop visit that other people can't save and we're earning 20% now, then we're not going to give away the $2 million for nothing. We're going to try to keep as much of it as we can. And -- but on the other hand, it's not unreasonable to assume that we could share that with some airlines and capture airline customers on a programmatic basis.

That's what we're -- that's really what we're aiming for over the next 2 years, is to pick up airline partners on a programmatic basis and potentially generate income and EBITDA that's not based on how many assets you own. So that's something we've turned our attention to now that we'll have commercially available products and a real competitive advantage to really sort of make aim from that and it's going to happen over the next 2 years. I'm pretty convinced.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [28]

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And just so we're kind of configuring expectations -- setting expectations properly, from a market product standpoint, of the total opportunity, like how big is kind of the first product that's coming on in, call it, the first half versus the second half of 2020?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [29]

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They're probably, I would say, 1/3, 2/3. 1/3 in the first product and 2/3 in the second product.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [30]

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That's helpful. And then just kind of more on a kind of the fourth quarter results. We saw aviation utilization rates within the engine component of the business drop pretty meaningfully, sequentially third Q to fourth quarter, but I didn't see a meaningful change in the remaining lease term. So could you give us an update in terms of how that played out? What impact, if anything, we should be thinking about the corona on the aviation utilization rates within your engine segment?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [31]

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Yes, good question. So when we report that utilization, we report a single date at the end of the quarter, which is actually, in this instance, it's probably the first time it's not really representative of what the utilization was through the quarter. On a weighted average basis, it was much higher. Obviously, you can tell from the numbers we reported.

So we took a number of engines. The Avianca fleet came in and a lot of those engines were not put on lease. So that's why the number was 60%, was at the end of the year on a specific date. So we're going to change that going forward. We're going to start doing weighted average over the next -- going forward from here. So the next quarter, we'll have a weighted average number. But I would not -- that 60% number was not representative and the business -- the average terms have not changed. The average rates are actually a little bit higher.

So I think it's all good. It's just not a good number to -- for us, so we'll change that.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [32]

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And any way for us to kind of frame up the potential impact from corona across your assets, maybe how much -- how many customers you have that are domiciled in China or flight hours of your engines that are originating there, if you get that sort of granularity from your airline customers?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [33]

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I think we're 0 in China.

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Unidentified Company Representative, [34]

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Correct.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [35]

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Yes. So that's an easy number to report. We have nothing -- our biggest concentration geographically is Europe, which is in the sort of the 40s -- 40% of the fleet, and North America and Asia are in the 20s each, so that's about 80% of our portfolio. And Asia is no China and no Japan.

It would be Southeast Asia and Korea, I think, mostly. But I think you can assume -- it feels like this is going to spread. It's not going to be isolated to China. So -- but it is -- it will probably be better managed and better contained. But I think geographically, it seems like most people think it's spreading.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [36]

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Yes, we'll have to watch and then see the impact. Appreciate the time, guys.

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Operator [37]

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Your next question comes from the line of Ari Rosa with Bank of America.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [38]

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So a bit of a random question, but I wanted to ask about the offshore. I saw it took a bit of a step-up in the quarter. Maybe you could just talk about what's going on there? And plans or expectations for maybe divesting that asset, eventually, given kind of some of the activity that you guys have taken on recently?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [39]

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Yes. Well, thanks for asking. It's actually a positive -- we were hiding it from you. So we didn't -- I kept the good news for me.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [40]

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We found it, we found it.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [41]

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It actually has been pretty good. The rate -- the utilization on the Pride was in the high 80s for the quarter, and rates are moving up. So the demand side is -- feels like the first time we've seen some meaningful improvement in that market for a while. So the Pride and the Pioneer continue to operate in the same way through 2020. And as I said, utilization rates have actually been trending up. And then on the Pride, where the tower that will enable the vessel to move into the well intervention market is under construction.

So that should be completed by the end of this year. And in 2021, we're going to be going after well intervention business, which is materially higher rates. It is also, I think, a positive macro in that well -- one of the uses that Pride could target is the plug and abandonment market, which is capping and closing off old wells, of which there are thousands of them out in the ocean.

And the oil and gas companies are really good at postponing those events because it costs money to do that. So I think governments have finally run out of patience in this. There's a pretty positive macro in it and the Pride would be ideally suited to pick up some of that business. So even if there's no new drilling, there's going to be closing of old drilling. So it feels pretty good for that. And it's just not a main focus of our new initiatives, but it is doing well.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [42]

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Sure. That's great. That's helpful to understand. And then just turning to Jefferson. I wanted to understand a little bit better. There was this big step-up in storage capacity in the quarter, so congratulations on that. Maybe you could give us a little bit of color on what's the utilization rate for that storage right now. And kind of how much of that is actually contracted versus how much of it still needs to go out under contract?

And then asking the earlier question about $100 million of EBITDA on a run rate basis slightly differently. How much of that is kind of coming from storage versus transloading -- transloading fees, essentially, or other sources of activity at Jefferson?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [43]

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Yes. So the storage utilization is very high. It's in the 90s. It's almost all contracted. And typically, it's 3- to 5-year deals. So that storage is spoken for. It's hard to separate storage from transloading because it's all tied together. When somebody brings in product, they're going to be using -- bringing in by rail, and you get paid a rail fee, storage fee and then generally a fee for going across the dock loading a ship. So it's kind of a whole -- each customer sort of has a P&L more than the storage tank itself. So I would say -- and one of the reasons why the business is ramping is the volumes. And we cited that volumes have grown and are continuing to grow. And so it's all tied to the movement in and the movement out.

And then further, when we'll have -- we have 3 pipeline projects underway -- under construction. It's not underway. They're actually being constructed. One is connecting with 6 pipelines to Exxon, which is our neighbor, right across the river.

One is an outbound crude pipeline to Motiva and Total into the Zydeco pipeline and one is an inbound pipeline from Cushing. And so when those -- all 3 of those are under construction, when those come online, our throughput volumes will go up because, obviously, you can move a lot more product and you're not constrained by rail and dock. So you get a lot more volume, and that's one of the reasons. And so once you cover your fixed costs and you have moved to the positive, then incremental volumes are extremely -- contribute a lot.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [44]

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Okay. Terrific. That's great color. And then just last question for me. Maybe your thoughts on the extent to which any kind of macro risk or coronavirus global recession risk might disrupt or delay that -- the development of that $100 million target at Jefferson? Or do you not see that as a material risk at this time?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [45]

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I don't see that today. I recently had -- I've been meeting with the refineries pretty regularly. And their expansion plans -- Exxon's expansion plans are underway, and I don't see any current events or they don't see anything that would change that. They look at these investments over a 30-year time horizon. So they're not typically impacted by changes in sentiment on a month-to-month or week-to-week basis.

It takes years to get this stuff in motion. And then once it's happening, it happens. So I don't see any of that. And so they will be producing -- Exxon will be producing 625,000 barrels a day in 2022 and that's -- and then that product has to go somewhere. So all of those decisions and infrastructure around that has to be planned and committed for in years in advance.

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Operator [46]

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Your next question comes from the line of Frank Galanti with Stifel.

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Frank Galanti, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [47]

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Yes. So I wanted to ask about Repauno. So LPG prices still have a pretty big disparity in the U.S. and the rest of the world. So the kind of the thesis is still intact, right? The U.S. needs to be exporting LPGs. I just wanted to kind of ask about any progress at the terminal from a contracting perspective. I know these contracts take time. But has there been any change or progress made on that front?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [48]

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Progress, yes. I mean, we've -- so we're putting in place the system, and we've got multiple counterparties that we're negotiating with. And the macro is still very, very positive and that production in the U.S. continues to grow and consumption and demand in the U.S. is virtually flat. So that product has to get exported.

And so we see that, and we have multiple counterparties. It's just -- it's sort of tying it all together, as you point out, does take time. And figuring out all the system requirements is what we're working on, but it's going to happen. We said we'll be operational in Q3 and loading ships. So that's all good. And I think the ultimate -- the longer-term goal of being able to load VLGCs, which is the most efficient ship on the market, is also still very valuable.

And if you can get an operation going and operating out of the East Coast of the United States, that is very valuable because today, 90% of the product goes out of the Gulf of Mexico, but everybody we talk to wants diversification of supply chain. So sort of just getting that done will be a huge -- extremely valuable asset.

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Frank Galanti, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [49]

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Great. That's helpful. And then for my second question, I wanted to ask about remaining CapEx. So I know on aviation side, it can be variable, right, as opportunities come up. That's a place you guys want to -- look to deploy capital. But on the Jefferson and Repauno side, how much CapEx is left to get those pipelines installed and the storage built up and then to get Repauno up and running?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [50]

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So Jefferson is in expansion mode. And this year, I think, remaining CapEx is $200 million. And that will all be financed with nonrecourse debt at the Jefferson entity. And so that's -- part of the refinancing we did in the first quarter was to provide that capital for the year.

So all the projects I mentioned, the pipelines, the dock, everything is basically -- will be funded from Jefferson, borrowing capital, not from FTAI capital. Repauno, we also look to do long-term debt financing. But from a timing perspective, I think we're assuming that $60 million of capital is what's needed to develop and finish Phase 1. And once it's finished, we'll look to do nonrecourse financing, but we'll probably finance some or a portion -- a good portion of that from FTAI in the interim.

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Operator [51]

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Your next question comes from the line of Brandon Oglenski with Barclays.

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David Michael Zazula, Barclays Bank PLC, Research Division - Research Analyst [52]

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This is David Zazula on for Brandon. Just our question is on the Long Ridge Energy Terminal equity investment. Could you maybe talk about why GCM is a good partner for that investment and how the earn-out is structured?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [53]

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Yes. So GCM is an infrastructure fund that is affiliated with GCM Grosvenor out of Chicago, and this particular fund is comprised of Taft-Hartley money, so it's union pension fund money. And so one of the attractive parts to the terminal was that this -- we have a lot of, I think, we'll have it to peak like 400 union jobs building the power plant. So that was something that was important and interesting to them. But they're also in the market for additional investments in infrastructure. So when we look at new investments at Long Ridge, potentially, we could be partnering with them and they have the network that's different than our network. So we can see opportunities and deals together sort of collectively.

What's the second?

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David Michael Zazula, Barclays Bank PLC, Research Division - Research Analyst [54]

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A little color on how the earn-out is structured? And maybe what you think the catalyst will be for maximizing that earn-out?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [55]

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Yes. So the earn-out is based upon -- we've talked a lot about adding on-site tenants to buy power. So if we bring -- today, we've sold electricity to long-term under contracts that -- a little under $0.03 a kilowatt hour. And so when we're marketing on-site locations to people such as data centers or other potential users to buy power, we're marketing that at $0.045 per kilowatt hour, so 50% higher. So we get a portion of any incremental revenue that we get from that -- from those tenants if we bring those in to purchase power. So that's how the earn-out is structured. And we've said, we estimate that it could be worth $25 million to $50 million additional to us.

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Operator [56]

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(Operator Instructions) Your next question comes from the line of Robert Dodd with Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [57]

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On the debt to capital, could you give us a reminder on how much of that today is kind of nonrecourse. The 50, obviously, you just refinanced the bonds, which are nonrecourse at Jefferson. And then on -- when it comes to keeping that BB from a Moody's and Fitch perspective, do they give any weighting to the nonrecourse at Jefferson and potentially at Repauno? Or is it just about the recourse debt to the parent?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [58]

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I think they would look at it. I think they'll run the numbers both ways as we do. And I think we sort of report with -- if you don't count nonrecourse debt, I think our leverage pro forma is 46%. And if you do count it, it's...

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Scott Christopher, Fortress Transportation and Infrastructure Investors LLC - CFO [59]

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Yes, 50%. 50%, 50.1%.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [60]

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A little over 50%. So it's not a huge difference. It's not something you could look at and say, well, that's going to move the needle in the way they think about it. So it's -- they're both -- they're pretty close today. But it is refinancing Jefferson to be nonrecourse. We had limited recourse in the prior debt, was important to them and it was important to us, too. So it's -- I think that was a big step, and I think part of the reason for the upgrade.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [61]

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Got it. Got it. I appreciate that. And then one more, if I can. On the coronavirus, and in your prepared comments, gentlemen, you talked about, obviously, airlines can get stressed, need cash. Sometimes if they need cash, they need it in a hurry. How fast can that cycle move in terms of an airline needing money and being willing to enter into a transaction. I mean, is that materially quicker than the normal kind of process that you go through for acquiring either engines or aircraft?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [62]

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Yes, it is materially quicker, and it can be very fast. People -- when they're distressed, people change the rules. They do things much faster. So I think it could be -- there are discussions now that are ongoing and happening, so stay tuned.

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Operator [63]

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And at this time, there are no further questions.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [64]

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Thank you all for participating in today's call. We look forward to updating you after Q1.

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Operator [65]

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This concludes today's conference. You may now disconnect.