Rating Action Commentary
ֳ Affirms Ashtead at 'BBB'; Outlook Stable
Thu 13 Mar, 2025 - 5:28 PM ET
ֳ - London - 13 Mar 2025: ֳ has affirmed Ashtead Group plc's Long-Term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. ֳ has also affirmed the senior notes issued by Ashtead Capital, Inc., which are fully and unconditionally guaranteed by Ashtead, at 'BBB'.
Key Rating Drivers
Ashtead's Long-Term IDR reflects its well-established equipment rental franchise and significant scale in its key US market as well as strong positions in the UK and Canadian markets. The rating also reflects Ashtead's robust financial metrics weighed against the cyclicality of its business model and the need to manage a substantial capex programme and related funding through economic cycles.
Scale Benefits: Ashtead generates around 85% of revenue from the US, where it is the second-largest equipment rental company with an 11% market share, trading under the Sunbelt Rentals brand. Ashtead is currently listed in the UK but is undergoing a re-listing process that should see it listed in the US by 31 March 2026, subject to shareholder approval. The US market has good structural growth prospects for equipment rental firms following a number of legislative acts aimed at improving infrastructure, reducing inflation and onshoring manufacturing and production.
Equipment rental firms have been benefiting from an overall structural shift in the construction market towards renting rather than buying equipment and ֳ believes that rental penetration rates could increase further, particularly in the North American market. Ashtead's wide reach, significant equipment inventory and experience servicing a wide range of construction projects have been beneficial, with the company increasing its share of US mega projects (projects with an estimated total cost of greater than USD400 million) in recent years.
Exposure to Construction Market Cyclicality: Ashtead's key business line, accounting for less than 50% of revenue, focuses on providing rental equipment for construction projects, which can be cyclical in nature. Management has been growing the non-construction and less cyclical business lines, which include equipment provision for live events, building maintenance and emergency response. This should benefit equipment utilisation rates and stability of revenue over economic cycles.
Robust Profitability: Profitability, measured by EBITDA to revenue, has consistently been good (3Q25: 46%; 30 April 2024 (FY24): 44%), supported by generally solid utilisation rates, Ashtead's ability to extract economies of scale and robust rental rates in key markets. Nevertheless, the cyclical nature of the construction industry can lead to variability of net income as under-utilisation of equipment can lead to a higher proportion of funding costs and depreciation to rental revenue. Residual value gains normally comprise less than 5% of revenues and ֳ views Ashtead's valuation and depreciation policies as robust, with consistent gains on the sale of second-hand equipment.
Leverage to Remain Within Target: ֳ mainly uses EBITDA-based metrics in assessing Ashtead's leverage, due to the cash flow-driven nature of its business. The gross debt/EBITDA ratio was 1.6x at end-January 2025 (FYE24: 1.7x). Leverage could increase as capex grows but ֳ expects it to remain within management's target range of 1.0x-2.0x net debt to EBITDA. ֳ regards Ashtead's capex as well-managed, although risks associated with investment in and funding of multi-year assets subject to variable demand cannot be wholly offset.
Complementary Leverage Metrics: ֳ also monitors debt/EBIT as Ashtead's fleet depreciation has some characteristics of an operating expense, in view of the long-term importance of sustained capex to maintain an attractive fleet. ֳ calculates debt/EBIT at end-January 2025 at 3.1x (on the basis of annualisation of nine-month EBIT), compared with 3.2x at FYE24. This ratio is 4.1x at end-January 2025 (FYE24: 4.2x) post IFRS16 inclusion of lease liabilities.
As a complementary metric, ֳ considers balance-sheet leverage, as measured by gross debt to tangible equity, which at end-January 2025 was 1.9x (FYE24: 2.4x). We expect the metric to increase in line with resumption of the company's share buyback programme of up to USD1.5 billion over the next 18 months.
Adequate Liquidity: Ashtead's principal sources of funding are a USD4.75 billion asset-based senior secured revolving credit facility (ABL facility) and USD6.2 billion of senior notes, meaning funding is reliant on wholesale market confidence for renewal. However, active terming-out of the ABL debt and refinancing of senior notes has extended debt maturities to an average six years. The business generates significant cash flow and the interest coverage, as calculated by EBITDA to interest expense, has consistently been greater than 10x.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
- Gross debt/EBITDA ratio approaching 2.5x without a clear route to near-term reduction, or without material cash being held
- Significant shortening of Ashtead's long-dated debt maturity profile
- Evidence of unexpected liquidity pressure, such as from heavy investment in new fleets without generating anticipated revenue
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade is unlikely in the near term. It would require an upward reappraisal of the through-the-cycle business stability achievable within the equipment rental sector, in addition to Ashtead maintaining EBITDA growth while keeping leverage at the lower end of management's stated target range of 1.0x to 2x net debt to EBITDA.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Ashtead Capital's senior notes are fully and unconditionally guaranteed by Ashtead and are rated in line with Ashtead's Long-Term IDR on average recovery prospects. As unsecured obligations, they rank behind Ashtead's ABL facility, which benefits from security over most group assets.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The rating of Ashtead's senior notes is mainly sensitive to changes in the Long-Term IDR. Additionally, a weakening in the recovery prospects of the notes, for example due to a material increase in the relative size of Ashtead's ABL facility, could lead ֳ to notch the notes' rating down from the Long-Term IDR.
ADJUSTMENTS
The earnings and profitability score has been assigned below the implied score due to the following reason: revenue diversification
The funding and liquidity score has been assigned below the implied score due to the following reason: funding flexibility
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Ashtead Capital, Inc. | UK Issued, EU Endorsed |
| Ashtead Group plc | UK Issued, EU Endorsed |