Rating Action Commentary
ֳ Rates Ashtead's 2033 Senior Notes 'BBB'
Tue 31 Jan, 2023 - 7:38 AM ET
ֳ - London - 31 Jan 2023: ֳ has assigned Ashtead Capital, Inc.'s USD750 million 5.55% senior notes due 2033 (US045054AQ67) a final 'BBB' rating.
The final rating is in line with the expected rating assigned to the notes on 24 January 2023 (see 'ֳ Rates Ashtead's Senior Notes 'BBB(EXP)'' at ).
Key Rating Drivers
The new notes are fully and unconditionally guaranteed by Ashtead Group plc (Ashtead, BBB/Stable). Their rating is in line with Ashtead's 'BBB' Long-Term Issuer Default Rating (IDR), reflecting ֳ's expectation of average recovery prospects. As unsecured obligations, the notes rank behind Ashtead's asset-based senior secured revolving credit facility (ABL facility), which currently totals USD4.5 billion and is secured by a substantial majority of Ashtead's assets.
ֳ expects the proceeds of the new notes to initially be used to repay equivalent amounts drawn under the ABL facility. Consequently, we do not expect the transaction to materially impact Ashtead's leverage.
Ashtead's Long-Term IDR reflects the company's well-established franchise in the equipment rental sector, which has supported consistently strong earnings over the last decade. The rating also considers the need to manage a substantial capex programme across periods of potentially fluctuating customer demand, balancing the retention of a good condition fleet with servicing and refinancing the debt funding that supports it.
For more details on Ashtead's key rating drivers, see "ֳ Upgrades Ashtead to 'BBB'; Outlook Stable" dated 7 April 2022 at .
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The notes' rating is primarily sensitive to a downgrade of Ashtead's Long-Term IDR, which in turn is subject to:
- Gross debt/EBITDA approaching 2.5x without a clear route to near-term reduction, or without material cash simultaneously being held
- Significant shortening of Ashtead's presently lengthy debt maturity profile
- Evidence of unexpected liquidity pressure, e.g. from heavy investment in new fleet without then generating the revenue anticipated from it
-The notes' rating is also sensitive to a weakening in ֳ's view of their recovery prospects, for example, due to a material increase in the relative size of Ashtead's ABL facility, which could lead ֳ to notch the notes' rating down from the Long-Term IDR
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The notes' rating could be upgraded if Ashtead's Long-Term IDR was upgraded. However, an IDR upgrade is unlikely in the near term unless Ashtead sees an upward reappraisal of the through-the-cycle business stability within the equipment rental sector, in addition to maintaining EBITDA growth without raising leverage from its present unusually low level.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579
Date of Relevant Committee
06 April 2022
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.
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 |