Rating Action Commentary
ֳ Rates Ashtead's Senior Notes due 2026 and 2031 'BBB-'
Fri 20 Aug, 2021 - 4:13 AM ET
ֳ - London - 20 Aug 2021: ֳ has assigned Ashtead Capital, Inc.'s USD550 million 1.500% senior notes due 2026 (US045054AN37) and USD750 million 2.450% senior notes due 2031 (USU04503AJ48) final ratings of 'BBB-'.
The final ratings are in line with expected ratings assigned to the notes on 3 August 2021 (see 'ֳ Rates Ashtead's Senior Notes 'BBB-(EXP)'', at ).
Key Rating Drivers
The senior notes are fully and unconditionally guaranteed by Ashtead Group Plc (Ashtead, BBB-/Stable). Their ratings are aligned with Ashtead's 'BBB-' Long-Term Issuer Default Rating (IDR), reflecting ֳ's expectation of average recovery prospects. As unsecured obligations, the notes rank behind an asset-based senior secured revolving credit facility presently totalling USD4.1 billion, which is secured by the substantial majority of Ashtead's assets.
The proceeds of the notes are being used primarily to refinance two previous USD600 million issues of senior unsecured notes, due 2025 and 2026, respectively. The transaction does not therefore materially impact Ashtead's leverage, and ֳ views the net maturity extension positively.
Ashtead's Long-Term IDR reflects the company's well-established franchise in the equipment rental sector, which has supported strong earnings since the global financial crisis, with a moderate level of cash flow leverage. The rating also takes into account the potential for cyclicality of demand within some of Ashtead's customer groups and the need to manage capex through those fluctuations, while maintaining adequate long-term funding capacity.
For more details on Ashtead's key rating drivers, see "ֳ Revises Outlook on Ashtead to Stable; Affirms at 'BBB-'" dated 19 April 2021 on .
RATING SENSITIVITIES
The notes' ratings are primarily sensitive to changes in Ashtead's Long-Term IDR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Maintenance of a gross debt/ EBITDA ratio below 1.5x for the medium to long term (i.e. outside the short-term circumstances of a leverage reduction resulting from a temporary decrease in capital expenditure).
- Upward revision of ֳ's assessment of Ashtead's franchise and business model, if it continues to grow and broaden its customer base with associated counter-cyclical benefits.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Gross debt/ EBITDA rising above 3.0x without a clear route to near-term reduction, or without material cash being held simultaneously;
- EBITDA/interest expense approaching 3x without near-term prospect of recovery to 6x or above.
The notes' ratings are 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 asset-based senior secured revolving credit facility, which could lead ֳ to notch the notes' rating down from the Long-Term IDR.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on ֳ's ESG Relevance Scores, visit .
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
16 April 2021
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 |