Fitch Rates Ashtead's 2033 Senior Notes 'BBB'

Fitch Ratings 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 'Fitch Rates Ashtead's Senior Notes 'BBB(EXP)' at www.fitchratings.com).

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 Fitch'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.

Fitch 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 'Fitch Upgrades Ashtead to 'BBB'; Outlook Stable' dated 7 April 2022 at www.fitchratings.com.

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 Fitch'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 Fitch 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 https://www.fitchratings.com/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.

RATING ACTIONS

Entity / Debt

Rating

Prior

Ashtead Capital, Inc.

senior unsecured

LT

BBB

New Rating

BBB(EXP)

Page

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com