Fitch Rates Ashtead's Senior Notes 'BBB(EXP)'

Fitch Ratings has assigned Ashtead Capital, Inc.'s proposed benchmark-sized issue of senior unsecured notes a 'BBB(EXP)' expected rating.

The assignment of a final rating to the issue is contingent on the receipt of final documents conforming to information already received.

Key Rating Drivers

The new notes will be fully and unconditionally guaranteed by Ashtead Group plc (Ashtead, BBB/Stable), and 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) presently totalling USD4.5 billion, which is secured by the 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. Fitch does not therefore expect the transaction to materially impact Ashtead's leverage.

Ashtead's Long-Term IDR reflects its sound franchise as a leading equipment rental firm in the well-established and growing markets in the US, UK and Canada. 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.

For more details on Ashtead's key rating drivers, see 'Fitch Affirms Ashtead at 'BBB'; Outlook Stable' dated 31 March 2023 on 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 sensitive to:

Ashtead's gross debt/EBITDA ratio approaching 2.5x without a clear route to near-term reduction, and 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

Additionally, 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 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' ratings could be upgraded if Ashtead's Long-Term IDR was upgraded. However, 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 retaining leverage at the lower end of management's stated target range of 1.5x to 2.0x net debt to EBITDA.

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 Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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