The trend for all credit ratings is Stable. The Company's Intrinsic Assessment (IA) is A (low), while its Support Assessment is SA3, resulting in Ryder's final credit ratings being equal with its IA. The credit rating of
KEY CREDIT RATING CONSIDERATIONS
The credit ratings consider Ryder's significant commercial fleet management franchise, underpinned by three soundly run businesses, including
The Stable trend considers our view that the Company's credit fundamentals will remain sound over the medium term, despite the slowing freight environment and declining used vehicle values.
CREDIT RATING DRIVERS
A sustained material improvement in earnings, including larger contributions from the Company's SCS and DTS business segments, while maintaining similar balance sheet fundamentals, would result in an upgrade of the credit ratings. Conversely, a sustained decline in earnings generation, a weakening franchise reflecting notable customer attrition or a prolonged significant increase in balance sheet leverage, would result in a downgrade of the credit ratings.
CREDIT RATING RATIONALE
Franchise
Ryder maintains a deeply rooted commercial fleet management franchise in
Earnings
Ryder generates a solid level of earnings. With used truck values normalizing from their post-pandemic unsustainable levels, the Company's earnings were down 53% to
Ryder's earnings are supported by the three business segments that each generate solid earnings before taxes (EBT) although the FMS segment anchors the earnings. Indeed, the FMS segment accounted for 65% of Ryder's total EBT (excluding eliminations), followed by SCS at 23%, and DTS at 12%. Over time, as Ryder invests in both SCS and DTS,
Risk
Overall, Ryder maintains a sound risk profile. Operational risk is a key risk, given the Company's significant scale of operations. Overall, Morningstar DBRS views this risk as well-managed, as the Company has not reported a significant operational issue over the last few years. Meanwhile, asset risk is somewhat elevated, given declining used truck and tractor values, but moderated by Ryder's conservative vehicle portfolio residual value estimates. Credit risk is sound, with write-offs totaling a modest 1.2% of average gross receivables in 2023, down from 1.5% in 2022. In regards to client concentrations, Morningstar DBRS views positively, the declining client concentration (by revenue) within the SCS businesses. Specifically, within the SCS segment, the top 10 clients accounted for 40% of total segment revenue in 2023, down from 42% in 2022. Meanwhile, in the DTS segment, the top 10 clients accounted for 40% in 2023, stable with the prior year. Further mitigating concentration risk, clients within these business segments operate in a diverse set of industries and many are investment grade.
Funding and Liquidity
Funding is primarily unsecured debt that is diverse by source and well-aligned with the asset base. The Company's assets are mostly unencumbered providing a significant level of financial flexibility. Ryder's liquidity position is suitable and well managed, totaling approximately
Capitalization
Capitalization is solid, given Ryder's solid earnings capacity and sound risk position. Leverage (debt-to-equity), which is well managed, was a moderate 2.3x (Company calculated) at
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
Notes:
All figures are in US Dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (
The following methodologies have also been applied:
DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (
https://dbrs.morningstar.com/research/410196/dbrs-morningstar-global-criteria:-commercial-paper-liquidity-support-for-nonbank-issuers
DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (
https://dbrs.morningstar.com/research/411694/dbrs-morningstar-global-criteria:-guarantees-and-other-forms-of-support
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
The primary sources of information used for these credit ratings include Morningstar, Inc. and Company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.
For more information on this credit or on this industry, visit dbrs.morningstar.com.
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