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Announcement: Moody's says that GATX's purchase of Trifleet is credit positive but has no immediate rating implications
Global Credit Research - 30 Dec 2020
New York, December 30, 2020 -- Moody's Investors Service, Inc. said GATX Corp.'s (GATX, Baa2 stable) acquisition of Netherlands-based Trifleet Leasing Holding B.V. (Trifleet) for approximately E175 million will result in a credit positive diversification of GATX's product offering and a modest expansion of its customer relationships across the globe. The purchase of Trifleet will be financed with cash from GATX's balance sheet. Moody's said that the acquisition is small compared with GATX's size and will thus have no immediate impact on the company's current Baa2 long-term issuer and senior unsecured ratings, Prime-2 short-term rating or stable outlook.
Pro-forma for the acquisition, Moody's estimates that GATX's cash on balance sheet will be about $250 million (based on 30 September 2020 financials) and its debt-to-EBITDA leverage will slightly improve to 7.7x from 7.8x (at the same reporting date and incorporating Moody's standard adjustments). Moody's continues to expect GATX's debt/EBITDA leverage to increase temporarily to the low 8.0x range in the next 12-18 months, as it expects lease revenue declines in mid-single-digits because of a continued drop in renewal rates through the COVID-19 pandemic and economic slump.
Founded in 1990, Trifleet is a global tank container leasing company serving rail, ship and road transport modes, with a presence in Europe, Americas and Asia. As such the acquisition will diversify its product portfolio into the tank container segment. Tank cars make up about 52% of GATX's owned fleet by car count at year-end 2019, and we estimate a much higher percentage based on net investment. GATX owns nearly 118,200 railcars in North America (including around 15,000 boxcars) and another 26,000 railcars in its Rail International operations. Railcars in GATX's owned Rail Europe portfolio are mostly tank cars leased to shippers in the chemical, petroleum and liquefied petroleum gas markets. GATX does not anticipate any material cost synergies from this acquisition, although, according to the company, potential cross-selling opportunities exist.
Tank cars have historically had more stable utilization rates through economic cycles than other car types, which has helped GATX contain performance swings in its rail business. However, GATX's tank car specialization does create business concentrations in the chemical and petroleum industries, which can involve heightened regulatory and litigation risks, in Moody's view. GATX maintains insurance that covers litigation costs and has effectively managed new regulatory pronouncements.
GATX's good liquidity is supported by its cash on balance sheet ($250 million as of 30 September 2020 pro forma for the acquisition of Trifleet) as well as full availability on its $250 million and $600 million committed revolving facilities expiring in May 2023 and May 2024, respectively. Additionally, GATX's European subsidiaries have unsecured credit facilities of E35 million (E11.5 million outstanding at 30 September 2020). GATX also has about $1.5 billion in secured debt capacity, and the company recently announced a $500 million 3-year delayed draw term loan (commitment due to expire 17 April 2021) for general corporate purposes.
Chicago-based GATX is a leading provider of railcar leasing and associated services in North America, Europe and Asia. Its railcar leasing activities are its most significant source of earnings and are conducted through its Rail North America and Rail International business segments, the later composed primarily of GATX Rail Europe. GATX, through its Portfolio Management segment, owns five liquefied gas marine vessels and also invests in joint ventures collectively known as Rolls Royce & Partners Finance, which engages in leasing commercial aircraft spare engines. GATX managed an estimated $8.6 billion in operating assets at 30 September 2020.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Inna Bodeck Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Ana Arsov MD - Financial Institutions Financial Institutions Group Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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