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 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 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. Fitch does not therefore expect the transaction to materially affect Ashtead's leverage.

Ashtead's Long-Term IDR reflects its sound franchise as a leading equipment rental company in the well-established and growing markets in the US, UK and Canada. The rating also reflects Ashtead's robust financial metrics balanced against a cyclical business model and managing 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 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

Unexpected liquidity pressure, such as from heavy investment in new fleets without generating anticipated revenue

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 is 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 maintaining net debt/EBITDA at the lower end of management's stated target of 1.5x to 2.0x

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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation of the materiality and relevance of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.