Fitch Ratings has published the 'BBB+' Long-Term Issuer Default Rating (IDR) assigned to
The Rating Outlook is Stable. Fitch has also published GATX's 'BBB+' senior unsecured debt rating, 'F2'short-term IDR and 'F2' commercial paper (CP) rating.
Key Rating Drivers
IDRs AND SENIOR DEBT
The ratings reflect GATX's established market position within the railcar leasing industry, a diversified fleet portfolio across customers, industries and car types, strong asset quality, manageable exposure to residual value risk given conservative depreciation policies, appropriate leverage, solid liquidity, a predominantly unsecured funding profile and an experienced management team.
Rating constraints specific to GATX include the largely monoline nature of the business and its reliance on wholesale funding sources. Rating constraints applicable to the broader railcar leasing industry include the competitive operating environment, the cyclicality of the railcar market, utilization rates and lease rates, particularly in light of current macroeconomic uncertainties, and the potential impacts from federal, state, local, and foreign environmental regulations on railcars, particularly tank cars.
In
Asset quality remains solid, with modest impairments and manageable residual value risk, given GATX's conservative depreciation policy and the long economic life of its assets. The company reported impairments of
GATX has been able to consistently sell railcars at gains relative to depreciated value, with remarketing income of
GATX's operating performance benefited from continued strengthening in the railcar leasing market in
This compares to a four-year average of 2.7% from 2019-2022, which is within Fitch's 'bbb' category earnings and profitability benchmark range of 2.5% to 3.5% for balance sheet intensive finance and leasing companies with an 'a' category operating environment score. Adjusting for impairments, pre-tax ROAA would have been 2.9% in 2022. Fitch believes GATX's operating performance in 2023 will be near its four-year average, although the macro environment remains uncertain.
GATX's leverage, measured by gross debt (including recourse debt and lease obligations) to tangible equity, amounted to 3.5x at
Fitch views GATX's liquidity as solid, with
GATX benefits from a robust pool of unencumbered assets, with unsecured debt representing 96% of total debt at
The Stable Outlook reflects Fitch's expectation for the maintenance of strong asset quality performance, appropriate leverage, solid liquidity, consistent access to the capital markets and a largely unsecured funding profile. The Outlook also reflects the expectation for operating performance to remain in line with GATX's four-year average pre-tax ROAA.
A Long-Term IDR of 'BBB+' corresponds to a Short-Term IDR of 'F1' or 'F2' according to Fitch's Non-Bank Financial Institutions Rating Criteria, dated
GATX's unsecured debt rating is equalized with its Long-Term IDR, reflecting the significantly unsecured funding profile and expectations for average recovery prospects under a stress scenario.
GATX's CP rating is equalized with the short-term IDR.
RATING SENSITIVITIES
IDRs AND SENIOR DEBT
Factors that could, individually or collectively, lead to positive rating action/upgrade over the longer term include sustained railcar usage/demand, enhanced operating consistency, a continuation of strong asset quality metrics, a sustained reduction in leverage below 2.5x, and maintenance of a solid liquidity profile.
Factors that could, individually or collectively, lead to negative rating action/downgrade include a sustained increase in leverage above 4.0x, a reduction in the diversity and/or credit quality of its customers, a material and persistent reduction in fleet utilization and/or an increase in impairments either of which negatively impacts operating performance, a material decline in the proportion of unsecured debt in the funding structure, and/or weakening of the liquidity profile.
The short-term IDR is primarily sensitive to changes in the long-term IDR and would be expected to move in tandem. However, a material improvement in GATX's Funding, Liquidity and Coverage profile, resulting in an upgrade of the factor score to 'a' could result in an upgrade of the Short-Term IDR to 'F1'.
The unsecured debt rating is sensitive to changes in GATX's long-term IDR and to changes in GATX's funding profile, including the mix of unsecured debt and the level of unencumbered asset coverage. A material increase in the use of secured debt combined with a decline in the level of unencumbered asset coverage could result in notching between the IDR and unsecured debt.
The CP rating is sensitive to changes in the short-term IDR and would be expected to move in tandem.
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 '
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.
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
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