Fitch Ratings has assigned a 'BBB+' rating to the $400 million 5.45% senior unsecured notes issued by GATX Corp. (GATX) due Sept. 15, 2033.

Proceeds from the issuance are expected to be used for general corporate purposes.

Key Rating Drivers

The debt rating is equalized with GATX's Long-Term Issuer Default Rating (IDR), reflecting the significantly unsecured funding profile and expectations for average recovery prospects under a stress scenario.

GATX's leverage, measured by gross debt (including recourse debt and lease obligations) to tangible equity, amounted to 3.3x at March 31, 2023 (or 3.5x proforma for the debt issuance), which is within Fitch's 'bbb' category quantitative benchmark range of 3.0x to 5.0x for balance sheet-intensive finance and leasing companies with an 'a' category operating environment score. Fitch expects leverage to remain below 4.0x over the long term.

GATX's ratings reflect its 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.

The Stable Rating 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 the four-year average of 2.8% pretax ROAA.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The rating on the unsecured debt 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.

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.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

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.

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

Date of Relevant Committee

27 January 2023

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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