TRITON INTERNATIONAL LIMITED
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
The Rating Outlook is Stable.
Concurrently, Fitch has affirmed the ratings of the senior unsecured revolving credit facility and the senior unsecured term loan facility issued by TAL and TCIL as co-borrowers at 'BBB-', the senior unsecured notes issued by TCIL and TAL at 'BBB-' and the perpetual cumulative redeemable preferred shares issued by Triton at 'BB'.
On
Key Rating Drivers
The rating affirmation reflects Fitch's expectation that, based on information provided to the agency, Triton's overall credit profile will be unaffected by the planned acquisition as growth and strategic objectives will remain unchanged, leverage will be maintained below 4.0x, the unsecured funding mix will be managed above 35%, the laddered maturity profile will be maintained, and there will be no changes to senior management of the company. Additionally, any goodwill recognized is expected to be equivalent to an increase in common equity resulting from this transaction, making the acquisition neutral to tangible equity.
Fitch expects the current funding structure to be maintained as no change of control provisions exist for the ABS bonds and ABS warehouse facility at the parent company level, and no automatic change of control provisions exist for the unsecured bonds except in the event the ratings are downgraded below investment grade by two rating agencies within 60 days of closing. A new backstop facility will be provided by Brookfield's relationship banks in the event lender consents cannot be obtained for the change of control provisions in the bank credit facilities. The common share repurchase program will be discontinued and Triton is expected to adopt a flexible capital distribution policy to reinvest in the business to fund accretive growth, which Fitch views favorably.
Triton's ratings continue to reflect its well-established market position as the largest global maritime container lessor, experienced management team, solid operating track record through various cycles, predictable cash flows generated predominately from longer-term leases, and robust risk controls and lease terms. The ratings also reflect the standardized nature and relatively long useful life of the company's containers, which moderate residual value risk, as well as its adequate liquidity and appropriate leverage.
The ratings are constrained by Triton's monoline business model, which is exposed to swings in steel prices and global trade levels; concentrated, low (albeit improving) credit-quality shipping-line customer base; and reliance on wholesale funding sources.
The Stable Outlook reflects Fitch's expectation that Triton's unsecured funding mix will remain above 35%, that it will maintain its strong market position and that the credit quality of the company's lessee base will remain stable or not meaningfully deteriorate.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A meaningful divergence from expected acquisition terms communicated to Fitch, including the impact on Triton's balance sheet, which results in a meaningful reduction in tangible equity and leverage being sustained above 4.0x;
Backstop financing terms that materially weaken the financial metrics of the company should the change of control provisions fail to be waived;
Material impairments or losses on asset sales that result in a significant loss of equity;
A sustained reduction in the unsecured funding mix below 35%;
Weakening of the liquidity profile; bankruptcy or material credit deterioration of a top lessee relationship;
Material long-term declines in utilization rates; and
Deterioration in the container leasing industry beyond cyclical norms, which leads to sustained weakness in profitability.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Improved lessee diversification and/or credit quality;
Consistent profitability through cycles;
Maintenance of leverage at-or-below 3.5x;
Demonstrated access to the unsecured bond market through market cycles, in conjunction with a sustained proportion of unsecured debt at or above 50%; and
Maintenance of a solid liquidity profile.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The unsecured debt rating is equalized with the Long-Term IDRs of TCIL and TAL, reflecting the funding mix and average recovery prospects for unsecured debtholders in a stressed scenario given the size of the unencumbered asset base.
The preferred shares are rated two notches below the company's Long-Term IDR, reflecting the deep subordination and heightened risk of non-performance relative to other obligations. Fitch has afforded Triton's preferred shares 50% equity credit given the cumulative nature of the distributions, the fact that the preferred shares are perpetual, and the lack of automatic change of control provisions and events of default.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The senior unsecured debt ratings are primarily sensitive to changes in Triton's Long-Term IDR, and secondarily, to the level of unencumbered balance sheet assets in a stressed scenario, relative to outstanding debt. A decline in unencumbered asset coverage, combined with a material increase in secured debt, could result in notching of the unsecured debt down from the Long-Term IDR.
The preferred shares' rating is primarily sensitive to changes in Triton's Long-Term IDR and is expected to move in tandem. However, the preferred shares' rating could be downgraded by an additional notch to reflect further structural subordination, should the firm consider other hybrid issuances.
SUBSIDIARY AND AFFILIATE RATINGS: KEY RATING DRIVERS
TCIL and TAL are wholly owned subsidiaries of Triton, and their Long-Term IDRs are equalized with that of Triton.
SUBSIDIARY AND AFFILIATE RATINGS: RATING SENSITIVITIES
The ratings of TCIL and TAL are primarily sensitive to changes in Triton's Long-Term IDR and are 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
(C) 2023 Electronic News Publishing, source
