Fitch Ratings Completes 2023 EMEA Equipment Leasing Peer Review

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Fitch Ratings has completed a peer review of the EMEA-based equipment leasing companies it monitors, revising the Outlook on Boels Topholding B.V.’s Long-Term Issuer Default Rating (IDR) to Positive from Stable and affirming it at ‘BB-’. Fitch affirmed ratings of Ashtead Group plc at ‘BBB’/Stable, Ren10 Holding AB (Renta) at ‘B+’/Stable and BCP V Modular Services Holdings III Limited (Modulaire) at ‘B’/Stable. 

Boels’ outlook revision reflects the company’s consistent EBITDA over the last three years while addressing both the pandemic and the integration of a major acquisition. This has enabled meaningful deleveraging, and if sustained through the still uncertain economic outlook for 2023, could lead to an upgrade. Consistent EBITDA generation and increasing penetration rates driven by customer preference for the flexibility of leasing over equipment ownership, underpin the Stable Outlooks on all other rated issuers.

This is amid Fitch’s view that reduced economic activity could weigh on demand for lessors’ equipment, and so impact revenues. However, larger firms with less reliance on construction activity, a more diverse inventory, and the ability to diversify into specialist sub-sectors should be better-placed to cope with the challenging environment. Large-scale infrastructure spending in both western Europe and North America (most significant for Ashtead) could provide support to the near-term pipeline.

Rating differentials mainly reflect Fitch’s assessment of the issuers' business profiles and leverage, which Fitch considers primarily on a gross debt-to-EBITDA basis, in view of the cash flow-driven nature of operations. Larger, younger and more diversified inventory portfolios are less sensitive to economic cycles so support higher ratings via greater stability of earnings. Scale benefits also offer purchasing power with equipment manufacturers and allow the companies to take on larger contracts and move equipment between locations for more efficient utilisation. Leverage supports both regular fleet capex and acquisitions but is a rating constraint for sub-investment-grade issuers, notably Modulaire, with gross debt-to-EBITDA of 6x-7x, compared with about 1.5x for Ashtead.

Lessors’ recurring funding requirements to maintain a modern attractive fleet expose them to rising interest costs, which could pressure profitability alongside the inflation pressure on other expenses. Mitigating this, higher-rated issuers have hedged or fixed-rate debt in place, generally with long-dated funding profiles, and many assets were purchased at pre-inflation prices. We expect issuers to have some capacity to pass on rising costs to customers, but prolonged macroeconomic challenges coupled with high interest rates, inflation and decelerating construction activity, could pressure profitability.

In Fitch’s view, sector consolidation, largely in the form of bolt-on acquisitions to gain market share, is likely to continue in the medium term but could accelerate if smaller operators are disproportionately affected by the challenging economic environment. Some lessors could benefit from younger equipment portfolios possessing capacity to delay capex while continuing to earn revenues from inventory already held, decreasing the urgency of asset replacement. However, some equipment could require replacement after capex was lowered during the pandemic, and associated debt-funded investment could therefore raise leverage from recent low levels.

UK-domiciled Ashtead is a leading equipment rental firm in the UK and North America, where it benefits from ongoing market consolidation. Netherlands-based Boels is a leading European lessor operating in 18 countries. Renta, domiciled in Finland, focuses on Scandinavian markets and has recently started growing into Baltics. Modulaire has a pan-European franchise in modular space leasing.

If you have any questions please contact a member of our analytical team below. You can also find additional issuer-specific Rating Action Commentaries are available at www.fitchratings.com.