Reduced economic and construction activity, and potential recession in some jurisdictions, could weigh on demand for European lessors’ equipment, Fitch Ratings said in its newly published peer report, although large-scale infrastructure spending in western Europe and North America may mitigate the near-term impact.
Lessors are also often exposed to rising interest costs, which could pressure profitability alongside the inflation impact on other expenses. Fitch expects eurozone GDP growth to decelerate to 0.8% (2022: 3.5% growth), and that in the UK to contract by 0.7% (2022: 4.0% growth).
Despite these pressures, Fitch expects the rated European equipment lessors’ credit profile to remain resilient, underpinned by adequate EBITDA margins (often benefitting from economies of scale), good diversification and reduced, but still acceptable, deleveraging potential.
The new report follows Fitch’s recent review of the companies under its coverage: equipment rental companies Ashtead Group plc (BBB/Stable), Boels Topholding BV (BB-/Positive) and Ren10 Holding AB (Renta; B+/Stable), and European modular space lessor BCP V Modular Services Holdings III Limited (Modulaire; B/Stable).
As part of the peer review Fitch revised the Outlook on Boels’ Long-Term Issuer Default Rating to Positive from Stable, reflecting Boels’s consistent EBITDA generation over the past three years while addressing both the pandemic and the integration of Cramo Plc. This has enabled meaningful deleveraging, and, if sustained, could lead to an upgrade. Other lessors’ fairly stable leverage underpins their ratings and Outlooks.
Rating differentials within the peer group reflect Fitch’s assessment of lessors’ business profiles and leverage, which Fitch considers primarily on a gross debt-to-EBITDA basis, due to 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 potentially achieve more efficient utilization.
