Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of United Rentals (North America) Inc. (URNA) at 'B+' and affirmed the long-term IDR of its parent company, United Rentals Inc. (URI), at 'B'. All debt level ratings have all been affirmed. Approximately $2.8 billion of debt is affected by these rating actions. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.
The rating affirmation reflects URI's ability to maintain sufficient cash flow, a stable liquidity profile, and access to the capital markets during 2010 despite the continued weakness in rental rates and a slow commercial construction recovery. While the company's overall profitability remained weak over the past year, the revenue decline was partially offset by a reduction in the scale of operations and the size of the rental equipment portfolio, as well as significant cost cutting measures which have included fleet transfers and reductions in branch network and employee headcount. Additionally URI has significant flexibility in its capital investment requirements to reduce expenditures and improve free cash flow, generating an EBITDA of $649 million for fiscal year 2010.
Fitch does not anticipate any near-term liquidity pressures to arise as debt amortization payments are manageable, at $221 million in 2011, and the bulk of the company's debt maturities extend beyond 2012. Additionally, Fitch views the company's ability to access the capital markets during 2010 positively, including the $750 million in senior subordinated notes. Proceeds of the debt issuance were used to redeem/repurchase existing senior subordinated debt as well as for general corporate purposes.
The Stable Outlook reflects the expectation that rental rates will stabilize in 2011 and relatively strong used equipment pricing will benefit 2011 revenue. Fitch expects profitability to remain challenged given the slow pace of the current economic environment, but expects improvements in lease contract volume during 2011 to benefit earnings in 2012 and 2013.
Negative rating momentum could result from a reversal of the upward trend in rental rates and time utilization, margin pressure, an inability to access the capital markets, and/or liquidity constraints resulting from an inability to renew funding facilities or generate sufficient cash flow to repay debt, due to the need to refresh an aging fleet. While Fitch believes that positive rating momentum will be limited over the near term, longer-term momentum could result from improvement in net income, an ability to reduce the age of the rental fleet, reductions to leverage, enhanced funding flexibility, and the maintenance of solid liquidity.
The notching of the parent company's (URI) IDR below that of URNA reflects that the vast majority of the assets are at the operating company level and are therefore unavailable for the repayment of holding company notes. Consequently, debt recovery prospects will generally be better at URNA compared to that at the parent. The relative notching of the debt ratings reflect the respective collateral coverage available for each instrument under a stress scenario. The notching of the secured debt above the IDR with a Recovery Rating of 'RR1' implies 'outstanding' recovery prospects, given its priority claim on collateral. The equalization of the unsecured notes and the IDR with a Recovery Rating of 'RR4' implies 'average' recovery prospects, while the notching of the subordinated notes below the IDR with a Recovery Rating of 'RR6' implies 'poor' recovery prospects.
Fitch has affirmed the following ratings with a Stable Outlook:
United Rentals, Inc (URI)
--Long-term IDR at 'B'.
United Rentals (North America), Inc. (URNA)
--Long-term IDR at 'B+';
--Senior secured debt at 'BB/RR1';
--Senior unsecured debt at 'B+/RR4'.
--Subordinated debt at 'B/RR6'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Global Financial Institutions Criteria' (Aug. 30, 2010);
--'Finance and Leasing Companies Criteria' (Dec. 13, 2010);
--'Recovery Ratings for Financial Institutions' (Dec. 30, 2009).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
Recovery Ratings for Financial Institutions