NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a rating of 'BBB+' to the $300 million of five year senior unsecured debt co-issued by Penske Truck Leasing Co., L.P. (PTL) and PTL Finance Corporation. Concurrently, Fitch has assigned a Long-term Issuer Default Rating (IDR) of 'BBB+' with a Stable Rating Outlook to PTL Finance Corporation, a wholly owned subsidiary of PTL.
KEY RATING DRIVERS
The expected unsecured debt rating reflects the fact that the debt is expected to rank pari passu with all other senior unsecured debt issued by PTL and/or PTL Finance Corporation. The equalization of the expected rating with Penske's IDR reflects the predominantly unsecured funding profile and unencumbered asset coverage available to senior unsecured creditors.
Fitch does not believe there will be a material impact on the PTL's leverage as a result of the issuance, as proceeds will be used to refinance $300 million of unsecured debt maturing in July 2014. Therefore, the expected issuance has no impact on PTL's IDR or Stable Outlook.
PTL's IDR reflects established market position in the truck leasing business, growing market share in the logistics and supply chain solutions (SCS) business, operating consistency and strong liquidity and funding profile. PTL Finance Corporation's IDR reflects its status as a wholly owned subsidiary of PTL and the nature of its operations, which are limited to serving as a pass through issuing entity to access investors otherwise not permitted to invest in a limited partnership such as PTL.
Rating constraints include cyclicality inherent in used vehicle pricing and the commercial rental business, customer concentration in the SCS and logistics segments, and the potential regulatory impacts on business trends.
The Stable Outlook reflects Fitch's expectation for continued economic access to the capital markets through various market cycles, limited sensitivity to rising interest rates, strong liquidity, and earnings growth in 2014 driven by an increase in full service lease (FSL)/contract revenue, and growth in the logistics and SCS businesses.
RATING SENSITIVITIES
A negative rating action for PTL could be driven by an increase in leverage resulting from a decline in earnings and/or free cash flow beyond Fitch's expectations. Additionally, deterioration in the firm's competitive position, weakening asset quality, an inability to realize residual values on used vehicles, a material increase in non-earning vehicles, and/or a decline in liquidity could result in negative rating action.
While Fitch believes positive rating action for PTL is limited in the medium term, longer term positive rating momentum could result from demonstrated access to the unsecured markets through market cycles, increased funding diversity, and reduced leverage.
PTL Finance Corporation's IDR is linked to the IDR of PTL, and therefore, would be expected to change as a result of any of the aforementioned rating sensitivities with respect to PTL.
Unsecured debt ratings are currently equalized with PTL's IDR and therefore, would be expected to change as a result of any of the aforementioned rating sensitivities with respect to PTL. In addition, a material increase in secured funding and/or a material reduction in unencumbered assets could result in notching between PTL's IDR and unsecured debt.
Established in 1988 and headquartered in Reading, PA, PTL is a leading provider of full service truck leasing, truck rental, and contract maintenance and logistics services. PTL is a partnership between GECC (49.9%), Penske Corporation (41.08%) and Penske Automotive Group (9.02%).
Fitch has assigned the following rating:
PTL Finance Corporation
--Long-term Issuer Default Rating (IDR) 'BBB+'; Outlook Stable.
Fitch expects to assign the following ratings:
Penske Truck Leasing Co., L.P.
--Senior Unsecured Debt 'BBB+(EXP)'.
PTL Finance Corporation
--Senior Unsecured Debt 'BBB+(EXP)'.
Existing ratings for Penske Truck Leasing Co., L.P. are as follows:
--Long-term Issuer Default Rating 'BBB+'; and
--Senior Unsecured Debt 'BBB+'
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834340
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