CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to rate TTX Company's (TTX) proposed issuance of $300 million five-year, senior unsecured medium-term notes (MTN) 'A-', subject to receipt of final documents conforming to information already received.
The final maturity date in 2020 and a fixed-rate of interest will be determined at the time of issuance.
Proceeds from the issuance are for general corporate purposes, including the repayment of existing indebtedness. The notes will rank equally with existing and future senior unsecured notes issued by TTX. As of March 31, 2015, TTX had unused authorization under its MTN program to issue up to $325 million of unsecured notes for terms up to 50 years. The current authorization was approved by TTX's board of directors in December 2014.
KEY RATING DRIVERS
SENIOR DEBT
The proposed issuance is not expected to materially increase balance sheet leverage, as the proceeds are expected to be used to repay existing indebtedness. Balance sheet leverage, defined as debt to tangible equity, was 1.78x as of March 31, 2015, which is consistent with the long-run average of 1.76x over the last five years and with its current ratings. Tangible equity is calculated by subtracting from shareholders' equity, TTX's debt issuance costs and deferred tax assets, net of allowance.
The expected rating of the MTNs is equalized with the long-term Issuer Default Rating (IDR), reflecting that the notes are expected to rank pari passu with other senior unsecured indebtedness of TTX, and the company's pool of unencumbered assets available to unsecured noteholders, which provides some financial flexibility in times of stress.
TTX is currently rated 'A-' with a Stable Rating Outlook. Fitch affirmed TTX's ratings in March 2015, reflecting the company's unique competitive advantages associated with its ownership structure and regulatory exemption status, as well as its consistent operating performance through various cycles, strong liquidity given stable operating cash flow generation, and solid capitalization and balance sheet leverage. These strengths are counterbalanced by the cyclicality of the rail industry, the reliance on the regulatory exemption to maximize the business model, and modest profitability relative to peers.
RATING SENSITIVITIES
SENIOR DEBT
The expected rating of the MTNs is sensitive to changes in TTX's long-term IDR as well as the company's funding profile, including the mix of unsecured versus secured debt and the level of unencumbered asset coverage. A material increase in the use of secured debt combined with a decline in the level of unencumbered asset coverage could result in the notching between the IDR and the MTNs.
Formed in 1955, TTX is a privately-held corporation based in Chicago, Illinois. The company is a leading provider of railcars in North America, with a fleet of approximately 222,000 railcars as of March 31, 2015.
Fitch expects to assign the following rating:
TTX Company
--Senior unsecured medium term notes 'A-'.
Fitch's existing ratings on TTX are as follows:
--Long-term IDR at 'A-';
--Senior unsecured revolving credit facility at 'A-';
--Senior unsecured medium term note program at 'A-';
--Senior unsecured medium term notes at 'A-'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985658
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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