Fitch Expects to Rate Penske's Unsecured Debt 'BBB+'

NEW YORK--()--Fitch Ratings expects to assign a rating of 'BBB+' to the five-and-a-half-year $500 million senior unsecured debt co-issued by Penske Truck Leasing Co., L.P. (PTL) and PTL Finance Corporation (PTL Finance). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

SENIOR UNSECURED DEBT

The expected unsecured debt rating reflects that the debt is expected to rank pari-passu with all other senior unsecured debt issued by PTL and/or PTL Finance. The equalization of the expected rating with PTL's Issuer Default Rating (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 PTL's leverage as a result of the issuance, as proceeds will be used to pay down existing debt under its corporate revolver and ABS facility and for general corporate purposes. Therefore, the expected issuance has no impact on PTL's IDR or Stable Outlook. PTL's leverage, as measured by debt/equity, was 3.45x at Sept. 30, 2015.

PTL's IDR reflects its established market position in the truck leasing business, growing market share in the logistics and supply chain solutions (SCS) businesses, relatively consistent operating performance through market cycles, adequate leverage, strong liquidity and a largely unsecured funding profile. PTL Finance'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 customer concentration in the SCS segment, cyclicality inherent in used vehicle pricing and the commercial rental business, and potential regulatory impact 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, stable leverage, and earnings growth over the outlook horizon driven by an increase in full-service lease/contract revenue and growth in the logistics business.

RATING SENSITIVITIES

SENIOR UNSECURED DEBT

The expected rating assigned to the unsecured debt is equalized with PTL's IDR, and therefore, would be expected to change as a result of a change in PTL's IDR. 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.

The IDR could be adversely affected 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 positioning, 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.

Fitch believes positive rating action is limited in the medium term, but over the longer term positive rating momentum for PTL's IDR could result from demonstrated access to the unsecured markets through a variety of market cycles and a lower leverage target.

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 29.9%, Mitsui & Co., Ltd 20.0%, Penske Corporation 41.1% and Penske Automotive Group 9.0%.

Fitch expects to assign the following ratings:

Penske Truck Leasing Co., L.P.

--Senior Unsecured Debt 'BBB+(EXP)'.

PTL Finance Corporation

--Senior Unsecured Debt at 'BBB+(EXP)'.

Existing ratings for Penske Truck Leasing Co., L.P. are as follows:

Penske Truck Leasing Co., L.P.

--Long-term IDR 'BBB+';

--Senior Unsecured Debt 'BBB+'.

PTL Finance Corporation

--Long-term IDR 'BBB+';

--Senior Unsecured Debt 'BBB+'.

Penske Truck Leasing Canada Inc.

--Long-term IDR 'BBB+';

--Senior Unsecured Debt 'BBB+'.

The Rating Outlooks are Stable.

Fitch reviewed the ratings of Penske Truck Leasing Co., L.P. and its related entities on Oct. 12, 2015.

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

Related Research

2015 Outlook: Finance and Leasing Companies (Stable Credit Profiles Amid Sector Headwinds)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=807208

Large Equipment Leasing: Rating Attribute Analysis (Comparing Aircraft, Truck, Railcar and Container Leasing Sectors)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752827

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993411

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tyra Junaid
Director
+1-212-908-0291
or
Committee Chairperson
Christopher Wolfe
Managing Director
+1-212-908-0771
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan, CFA
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tyra Junaid
Director
+1-212-908-0291
or
Committee Chairperson
Christopher Wolfe
Managing Director
+1-212-908-0771
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com