CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to rate TTX Company's (TTX) proposed issuance of up to $375 million of 30-year, senior unsecured medium-term notes (MTNs) 'A-'. Proceeds from the issuance are expected to be used for general corporate purposes. The final maturity date in 2046 and a fixed-rate of interest will be determined at the time of issuance. The notes will rank equally with existing and future senior unsecured notes issued by TTX. As of March 31, 2016, TTX had unused authorization to issue up to $650 million in MTNs for terms up to 50 years under its current program, which was last approved by the Board of Directors in March 2016.
KEY RATING DRIVERS
MEDIUM-TERM NOTES
The expected rating of the MTNs is equalized with TTX's 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.
The proposed issuance is not expected to materially impact balance sheet leverage, which is expected to increase from 1.83x to 1.93x, on a pro forma basis, as of March 31, 2016. Balance sheet leverage, defined as total debt to tangible equity, has averaged 1.78x over the last five years and remains consistent with its current ratings. Tangible equity is calculated by subtracting from shareholder's equity, TTX's deferred tax assets, net of allowance.
TTX is currently rated 'A-' with a Stable Rating Outlook. Fitch affirmed TTX's ratings in March 2016, reflecting the company's unique competitive advantages associated with its ownership structure and regulatory exemption status. The ratings and Stable Outlook are also supported by TTX's consistent operating performance through various cycles, strong liquidity given stable operating cash flow generation, and solid capitalization and leverage. Rating constraints include the cyclicality of the North American railroad industry, the reliance on the regulatory exemption to maximize the business model, and modest profitability relative to peers.
RATING SENSITIVITIES
MEDIUM-TERM NOTES
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.
Founded 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 over 245,000 units of carrying capacity as of March 31, 2016.
Fitch expects to assign the following:
TTX Company
--Senior unsecured medium-term notes 'A-'.
Fitch currently rates TTX as follows:
TTX Company
--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-'.
Date of Relevant Committee: March 17, 2016
Summary of Financial Statement Adjustments: Fitch has made no adjustments that are disclosed within the company's financial statements.
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
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005624
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005624
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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