NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a new report on the U.S. and European railway industry and examines the driving factors behind the market conditions. The report highlights the most recent trends, as well as the important credit factors that drive ratings. Key themes in the report include:
- The U.S. railcar leasing market showed few signs of recovery last year amid inadequate freight demand, high previous new car builds and low retirements, which created a supply glut that led to depressed lease rates at below-market levels.
- The European market remains challenged for different reasons, with an aging rolling stock fleet, high operating costs and slow adoption of a unified European railway system.
- KBRA believes U.S. energy-related transport is a critical long-term headwind as the coal industry is in secular decline and unlikely to reverse course. In addition, tank car demand is expected to soften as more pipelines come online over the next few years.
- Not surprisingly, leverage—measured by debt to EBITDA—has increased while interest coverage has declined, driven by lower cash flow earnings in the current challenged market conditions.
- Despite these challenges, U.S. railcar lessors have shown resilience and have successfully managed through down cycles by continuing to prudently invest in rolling stock, diversify their customer bases, shorten lease maturities and provide lease concessions to maintain high utilization rates.
- Political support (particularly in Europe) of railway as a cleaner and more environmentally sound mode of transport compared to trucks is expected to offset some of the industry’s headwinds.
- KBRA expects more privatizations within Europe, which should aid in greater operating efficiency through increased competition.
- KBRA believes the adoption of the Luxembourg Rail Protocol will benefit the industry by protecting the security interests of financiers, investors, lessors and vendors of mobile railway assets as rolling stock moves across national borders. The Protocol should facilitate more efficient financing from the private sector.
- Importantly, KBRA notes that even though the railcar industry has struggled in the U.S. and the EU in recent years, it remains a mature sector and participants have weathered numerous economic and technological cycles throughout its history.
To view the report, click here.
CONNECT WITH KBRA
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.