Fitch Affirms Ryder's IDR at 'A-'; Outlook Stable
CHICAGO -- March 13, 2013
Fitch Ratings has affirmed Ryder System, Inc.'s (Ryder) long-term Issuer
Default Rating (IDR) at 'A-' and short-term IDR at 'F2'. The Rating Outlook is
Stable. Approximately $3.8 billion of unsecured debt is affected by these
actions. A full list of rating actions is at the end of this press release.
RATING ACTION RATIONALE
The rating affirmation reflects Ryder's established market position in the
truck leasing business, operating consistency, strong liquidity and funding
profile, relatively low leverage, and solid capitalization. Rating constraints
include the increased pension burden, cyclicality inherent in used vehicle
pricing and the commercial rental business and the regulatory impact on
The Stable Outlook reflects Fitch's expectation for continued economical
access to the capital markets through market cycles, strong liquidity, solid
capitalization and earnings growth in 2013 driven by an increase in full
service lease activity and organic growth in supply chain solutions (SCS).
KEY RATING DRIVERS
Operating performance improved in 2012 as organic growth in full-service lease
and SCS and strong used vehicle sale gains, offset weaker than expected
results in commercial rental, and higher restructuring, pension and
depreciation expenses. Net income from continuing operations rose 16.9% to
$201 million, driven by a 5.2% increase in operating revenues, a 41.7%
increase in vehicle sale gains, a 4% decrease in the cost of fuel services and
a 1% decline in administrative expenses. Fitch expects earnings to improve
further in 2013, supported by continued growth in the lease and contract
maintenance fleet, organic growth in SCS, and lower maintenance costs due to a
Ryder's leverage, as measured by debt/equity, increased to 2.70 times (x) in
2012 from 2.61x in 2011. Higher leverage was driven by greater debt
outstanding as higher capital expenditures to refresh the lease fleet was only
partially offset by a rise in equity. While equity increased 11.3% from
year-end 2011, it was partially offset by an 8.4% increase in the pension
charge. Excluding the impact of the cumulative pension charge, leverage was
1.88x at year-end 2012 versus 1.80x at year-end 2011. As such, should the
equity charge begin to reverse, Ryder would likely be operating below its
articulated long-term leverage target of 2.5x-3.0x. Fitch expects leverage to
decline in 2013 due to increased earnings, a decline in capital expenditures
and the absence of share repurchases.
Ryder has temporarily ceased its anti-dilutive share repurchase program in an
effort to appropriately manage leverage and allow near-term balance sheet
flexibility, which is viewed positively by Fitch. However, market volatility
could yield additional pension charges, negatively impacting the company's
leverage. Fitch's current ratings incorporate the expectation that leverage
will be managed within Ryder's articulated target, with debt funding organic
growth to create longer-term value for the company.
Fitch considers the company's liquidity profile to be solid with $66 million
of balance sheet cash and $538 million of available borrowing capacity on the
committed bank facility at year-end. This compares to $368 million of debt
maturities due in 2013, which has already been partially refinanced with
Ryder's $250 million note issuance in February 2013. The six-year notes had a
coupon of 2.35%, which is the lowest in the company's history. Fitch views the
company's continued access to the public debt markets positively.
Negative rating action could be driven by a decline in earnings and/or free
cash flow beyond Fitch's expectations, which yields an increase in leverage
beyond the targeted range and/or indicates a weakened competitive position in
the industry. Additionally, deterioration in 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
While Fitch believes positive rating action is likely limited over the medium
term, positive rating momentum could result from greater revenue
diversification and lower leverage.
Established in 1933 and headquartered in Miami, Florida, Ryder is one of the
world's largest providers of highway transportation services. As of Dec. 31,
2012 the company had 172,500 vehicles in its fleet and $6.3 billion of annual
revenues. Ryder's stock is listed on the NYSE under the ticker 'R'.
Fitch has taken the following rating actions:
Ryder System, Inc.
--Long-term Issuer Default Rating (IDR) affirmed at 'A-'; Outlook Stable;
--Short-term IDR affirmed at 'F2';
--Commercial Paper affirmed at 'F2';
--Senior unsecured debt affirmed at 'A-'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012).
Applicable Criteria and Related Research
Finance and Leasing Companies Criteria
Global Financial Institutions Rating Criteria
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Katherine Hughes, +1-312-368-3123
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Meghan Neenan, CFA, +1-212-908-9121
Nathan Flanders, +1-212-908-0827
Brian Bertsch, New York, +1 212-908-0549
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