S&P Reaffirms Ratings on Greenbrier Cos. (GBX); Notes Better Profitability, Sustainable Margin Improvement

Standard & Poor's Ratings Services affirmed its 'BB-' corporate credit rating on Greenbrier Cos. (NYSE: GBX). The outlook is stable.

"The affirmation reflects our assessment of Greenbrier's recently improved profitability, reflecting operating efficiencies that we believe could sustain the recent margin improvement, as well as product diversity and market share that has gradually improved over the past years," said Standard & Poor's credit analyst Svetlana Olsha. "We are therefore revising Greenbrier's manufacturing business risk profile to 'fair' from 'weak,' as defined in our criteria," added Ms. Olsha.

We distinguish between Greenbrier's manufacturing and leasing activities, and determine separate business risk and financial risk assessments. We believe Greenbrier has "adequate" sources of liquidity to cover its needs, as defined in our criteria, with sources exceeding uses by 1.2x or more over the next 12-18 months. We believe net sources would remain positive even if EBITDA declined by 15%. We believe the qualitative factors relating to Greenbrier's liquidity, such as its standing in credit markets, risk management, and relationship with banks, all support our "adequate" assessment.

The outlook on Greenbrier is stable, reflecting our view that rail industry fundamentals will remain favorable through the next 12 to 18 months.

We could lower the rating if we forecast an industry downturn or eroding market share could significantly hamper Greenbrier's operating prospects, or if debt-funded acquisitions or shareholder-friendly initiatives cause manufacturing debt to EBITDA to deteriorate above 4x.

We could raise the rating if the company progresses in improving its profitability, if the outlook for industry fundamentals remains sound, and if we believe that financial policies will be consistent with a higher rating.

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