Fitch Assigns Initial 'BBB-' IDR to ITT Holdings

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings assigns ITT Holdings LLC (ITT) an initial Issuer Default Rating (IDR) and a senior unsecured rating of 'BBB-'. The Rating Outlook is Stable.

ITT is a wholly-owned subsidiary of Macquarie Infrastructure Corporation (MIC), a publicly traded investment holding company. In the first quarter of 2015, ITT accounted for 50% of MIC's EBITDA.

KEY RATING DRIVERS

The 'BBB-' rating is supported by the company's competitive advantage of having strategically located bulk liquid terminal facilities with significant market share in its two primary locations, the New York Harbor and on the lower Mississippi River. Additionally, ITT has demonstrated that it has had very high and consistent utilization rates which have averaged 94% over the last eight years regardless of crude, gasoline and other commodity prices and economic decisions. While the contract life for storage tends to be short compared with other midstream assets such as pipelines, ITT's average contract term is three years.

Leverage has remained low and averaged 3.2x at the end of the last four years. Dividend payments to its ultimate parent, Macquarie Infrastructure Company (MIC), are flexible and MIC intends to ensure that dividends it receives will enable ITT to maintain leverage in its target range of 3.5-3.75x. In the past, MIC has demonstrated its willingness to support an entity in its portfolio by injecting equity.

Concerns for ITT include a lack of diversified assets, its concentration of assets in two locations, risk of contract rates declining when they come up for renewal and ownership by a financial institution designed to distribute dividends to common shareholders.

Adequate Liquidity: As of March 31, 2015, ITT has $28 million of cash on the balance and $3 million drawn on the prior credit facility. Since then, ITT has put in place a new senior unsecured five-year credit facility. The new $600 million revolver extends through May 2020. The facility allows for the U.S. borrower to draw up to $550 million and ITT's Canadian subsidiaries can borrow up to $50 million. In addition, there is a separate $509 million bond purchase facility in place to back its tax-exempt bonds. There are no debt maturities until $325 million of private placement notes are due in 2025.

The bank facility does not allow leverage to exceed 5.0x. The covenant increases to 5.5x for two consecutive quarters if an acquisition of $50 million or more is made in one quarter or if acquisitions total $100 million or more in a 12-month period. ITT's bank facility gives pro forma EBITDA credit for material projects and acquisitions. Fitch forecasts that ITT will generate credit ratios which provide it with sufficient covenant cushion for the bank agreement.

Stable Cash Flows: Over the last eight years, ITT's storage assets have operated at utilization rates which averaged 94% regardless of commodity prices. The average storage rate per barrel has consistently increased. This has allowed the company to generate stable cash flows. The company's environmental services business can be volatile and is largely dependent on the need to provide services for oil spills. Overall this is a small component of ITT's cash flows and is not capital intensive.

Leverage: As of March 31, 2015, the company's leverage was 3.3x. The leverage target for ITT is a range of 3.5x to 3.75x and Fitch believes this is an attainable goal.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--EBITDA margins are in the mid-50's, in line with margins seen over the last few years;

--MIC follows through with its long-term target of leverage at ITT in the range of 3.5x to 3.75x;

--Regardless of EBITDA generated by ITT, MIC would manage dividends so that ITT remains in the targeted leverage;

--No assumptions are made for acquisitions and if ITT does become acquisitive, Fitch projects that management would protect the balance sheet.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Favorable rating action appears unlikely in the near term given lack of diverse assets;

--If size and scope of operations were increased and more diversified, positive rating action could occur if leverage was between 3.5-3.75x over a sustained period of time.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--EBITDA deterioration which could result from an unfavorable recontracting rate environment;

--Increases in capital spending or acquisitions which adversely impact the balance sheet and increase leverage;

--Actual or anticipated leverage in the range of 4.0-4.5x for a sustained period of time without increased diversity;

--Unforeseen changes in the dividend policy which result in credit deterioration.

Relevant Rating Committee Date: May 20, 2015

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'2015 Outlook: Crude Oil and Refined Products Pipelines (Positioned to Withstand Lower Commodity Prices)' (December 2014);

--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter 2014' (December 2014);

--'MLP End Game (Common Goals - Divergent Strategies) (November 2014);

--'What Investors Want to Know: Pipelines, Midstream and MLPs' (October 2014);

--'Midstream Spending Significantly Rising for MLPs and C-Corps' (August 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014)';

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985216

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150522005487/en/

Fitch Ratings
Primary Analyst/Lead Surveillance Analyst
Kathleen Connelly
Director
+1-212-908-0290
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Charles J. LaPorta, CFA
Director
+1-212-612-7856
or
Committee Chairperson
Bob Curran
Managing Director
+1-212-908-0515
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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