Fitch Expects to Rate Ryder's Senior Unsecured Debt 'A-'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings expects to assign a rating of 'A-' to the four-year and 10-month, $300 million senior unsecured debt issued by Ryder System, Inc. (Ryder). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS AND SENIOR DEBT

The expected rating reflects that the debt is expected to rank pari passu with all other senior unsecured debt issued by Ryder. The equalization of the expected rating with Ryder's Long-Term Issuer Default Rating (IDR) reflects the predominately unsecured funding profile and unencumbered asset coverage available to senior unsecured noteholders.

Fitch does not believe there will be a material impact to Ryder's leverage resulting from the issuance, as proceeds will be used to refinance debt maturities and for general corporate purposes. Therefore, the expected issuance has no impact to Ryder's IDR or Stable Outlook. Ryder's leverage, as measured by managed debt to equity, was 2.63x as of Sept. 30, 2016 and within management's articulated leverage target of between 2.25x and 2.75x. For leasing companies, Fitch also focuses on tangible balance sheet leverage, which subtracts from equity, goodwill and intangibles. On this basis, leverage amounted to 3.32x as of Sept. 30, 2016 and consistent with the current rating category.

Ryder's ratings were affirmed with a Stable Outlook following Fitch's fleet leasing peer review in October 2016. The ratings are supported by the company's established market position in the truck leasing business, growing market share in the logistics and supply chain solutions (SCS) business, good asset quality, relatively consistent operating performance through various cycles, appropriate leverage, solid liquidity and a largely unsecured funding profile.

Rating constraints specific to Ryder include the company's pension obligation, which can have an impact on balance sheet leverage, and customer concentrations in the SCS segment. Rating constraints applicable to the broader truck leasing sector include cyclicality inherent in used vehicle pricing and the commercial rental business and potential impact on business trends.

The Stable Rating Outlook reflects Fitch's expectation for continued economic access to the capital markets through various market cycles, limited sensitivity to rising interest rates, strong liquidity, appropriate leverage, and continued earnings growth over the Outlook horizon, driven by growth in full-service lease and contract maintenance revenue, as well as increase penetration in the supply chain outsourcing business.

RATING SENSITIVITIES

IDRS AND SENIOR DEBT

The expected rating assigned to the senior unsecured notes is equalized with Ryder's IDR, and therefore would be expected to change as a result of a change to Ryder's IDR. In addition, a material increase in secured funding and/or a material reduction in unencumbered assets could result in notching between Ryder's IDR and unsecured debt.

Fitch believes positive rating actions are limited over the medium term. However, positive rating momentum could develop over the longer term from greater revenue diversification, stronger liquidity, and lower tangible balance sheet leverage.

Conversely, negative rating actions could be driven by an increase in tangible balance sheet leverage resulting from a decline in earnings and/or free cash flow beyond Fitch's expectations, or a substantial pension charge which inflates leverage meaningfully beyond the targeted range for an extended period. In addition, deterioration in the firm's competitive position, weaker asset quality metrics, an inability to realize residual values on used vehicles, a material increase in non-earning vehicles, and/or a decline in liquidity could also result in negative rating actions.

Established in 1933 and headquartered in Miami, FL, Ryder is one of the world's largest providers of highway transportation services. The company's stock is listed on the NYSE under the ticket 'R'.

Fitch assigns the following expected rating:

Ryder System, Inc.

--Senior unsecured debt 'A-(EXP)'.

Fitch currently rates the following:

Ryder System, Inc.

--Long-Term IDR 'A-';

--Short-Term IDR 'F2';

--Commercial paper 'F2';

--Senior unsecured debt 'A-'.

The Rating Outlook is Stable.

Fitch reviewed the ratings of Ryder System, Inc. on Oct. 11, 2016.

Date of Relevant Committee: Oct. 10, 2016.

Summary of Financial Statement Adjustments: Fitch has made no adjustments that are not disclosed within the company's public filings.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016)

https://www.fitchratings.com/site/re/884128

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014128

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings, Inc.
Primary Analyst
Johann Juan
Director
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Fitch Ratings, Inc.
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Chicago, IL 60602
or
Secondary Analyst
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or
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Managing Director
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or
Media Relations
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[email protected]

Source: Fitch Ratings

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