TEXT-S&P raises Sunstate Equipment to 'B'

Wed Jan 9, 2013 10:19am EST

Overview
     -- U.S.-based Sunstate Equipment Co. LLC's credit ratios are improving as 
the construction equipment rental industry continues to improve.
     -- We are upgrading Sunstate to 'B' from 'B-' and raising the secured 
debt rating by one notch to 'B-' from 'CCC+'.
     -- At the same time we are placing all ratings on CreditWatch with 
positive implications because we expect the company to sustain credit metrics 
over the next 12 months. To resolve the CreditWatch we will evaluate the level 
of the new owners' support and strategic plans.

Rating Action
On Jan. 9, 2013, Standard & Poor's Ratings Services raised its long-term 
corporate credit rating on Phoenix, Ariz.-based Sunstate Equipment Co. LLC by 
one notch to 'B', and raised the secured debt rating one notch to 'B-'. At the 
same time we are placing all ratings on CreditWatch with positive 
implications. Sumitomo Corp. (A/Stable/A-1), through its wholly owned 
subsidiary SMS International Corp., has increased its stake in Sunstate to 80% 
from 35%. 

Rationale
The upgrade reflects improvement in Sunstate's credit metrics, which exceed 
ratios compatible with the prior rating. Conditions in the equipment rental 
sector continue to improve relative to construction spending, and we expect 
Sunstate's operating performance to continue to show improvement.

The ratings on Sunstate reflect our assessment of the company's "weak" 
business risk profile. The company is a regional operator in the highly 
fragmented and competitive construction equipment rental industry. The ratings 
also reflect its limited diversity, capital-intensive equipment purchases, 
high leverage, and, up to now, somewhat limited financial flexibility. 
Sunstate's good regional presence in the southwestern U.S., focus on customer 
service, and good EBITDA margin temper its weaknesses. 

CreditWatch
While we expect Sunstate will sustain credit metrics over the next 12 months, 
we will evaluate the level of the new majority owner's support and their 
strategic plans. We believe any tender for the existing bonds exercised 
because of change-of-control provisions would be accommodated, and do not 
believe that any amount that may be tendered poses a threat to credit.

Related Criteria And Research
     -- Summary: Sunstate Equipment Co. LLC, Dec. 18, 2012
     -- Is There A Structural Shift In The Demand For Construction Equipment 
Rentals?, Sept. 12, 2012
     -- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Raised; CreditWatch Action
                                   To                  From
Sunstate Equipment Co. LLC
 Corporate credit rating           B/Watch Pos/--      B-/Pos/--
 Senior secured                    B-/Watch Pos        CCC+
  Recovery rating                  5

Sunstate Equipment Co. Inc.
 Senior secured                    B-/Watch Pos        CCC+
  Recovery rating                  5


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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