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