(The following statement was released by the rating agency)
Sept 10 - Demand for construction equipment rentals has grown significantly since 2010, and rental companies have increased their share of the overall equipment sales market. Standard & Poor's Ratings Services believes this may suggest that a structural shift could be occurring, since this share has increased consistently since 1990 through each successive phase of the construction market cycle. This shift could bring the market penetration of rental companies in the U.S. closer to what we see in other industrialized countries, according to a recently published report by Standard & Poor's. (Watch the related CreditMatters TV segment titled, "How Shifting Demand Is Affecting U.S. Construction Equipment Rental Companies," dated Sept. 10, 2012.)
"Generally, we measure rental market penetration by the amount of new equipment that rental companies buy compared with the total sales of new equipment," said credit analyst John Sico. "That figure has moved from about 35% in 2005, when the industry was in a similar phase in the cycle as it is now, to 50% currently," he said.
Equipment renting also appears to be taking up a larger share of overall nonresidential construction spending. While these measures are not totally comparable, the companies we rate generated higher rental revenue growth as compared with the growth in total nonresidential construction spending. The growth of rental revenues among the companies we rate has outpaced construction spending since 2009.
"Although we consider these factors when assigning or assessing our ratings on rental companies, they're unlikely to spur significant rating changes on their own," said Mr. Sico. For instance, we continue to closely monitor companies' capital spending and its impact on free cash flow and resulting leverage. "Nevertheless, an upward shift in demand for rental equipment is having a positive influence on the industry's credit quality," he said. (Caryn Trokie, New York Ratings Unit)