Stonepeak Taurus Lower Holdings, better known by its business name of Trac Intermodal, now has a negative outlook from a key ratings agency even as the chassis provider’s corporate debt rating was affirmed.
Moody’s on Monday reduced the outlook on Trac to negative, but its B2 corporate family rating was held steady. The rating had been Stable.
A B2 rating is five notches below the cutoff between investment-grade and non-investment-grade debt. Moody’s describes a B2 rating as “subject to high credit risk.”
Concurrently, a negative outlook means there is an increased chance of a rating downgrade in the medium term, according to the company’s definitions.
A spokesman for Trac declined to comment on the Moody’s report.
A B2 rating at Moody’s (NYSE: MCO) is considered equivalent to a B rating at S&P Global Ratings (NYSE: SPGI). S&P has had a B rating on Stonepeak/Trac since early 2022, and its outlook is stable. The Moody’s B2 rating also has been in place since January 2022.
Stonepeak/Trac is privately-owned, so the debt rating commentary by Moody’s gives a rare albeit limited look at Trac’s finances. The reports by rating agencies do not reveal profit and loss or revenue data but do look at the company’s financial health relative to its debt load.
Trac was described by Moody’s as a company that has “high financial leverage, weak interest coverage, modest expected free cash flow and a history of large shareholder distributions.” Stonepeak, a private equity company with investments in logistics and energy among other sectors, acquired Trac in 2020.
Trac’s leverage is running at about six times earnings before interest, taxes, depreciation and amortization. That number is expected to remain high, Moody’s said, “as lower chassis utilization constrains earnings and limits cash flow available to reduce debt.”
“Despite strong container import volumes into the U.S. during 2024, TRAC’s operating performance has weakened as lower chassis dwell times have reduced utilization,” Moody’s said in its report. “We expect chassis usage to modestly improve in 2025, but uncertainty around tariffs poses a risk to import volume growth.”
That point about dwell time came up a second time in the report. As U.S. container imports rose in the first nine months of the year – Moody’s estimates that growth at 15% – “TRAC’s revenue has declined as lower dwell times have more than offset any volume or pricing increases,” the ratings agency said.
Chassis utilization is expected to rise this year, but with the uncertainty surrounding tariffs, Moody’s said, “we expect TRAC’s operating performance to only modestly improve in 2025.”
In the next 12-18 months, Moody’s said, Trac is expected to “operate with adequate liquidity.” During that period, it is expected to have a cash balance of between $5 million and $10 million and will be positive free cash flow in 2025 “as earnings modestly improve and capital expenditures for refurbishments and upgrades remain moderate.”
Manufacturing deal comes in for some skepticism
One area of Trac’s business that appears to be falling short to some degree is its 2022 decision to spur domestic chassis manufacturing by agreeing to offtake new output from a joint venture with LB Steel and Integrated Industries. The two companies build chassis domestically that are then purchased by TRAC.
“TRAC’s reentry efforts into the domestic chassis market segment, which we viewed as beneficial to the company’s growth and business diversification, lag our prior expectations,” Moody’s said.
“We expect the company to remain competitive in this segment. However, we do not expect significant domestic fleet expansion in the near term as this would require additional financial resources.”
The overall B2 rating “reflects the company’s position as one of the largest providers of chassis to the intermodal transportation industry,” Moody’s said. Trac also has a “strong operating margin.”
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