Even as intermodal in recent years has shown steady growth or held earlier gains, the debt rating at chassis supplier TRAC Intermodal has been cut by Moody’s.
In an action taken late last month, Moody’s (NYSE: MCO) cut the corporate family rating rating on Stonepeak Taurus Lower Holdings LLC, which does business as TRAC Intermodal, to B3 from B2.
B3 is six notches below the cut line for investment grade versus non investment grade ratings. TRAC had been on a negative outlook for almost a year.
Meanwhile, S&P Global Ratings (NYSE: SPGI) has had a rating of B on TRAC since January 2022. But the S&P outlook on the company has been negative since the end of January, meaning conditions are in place that could lead to a downgrade. But there is no time limit on how long a company needs to be on a negative outlook before a ratings agency takes action.
The S&P Global B rating is considered one notch above B3 and was equivalent to the B2 rating that Stonepeak just vacated.
A relatively heavy debt load is one of the key reasons for the downgrade, according to Moody’s.
“The downgrade reflects our expectation that TRAC’s credit metrics will persist at weaker levels over the next several quarters,” the report said. “Notably, we anticipate the company’s debt/EBITDA will remain above 6x and EBIT/interest expense slightly below 1x.”
But it isn’t just debt alone. The interaction of that debt against what it sees as weak demand for its services is also a factor.
Flat container market predicted
“We expect US container import volumes, a large driver of TRAC’s operating performance, to be flat at best in 2026, which will constrain the company’s ability to meaningfully improve earnings and reduce leverage next year,” Moody’s said.
TRAC is a company with “high financial leverage, weak interest coverage and modest expected free cash flow,” Moody’s said in summing up the company’s financial position.
In a statement released to FreightWaves, TRAC did not mention the Moody’s action specifically. But it did discuss recent steps taken that should strengthen its finances.
The statement noted that on December 1, TRAC put through a general rate increase for its TRAC Connect product, the online portal that allows its users to secure capacity and manage TRAC assets a customer is utilizing.
“TRAC remains steadfast in its commitment to continually modernize and upgrade its chassis fleet—a dedication demonstrated by more than $1 billion invested over the last 10 years on new, refurbished and upgraded units,” the statement said. “Beyond fleet enhancements, the GRI addresses above inflation labor and land cost increases in key markets, and also supports and expands new initiatives designed to improve (customer) experience.”
Stonepeak equity is not publicly-traded, so reports of its debt rating are a limited way of getting a look at its finances.
Ratings agencies infrequently disclose such data as revenue or profitability in their reports. But Moody’s disclosed that TRAC had revenue of approximately $482 million in the 12 months ended September 30.
Moody’s said given volatility in import volumes, “TRAC’s revenue has declined by about 5% from lower chassis usage and lower rates in its chassis pools.”
Good liquidity profile
Other data in the Moody’s report said TRAC’s cash balance over the next 12-18 months will be between $5 million and $10 million. It expects positive free cash flow next year “as earnings modestly improve and capital expenditures for chassis reimbursements and upgrades remain moderate.”
Moody’s also said the company has at its disposal a more than $1 billion asset-based lending facility that won’t expire until 2030. That provides liquidity, and Moody’s said it expects TRAC “to maintain ample availability under this facility over the next 12 months.”
The new debt rating comes with a stable outlook, which means conditions are not in place for a likely downgrade or upgrade. Moody’s said the stable outlook “reflects our expectation for modest revenue and earnings growth over the next 12 months despite persisting softness in container import volumes.”
To get the debt rating back up, Moody’s said, the agency would look for a debt/EBITDA ratio below 5.5x, EBIT/interest expense above 1.25x and “consistently positive free cash flow.”
More articles by John Kingston
Why TRAC’s Florida East Coast Rwy. chassis deal matters for intermodal transport
Trucking credit metrics at BMO slide as the business gets smaller
Inside the Amazon-Teamsters showdown: What’s next?
The post Heavy debt load, flat container shipments lead Moody’s to cut TRAC rating appeared first on FreightWaves.
