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Rating Action:

Moody's affirms Algeco's B2 corporate family rating and senior backed secured debt ratings; outlook remains stable

29 Jun 2020

London, 29 June 2020 -- Moody's Investors Service ("Moody's") has today affirmed Algeco Investments B.V.'s (Algeco's) B2 corporate family rating (CFR). Concurrently, the rating agency affirmed the B2 rating for the EUR685 million 6.5% fixed rate backed senior secured notes, the B2 rating for the EUR190 million backed senior secured floating rate notes, and the B2 rating for the USD520 million 8.0% backed senior secured fixed rate notes, all issued by Algeco Global Finance PLC. The rating for the USD305 million 10.0% backed senior unsecured fixed rate notes issued by Algeco Global Finance 2 Plc was affirmed at Caa1. The outlook on the issuers remains stable.

The affirmations of the B2 senior secured debt ratings and the Caa1 senior unsecured debt rating reflect Algeco's B2 CFR and the results of Moody's Loss Given Default for Speculative-Grade Companies methodology (LGD model) and the priorities of claims and asset coverage in the company's capital stack.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Moody's affirmation of Algeco's B2 CFR reflects the resilience of the company's overall credit profile despite the deteriorating operating environment from the rapid and widening spread of the Covid-19 (Coronavirus) outbreak. The revenues of a lessor such as Algeco, focused on providing modular space, secure portable storage solutions and remote workforce accommodation management provides flexibility against the economic challenges related to the Coronavirus. This is due to (i) the average two year maturity of contracts and most with clients who have strong credit profiles - with the rental fees being honoured, or covered by credit insurance coverage in the event of non-payment, (ii) the flexibility and mobility of their units which can be adapted to changing customers' needs -- especially to meet the potential surge in demand from public authorities and the health care sector, as well as other segments that require additional capacity in order to adhere to social distancing guidance, and (iii) Algeco's share in Target Hospitality Corp accounting for 12% of tangible assets at the end of March 2020, discretionary high capital expenditure on fleet growth investments and contingency cash held outside the restricted group provides additional financial flexibility to the company.

The B2 CFR reflects Moody's expectation that (i) weak bottom line performance weighed down by the impact of numerous acquisitions, will improve toward a more positive steady state pro-forma return on assets and interest coverage; (ii) high gross leverage will gradually improve to 6x over the next 24 months from 7x at the end of 2019; (iii) Algeco will maintain a moderate level of on-balance sheet liquidity, and (iv) expected improvement in free cash flow as earnings from recent acquisitions and cost savings generate increasing returns. Algeco has a high reliance on secured debt resulting in high levels of asset encumbrance but has low near-term refinancing risk with no substantial debt maturities until 2023. Furthermore, Moody's expects the current high level of cash holdings to decline to a more moderate steady state level.

Furthermore, the B2 CFR takes into account Moody's view of the operating environment of Algeco, including the agency's view on the modular space lessor industry. Moody's view the overall sector as having low barriers to entry, with limited pricing power of individual firms operating within the sector. Nevertheless, because Algeco is the largest incumbent by some distance in most markets in which it operates, and no competitor has a similar geographic presence, the rating agency accounts for this franchise strength across a diversified geographic footprint in the CFR.

The affirmation of the debt ratings also takes into account Moody's LGD model by assessing the priorities of claims and asset coverage in Algeco's liability structure. Moody's rates the senior secured debt in line with the B2 CFR owing to the debt being secured on a first lien basis by all shares in material subsidiaries in Germany and France, as well as bank accounts of Algeco and certain other subsidiaries. The senior secured note holders also have a second lien claim behind Algeco's ABL facility creditors on assets in Australia, New Zealand, and the United Kingdom. The Caa1 backed senior unsecured debt rating reflects that the senior unsecured creditors are subordinated to secured creditors and the rating agency expects limited recovery on this debt class in the event of default.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's view that Algeco's financial performance will improve over the outlook period; however, the rating agency expects that Algeco's standalone credit profile will remain in line with that of its B2 CFR over the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Currently there is not upward pressure on the ratings given the high rate of acquisitions and associated investments. Moody's could upgrade Algeco's CFR, over medium term, if Algeco (i) stabilizes its profitability metrics, with return on assets consistently above 3% and EBITDA / interest expenses above 3x and improves its cashflow generation; (ii) deleverages so that debt / EBITDA is maintained below 4x ; and/or (iii) improves its liquidity profile with lower secured debt reliance and higher cashflow generation relative to its outstanding debt. An upgrade to the CFR would likely result in an upgrade to all ratings.

Conversely, Moody's could downgrade Algeco's CFR if the company (i) were unable to improve its cash flow generation; (ii) fails to deliver sustainable profitability; and/or (iii) is unable to deleverage, maintaining gross leverage above 6.5x for a prolonged time while consuming its cash balances.

Moody's could also change the debt ratings if there are material changes to the liability structure that increase or decrease expected recoveries in a default scenario.

LIST OF AFFECTED RATINGS

..Issuer: Algeco Global Finance 2 Plc

Affirmations:

....Backed Senior Unsecured, Affirmed Caa1

Outlook Actions:

....Outlook, Remains Stable

..Issuer: Algeco Global Finance PLC

Affirmations:

....Backed Senior Secured, Affirmed B2

Outlook Actions:

....Outlook, Remains Stable

..Issuer: Algeco Investments B.V.

Affirmations:

.... Long-term Corporate Family Rating , Affirmed B2

Outlook Actions:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Arif Bekiroglu
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S.

To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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