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Announcement:

Moody's affirms H&E Equipment's B1 CFR; outlook revised to stable

23 Mar 2011

Approximately $250 million of rated debt affected

New York, March 23, 2011 -- Moody's revised H&E Equipment Service, Inc.'s ("H&E") ratings outlook to stable from positive and affirmed all existing ratings including the B1 corporate family rating ("CFR").

The outlook action was taken to better align the outlook with underlying industry fundamentals as well as the company's credit metrics and financial policies. Although Moody's positive outlook had anticipated a decline in the company's metrics during the cyclical trough, metrics were weaker than had been anticipated. Consequently, it is still acknowledged that 2011-2012 could very likely see a meaningful improvement in the company's metrics but the improvement is expected to more solidly position the company in the B1 corporate family rating category rather than be reflective of higher ratings. In addition, the likelihood that U.S. non-residential construction activity will not improve meaningfully in 2011 from the 2009-2010 cyclical trough is one of the primary factors considered in the stable outlook as well.

Ratings affirmed with updated Loss Given Default assessments:

Corporate family rating at B1;

Probability of default rating at B1;

Existing $250 million 8.375% senior unsecured notes due 2016 B3 LGD5, to 80% from 81%.

H&E's corporate family rating of B1 incorporates the impact on credit metrics from the company operating in a highly cyclical industry supported by a conservative financial policy and moderate scale. The company's financial policy supports the rating as the company has adopted a conservative financial risk approach to a cyclical business evidenced by the company's historically low leverage for its B1 CFR. This has enabled H&E to weather the latest cyclical trough with a leverage metric that falls in line with similarly rated entities. Although EBITDA could improve if industry conditions stabilize and gradually improve during the 2011-2012 period, similar to other companies in the equipment rental industry, companies will likely be using improved cash from operations to pay for growth related capital expenditures resulting in negative free cash flow over the intermediate term.

H&E maintains a good liquidity profile and, in comparison to other equipment rental companies, has displayed good financial discipline. The financial discipline and good liquidity are a credit-positive. The results of these policies is that the company is expected to have sufficient financial resources to meet demand when activity in the industry accelerates. In addition, the company does not have any meaningful principal maturities of debt coming due until mid-2015 when the company's $320 million senior secured credit facility matures. The company was able to successfully amend and extend the revolving credit facility in mid-2010.

The stable outlook is based on the lack of any signs of a meaningful improvement in industry conditions during the intermediate term and Moody's view that H&E's credit metrics will again be supportive of its B1 credit profile as industry conditions gradually recover during 2011-2012.

Upward rating movement would depend on expectation that H&E could achieve EBITA to total assets of 12% or higher with EBIT to interest greater than 2.0 times.

Downward pressure on the ratings could occur if the company's liquidity profile were to weaken, the company would be unable to consistently generate positive free cash flow, debt/EBITDA were to be sustained above 4.3x, or if the company were to put cash flow from deferred capital spending toward shareholder rewards.

Moody's last rating action on H&E occurred on February 22, 2010 when the B1 corporate family rating was affirmed and the outlook changed to positive. For more information please refer to the credit opinion on moodys.com. The principal methodology used in rating H&E was Global Equipment & Automobile Rental Industry published in December 2010, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating H&E can also be found in the Rating Methodologies sub-directory on Moody's website.

H&E is a multi-regional equipment rental company with over 60 locations throughout the West Coast, Intermountain, Southwest, Gulf Coast, Mid-Atlantic, and Southeast regions of the United States. H&E has over 16,270 pieces of equipment having an original acquisition cost of approximately $685.1 million at December 31, 2010. The company is a distributor for JLG, Gehl, Genie Industries (Terex), Komatsu, Bobcat, and Manitowoc.

New York
Jadijhe (Gigi) Adamo
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms H&E Equipment's B1 CFR; outlook revised to stable
No Related Data.
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