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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's confirms Ritchie Bros.' Ba2 CFR and assigns ratings to new debt; outlook stable

28 Feb 2023

Toronto, February 28, 2023 -- Moody's Investors Service ("Moody's") has confirmed Ritchie Bros. Auctioneers Incorporated's ("RBA") Ba2 corporate family rating (CFR), its Ba2-PD probability of default rating, and its Ba3 senior unsecured rating on its existing notes due 2025, which will be withdrawn once repaid. RBA's senior secured instrument rating on its bank credit facility has been downgraded to Ba2 from Ba1. RBA's speculative grade liquidity was changed to SGL-2 from SGL-1. The rating outlook was changed to stable from rating under review.

These actions conclude the review of RBA's ratings that was initiated on November 8, 2022, following RBA's announcement of an agreement to acquire IAA Inc. ("IAA", Ba3 stable) in a stock and cash transaction valued at $7.3 billion including the assumption of IAA's debt.

At the same time Moody's has assigned a Ba2 to RBA's new senior secured Term Loan A.  As well, a Ba2 has been assigned to Ritchie Bros. Holdings Inc. new $500 million senior secured notes due 2028 and a B1 to Ritchie Bros. Holdings Inc. new $800 million senior unsecured notes due 2031.  Both notes issued by Ritchie Bros. Holdings Inc. are guaranteed by RBA. The proceeds of the new debt instruments will be used to fund the acquisition, and refinance IAA's existing debt and RBA's senior unsecured notes due 2025.

The confirmation of the Ba2 CFR incorporates RBA's replacement of the committed bridge financing it had put in place for the IAA transaction removing near term financing risk, and Moody's expectation that adjusted debt to EBITDA is expected to peak at about 3.5x once the IAA acquisition closes and decrease thereafter in line with RBA's stated commitment to deleveraging following the transaction.

Confirmations:

..Issuer: Ritchie Bros. Auctioneers Incorporated

.... Corporate Family Rating, Confirmed at Ba2

.... Probability of Default Rating, Confirmed at Ba2-PD

.... Senior Unsecured Regular Bond/Debenture, Confirmed at Ba3 (LGD5)

Downgrades:

..Issuer: Ritchie Bros. Auctioneers Incorporated

....Senior Secured Bank Credit Facility, Downgraded to Ba2 (LGD3) from Ba1 (LGD3)

....Speculative Grade Liquidity Rating, Downgraded to SGL-2 from SGL-1

Assignments:

..Issuer: Ritchie Bros. Auctioneers Incorporated

....Senior Secured Bank Credit Facility, Assigned Ba2 (LGD3)

..Issuer: Ritchie Bros. Holdings Inc.

....Backed Senior Secured Regular Bond/Debenture, Assigned Ba2 (LGD3)

....Backed Senior Unsecured Regular Bond/Debenture, Assigned B1 (LGD5)

Outlook Actions:

..Issuer: Ritchie Bros. Auctioneers Incorporated

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Ritchie Bros. Holdings Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

The acquisition of IAA valued at $7.3 billion including the assumption of IAA's debt, is a cash and stock deal with RBA intending to fund the cash consideration of the transaction primarily with new debt. This will increase adjusted debt to EBITDA to 3.5x in 2023. Both RBA and IAA have consistently generated positive free cash flow in the past several years and Moody's expects RBA will use this to reduce debt over the medium term.

Providing an offset, the acquisition of IAA will provide diversification benefits with entry into the adjacent vehicle market and is expected to improve RBA's margin profile as the existing IAA business generates a higher margin than RBA. In addition, RBA has indicated it expects to achieve about $100 million in annual run-rate cost synergies by the end of 2025, driven primarily through consolidating back office, finance and technology, general and administrative, and operations.

RBA's Ba2 CFR benefits from: 1) a strong position in the industrial equipment auctions segment; 2) a multichannel strategy with strong online platforms; 3) a consistent history of generating free cash flow; and 4) exposure to multiple industry sectors and good growth potential. The rating is constrained by: 1) the expectation the company will continue to be active in pursuing acquisitions and its willingness to undertake debt funded transactions; and 2) its participation in a competitive and fragmented marketplace that has some cyclical pressures.

RBA has good liquidity (SGL-2) through to the end of 2023, with sources of liquidity of around $1.2 billion compared to uses of around $60 million. Sources include a cash balance of about $494 million at the end of 2022 (excluding restricted cash), unused capacity under its revolving credit facilities of $710 million (expiring September 2026) and Moody's expectation that RBA will generate roughly breakeven free cash flow in 2023. Uses of liquidity include about $60 million of lease payments.  The company has some seasonality (with Q1 generally having the strongest cash flow), but historically this has not resulted in the revolver being drawn for working capital needs. Moody's expects the company will have ample cushion under the financial covenants of its credit facilities.

The senior ranking security position of the  senior secured revolver, term loan and notes which account for the preponderance of the company's capital structure causes them to be rated Ba2, in line with the company's Ba2 CFR. The unsecured debt, rated B1, rank behind the secured debt and are therefore rated two notches below the corporate family rating.

The stable outlook reflects Moody's expectation that RBA will focus on debt reduction following the closing of the IAA acquisition, continue to see organic revenue growth and margins will remain relatively stable.  It also incorporates Moody's expectation that adjusted debt to EBITDA will remain below 3.5x.

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

The ratings could be upgraded if RBA successfully integrates its acquisition of IAA and is able to maintain its EBITA margin above 20% and continue to generate positive free cash flow.  It would also require that leverage is maintained near 2.5x and RCF/debt is maintained above 20%.

The ratings could be downgraded if business fundamental deteriorated, evidenced by organic revenue or profitability declines, or if debt to EBITDA (Moody's adjusted) is sustained above 3.5x and RCF/debt is maintained around 10%.

Ritchie Bros. Auctioneers Incorporated, headquartered in Vancouver, Canada, sells industrial equipment and other durable assets through its unreserved auctions, online marketplaces, listing services and private brokerage services.

The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Paresh Chari
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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