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Rating Action:

Moody's downgrades Trinity Industries' ratings, senior unsecured and Corporate Family Rating to Ba2; outlook stable

07 Nov 2018

New York, November 07, 2018 -- Moody's Investors Service ("Moody's") downgraded the ratings of Trinity Industries, Inc. ("Trinity Industries"), including the Corporate Family Rating ("CFR") and senior unsecured rating to Ba2 from Ba1, and the Probability of Default Rating to Ba2-PD from Ba1-PD. Moody's also lowered the Speculative Grade Liquidity rating to SGL-3, from SGL-2. The ratings outlook is stable.

These actions follow the spin-off of substantially all of Trinity Industries' non-railcar manufacturing businesses and conclude the review that was initiated on December 12, 2017.

RATINGS RATIONALE

The ratings downgrade to Ba2 reflects the now more concentrated exposure to the demand for new railcars and railcar leasing, as well as the loss of earnings and cash flows from the non-railcar manufacturing businesses that are spun-off, without any reduction in debt. In addition, the separation occurs at a time of already elevated financial leverage due to the impact on earnings and cash flows of severely weakened demand across several of the company's business segments in the last two to three years. Given less diversified operations, Trinity Industries will be more heavily exposed to the very volatile demand for new railcars, notwithstanding the greater proportion of earnings and cash flows from the more predictable railcar leasing and fleet management services.

Moody's estimates EBITA margins of around 15% in 2019, benefiting from substantially lower costs related to the spin-off and highway guardrail litigation. Debt/EBTDA is less than 5.5 times at year-end 2019, in Moody's estimates, compared to 4.4 times as of September 30, 2018.

Liquidity is adequate (SGL-3). Trinity Industries' targeted cash balance of $100 to $200 million is modest considering that free cash flow is likely negative, even when calculated including proceeds from the sale of leased railcars. This is mitigated however by the $600 million revolving credit facility, the $750 million warehouse facility as well as by alternate liquidity in the form of unencumbered railcars, currently representing an estimated 50% of the company's total wholly-owned fleet.

The $400 million senior unsecured notes due 2024 are rated Ba2, the same level as the Corporate Family Rating. Given the absence of secured debt in the waterfall of Moody's Loss Given Default analysis (non-recourse debt is excluded pursuant to Moody's methodology) the rating on the senior unsecured notes equals the Corporate Family Rating.

The stable ratings outlook is predicated on Moody's view that the steep decline in demand for new railcars has halted and that the overcapacity in the rail industry's lease fleet is steadily declining.

The ratings could be upgraded if Trinity Industries materially increases the size of its rail leasing business relative to its manufacturing and other operations, while the funding of this expansion does not materially weaken the capital adequacy and liquidity of the leasing business. EBITA margins that are sustained comfortably above 15%, debt/EBITDA maintained within a range of 3 to 4 times and a cash balance of at least $200 million are also supportive of a ratings upgrade.

The ratings could be downgraded if Moody's expects that the funding of a rapid increase in the size of the rail leasing business would weaken the capital adequacy and liquidity of the leasing business, including as a result of a material increase in the proportion of secured debt. The ratings could also be downgraded if Moody's expects that EBITA margins will be sustained below 15%, and if debt/EBITDA is not maintained within 4 to 5 times. A significant and protracted weakening in the demand for new railcars would also pressure the ratings.

The following rating actions were taken:

Downgrades:

..Issuer: Trinity Industries, Inc.

.... Corporate Family Rating, Downgraded to Ba2 from Ba1

.... Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 (LGD4) from Ba1 (LGD3)

Outlook Actions:

..Issuer: Trinity Industries, Inc.

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

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Trinity Industries, Inc. manufactures freight and tank railcars and provides leasing, management and other railcar related services. In addition, the company manufactures highway products and provides logistics and transportation support services to industrial manufacturers. Revenues for the last 12 months ended June 30, 2018 were $2.4 billion, based on management estimates of financial performance of the business post spin-off.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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

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.

Rene Lipsch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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