DBRS Confirms Toromont Industries Ratings at BBB (high) with Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debentures rating of Toromont Industries Ltd. (Toromont or the Company) at BBB (high) with Stable trends. The rating action reflects that the Company has performed as expected. Toromont reported improving performance in 2015 despite a severe downturn in the global mining industry that has weighed down the performance of most of Toromont’s Caterpillar dealer peers. Toromont has a strong financial profile with ample cushion to absorb any unexpected deterioration in its operating performance to remain compatible with the current rating. However, DBRS notes that the Company’s rating continues to be constrained by the limited geographical exposure of its main equipment business to within the assigned sales territories. Hence, DBRS expects the current rating to remain unchanged for the foreseeable future until the Company can meaningfully strengthen its business profile.

The severe downturn in the oil and gas and mining sectors has weighed on the results of Caterpillar Inc. (rated A and R-1 (low) by DBRS) and its dealers, but Toromont managed to report improved results. In its assigned territories, Toromont has a large exposure to gold mining, where activities remained active during the current commodity downturn. This is because domestic gold miners have been able to enjoy attractive realized gold prices in Canadian-dollar terms because of a weaker Canadian dollar. Moreover, Toromont has also benefited from good demand for construction equipment from ongoing infrastructure spending in Ontario and increased parts and services revenue from a growing installed base within its territories. The stronger U.S. dollar has also improved the competitiveness and profitability of CIMCO, Toromont’s refrigeration business, in the United States, which added to the overall performance improvement. However, lower utilization rate of rental equipment has affected performance, as customers have deferred, delayed or even cancelled projects to preserve capital during the current sharp downturn in mining. Nevertheless, overall performance reported modest gains in 2015 through Q1 2016. Toromont has a conservative financial policy and strong coverage metrics. Toromont refinanced its senior debentures in October 2015 with new notes maturing in September 2025 and carrying lower interest rates. The refinancing action has further strengthened its financial flexibility.

The Company has a stable business profile with a solid market position in its covered territories and is a leader in the refrigeration business in North America. The Company has also taken actions to grow its agricultural business, which remains modest. DBRS notes that the Company needs to strengthen its business profile to support positive rating actions.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Capital Goods Dealership Industry, which can be found on our website under Methodologies.