Morningstar DBRS Finalizes Provisional Credit Rating of BB (low) With Stable Trend on Cooper Equipment Rentals Limited's Long-Term Senior Debt

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of BB (low) with a Stable trend on Cooper Equipment Rentals Limited's (Cooper or the Company) Long-Term Senior Debt. This is one notch below the Long-Term Issuer Rating, reflecting Cooper's substantial balance sheet encumbrance, as the vast majority of assets are pledged under the Company's asset based credit facility (the ABL Facility).

On July 4, 2024, Cooper issued $250 million of 7.45% senior unsecured notes (the Notes) that mature on July 4, 2029. The Company intends to use the net proceeds to repay a portion of the ABL Facility and for the payment of a special dividend. The Notes will be effectively subordinated to all secured indebtedness, including the ABL Facility, to the extent of the value of the assets securing such indebtedness.

CREDIT RATING DRIVERS
Sustained improvement in financial performance along with a material increase in the scale of Cooper's franchise would lead to an upgrade of the Company's credit ratings. In addition, a sustained reduction in cash flow leverage would result in a credit ratings upgrade. The Long-Term Senior Debt credit rating would be equalized with the Long-Term Issuer Rating if asset encumbrance levels were reduced substantially.

Morningstar DBRS would downgrade the credit ratings if the Company's earnings deteriorate significantly or if cash flow leverage increases materially.

Franchise Building Block (BB) Assessment: Good/Moderate

Earnings Building Block (BB) Assessment: Moderate

Risk Building Block (BB) Assessment: Moderate

Funding and Liquidity Building Block (BB) Assessment: Weak/Very Weak

Capitalization Building Block (BB) Assessment: Moderate/Weak

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

Governance (G) Factors

The following Governance factor had a relevant effect on the credit analysis: Morningstar DBRS views the Corporate Governance factor as relevant to the credit ratings, but it does not affect the assigned credit ratings or trends. The Company is governed by a board of directors totaling five members, including two Cooper executives and three nonexecutive members who are founders and partners of SeaFort Capital Inc., the Company's majority shareholder. The lack of independent directors, as well as the absence of formal audit or risk committees, indicates a weaker corporate governance structure and is considered within the Franchise Strength and Risk Profile grid grades.

There were no Environmental/Social factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

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

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (April 15, 2024) https://dbrs.morningstar.com/research/431187. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at dbrs.morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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