Fitch Ratings’ newly published peer report on the European equipment leasing sector follows its recent review of the companies under its coverage: Ashtead Group plc (upgraded to BBB/Stable), Boels Topholding B.V. (affirmed at BB-/Stable), Ren10 Holding AB (Renta; B+/Stable) and European modular space lessor BCP V Modular Services Holdings III Limited (BCP; B/Stable).

The sector has expanded significantly in the past decade as more end-users choose the flexibility of renting equipment over owning it, a trend Fitch expects to continue amid users’ post-pandemic cash-flow pressures. Fitch expects eurozone real GDP growth of 3% in 2022, and equipment-leasing companies stand to benefit from construction projects deferred in 2020–2021.

Rating differentials principally reflect Fitch’s assessment of the issuers’ business profiles and leverage, which Fitch considers primarily on a gross-debt-to-EBITDA basis, in view of the cash flow-driven nature of operations. Leverage reduced during the pandemic, as issuers lowered their CAPEX – and therefore their debt usage – to conserve liquidity, while solid utilisation rates from already-held equipment supported earnings. Supply-chain issues have slowed the pace at which lessors have been able to grow their fleets again, but have also boosted the value of used equipment sold into secondary markets.

As part of Fitch’s peer review, Ashtead was upgraded to ‘BBB’/Stable from ‘BBB-’/Stable. The upgrade was primarily driven by the strength of Ashtead’s trading performance over the course of the pandemic, which led Fitch to reassess the breadth and resilience of its business model. Consistent EBITDA generation due to the disruption of the pandemic and the popularity of the leasing business model together underpin the Stable Outlooks on all rated issuers, despite current inflationary pressures.