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Moody’s Upgrades Ritchie Bros’ CFR to Ba2; Outlook Stable

December 28, 2018, 07:12 AM
Filed Under: Auction News

Moody's Investors Service upgraded Ritchie Bros. Auctioneers Incorporated's (RBA) corporate family rating (CFR), its probability of default rating, its senior secured rating and its senior unsecured rating to Ba3 from B2. The speculative grade liquidity rating was affirmed. The ratings outlook remains stable.

"The upgrade of Ritchie Bros is driven by its debt reduction, its successful integration of IronPlanet and our expectation that the company will continue to generate free cash flow which will lead to further deleveraging of the company," said Jamie Koutsoukis, Moody's Vice President, Senior Analyst.


  • Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD
  • Corporate Family Rating, Upgraded to Ba2 from Ba3
  • Senior Secured Revolving Credit Facility, Upgraded to Ba1 (LGD3) from Ba2 (LGD3)
  • Senior Secured Delayed Draw Term Loan, Upgraded to Ba1 (LGD3) from Ba2 (LGD3)
  • Senior Unsecured Regular Bond/Debenture, Upgraded to Ba3 (LGD5) from B2 (LGD5)

Outlook Actions

  • Outlook, Remains Stable


  • Speculative Grade Liquidity Rating, Affirmed SGL-2

Ratings Rationale

RBA's (Ba2, stable) benefits from a leading position in industrial equipment auctions, in particular its core business of live unreserved auctions, good brand awareness and customer loyalty, and its exposure to multiple industry sectors for its auction products. The credit is also supported by expected deleveraging towards 2.5x by 2020 (adjusted debt to EBITDA of 3.1x at Q3/18), and continued free cash flow generation. The acquisition of IronPlanet (May 2017) enhances RBA's online industrial auction presence, which is expected to be a source of revenue growth.

RBA is constrained by its small revenue base and limited business diversity relative to many Ba2-rated service companies (median of $2.6 billion of revenues for rated Ba2 peers), the competitive and fragmented market place in which it operates and the cyclical nature of its business (revenue and profitability can fluctuate based on economic and construction activity).

RBA has good liquidity (SGL-2) based on a cash balance of $229 million at September 30, 2018, and $477 million available under its revolving credit facilities ($490 million committed, due Oct 2021). In 2019 we expect free cash flow (FCF) of about $65 million, which with available liquidity sources is ample to cover the approximately $14 million of term loan amortization payments due in the year. 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 anticipates adequate cushion under the financial covenants of the credit facilities.

The stable outlook reflects Moody's expectation that RBA will continue to see organic revenue growth particularly as it grows its online business and we expect that adjusted debt to EBITDA will fall below 3x and be maintained at that level.

The ratings could be upgraded if RBA is able to increase its scale and broaden and diversify its product offerings through its multi-channel strategy while demonstrating organic revenue, and cash flow growth. It would also require that leverage is maintained near 2x (3.1x at Q3/18) and FCF/debt is maintained above 15 percent (3.1 percent at Q3/18).

The ratings could be lowered if there is a deterioration in business fundamentals, evidenced by organic revenue or profitability declines, or a change in financial policy, such that debt to EBITDA (Moody's adjusted) is sustained above 3.25x (3.1x at Q3/18) and FCF/debt is maintained below 5 percent (3.1 percent at Q3/18).

Ritchie Bros. Auctioneers, headquartered in Vancouver, Canada, sells industrial equipment and other durable assets through its unreserved auctions, online marketplaces, listing services and private brokerage services. In 2017, the company sold $4.5 billion of equipment and other assets.

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