KBRA Publishes Atlas Corp.’s Issuer Rating of BB+, Stable

KBRA publishes the BB+ issuer rating assigned to Atlas Corp. (“Atlas” or the “Company”). The Outlook for the rating is Stable. On September 23, 2022, Kroll Bond Rating Agency (“KBRA”) initially assigned an unpublished BB+ issuer rating to Atlas Corp. with a Stable Outlook.

Key Credit Considerations

The rating reflects Atlas’s strong business risk management and the positions of its key operating subsidiaries (Seaspan Corporation and APR Energy which account for 89% and 11%, respectively, of adjusted EBITDA). In the absence of material debt obligations at the holding company level, the issuer rating for Atlas is aligned with the Seaspan issuer rating of BB+. The rating reflects the quality assets in those companies along with the amount of unencumbered assets.

As Atlas’s main operating subsidiary, Seaspan has demonstrated strong and consistent performance and financial metrics. The company has maintained stable profitability in the past few years and improved its liquidity to approximately $801 million as of 1Q22 from $320 million as of FY2020, driven by increases in undrawn credit lines and unrestricted cash proceeds from debt issuances. Seaspan’s operating net debt-to-EBITDA leverage improved to 3.9x as of 1Q22 from 4.7x as of 1Q21 excluding vessels under construction. This level compares favorably to other large ticket leasing companies.

Seaspan’s rating also reflects its leading market position in containership leasing, seasoned management team and stable capital base with strategic long-term shareholders. Seaspan’s fleet represents over 13% market share by TEU, which provides economies of scale that help to drive strong operating profit and cost efficiency. Approximately 90% of Seaspan’s revenue is generated through time charters. Seaspan maintains long-standing working relationships with leading liner companies, of which seven (COSCO, Yang Ming, ONE, CMA CGM, MSC, Hapag-Lloyd, and Maersk) control nearly 85% of the container shipping market. This concentrated customer profile inherent in the industry provides Seaspan with stable revenue from world leading liner companies, but also highlights the importance of maintaining these relationships and elevates the potential risk of reliance on them. To mitigate risk, Seaspan pursues long-term time charters over short-term rates and staggers charter maturities. It also benefits from having diversified its management team by adding individuals with experience from operational, investment, and asset leasing fields outside of the shipping industry.

The favorable operating environment for container shipping is expected to continue at least in the near term with a moderation of growth in the medium and long term. Throughout the pandemic, Seaspan has maintained stability in its operations with vessel utilization remaining above 99% and all customers current on payments with many customers having signed new or extended charters.

APR Energy is a leader in fast-power solutions. It owns and operates the largest full turnkey mobile aeroderivative turbine fleet in the world along with a number of legacy smaller diesel generators. Leverage numbers are conservative with $108mm term loan and a $54mm subordinated shareholder loan with Atlas versus $107mm 2022 estimated adjusted EBITDA and Q1 2022 total assets of approximately $830mm in assets. Utilization is also expected to improve from 50% with the movement towards the larger and more environmentally sustainable aeroderivative turbines and away from the legacy diesel generators. While the financial metrics are improving in terms of leverage and liquidity, APR represents a small part of the total Atlas Corp. operating subsidiaries’ revenue. As of April 2022, APR has completely exited from the Argentina market and has also undertaken its first project in Brazil. The exit from Argentina opens up a significant number of turbines that will be able to be deployed more profitably.

Rating Sensitivities

The rating of Atlas Corp. has a Stable Outlook; therefore, a rating upgrade in the near future is not expected. Atlas’s issuer rating, in the absence of significant debt at the holding company level, is closely tied to the rating of Seaspan as most consolidated earnings come from Seaspan. A future stand-alone debt issuance at the Atlas level could be notched lower than the issuer rating depending on any structural subordination and its mitigants. Significant growth of APR Energy or deterioration of its financial metrics could change the overall balance of operating subsidiaries and impact Atlas Corp.’s issuer rating at the holding company level. Seaspan’s demonstrated stability of earnings metrics over time (particularly post new-build absorption), maintenance of lower leverage levels, further diversification of funding, and significant increase in unencumbered assets could lead to an upgrade. A sustained downturn in global trade which leads to financial stress of a large customer without explicit government backing, decline in utilization rate or charter rates, such that earnings or leverage metrics materially deteriorate, or a decrease in unencumbered assets could lead to a downgrade of Seaspan. Changes in policies at the Atlas holding company level such that the operating companies’ capital or liquidity position could be impacted could also lead to negative rating pressure.

The ratings are based on KBRA’s Finance Company Global Rating Methodology, published on November 28, 2017 and KBRA’s ESG Global Rating Methodology, published on June 16, 2021.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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