Nordic Credit Rating (NCR) said today that it had assigned a 'AA-' long-term issuer rating to Sweden-based AB Transitio, a provider and manager of passenger railway rolling stock. The outlook is stable. An 'N1' short-term rating was also assigned.
Rating rationale
The long-term rating reflects Transitio's heavily regulated financial and commercial relationship with its owners, which are its sole customers. The company is jointly owned by 20 Swedish counties, which have significant financial capacity to honour their commitments. According to a shareholder agreement, all debt maturities, costs, and loss exposures are guaranteed by the county (or counties) using the company's services. We see the guarantees extended by the owners as irrevocable, unconditional, and timely, broadly aligning the company's financial strength with that of its owners. The rating further reflects the company's insulated competitive position and the high barriers to entry in the Swedish passenger rolling stock leasing market. It is also supported by the company's long average debt maturity of 11.6 years and low refinancing risk.
The rating is constrained by Transitio's limited size and diversity. The company owns about one-fourth of the regional railway rolling stock in Sweden, which limits its geographic diversity, and is notably smaller than its European peers. Transitio has minimal book equity as a not-for-profit entity, which results in comparatively high leverage in comparison with its peers. Conversely, the not-for-profit policy allows for full pass through of all interest and operating costs to its owners. Guarantees from the owners ensure stability and support the company's overall financial risk profile.
The rating reflects our expectations that potential debt issues will have similar guarantees to those on Transitio's existing loans, given the structure of the company's shareholder and leasing agreements. We would likely rate such instruments one notch above the issuer rating, at 'AA'. We expect the company to receive support from its owners, should any of the owner counties encounter financial trouble, even though not all debt is cross guaranteed.
Stable outlook
The outlook is stable, reflecting our expectations that Transitio's risk profile will remain strong thanks to the extensive shareholder guarantees and the company's increasing importance for fulfilling the political targets of its owners. The long-term planning structure of Swedish railways contributes to stability and predictability of operations. The outlook incorporates our view that the company's owners will remain as the sole customers and that the guarantee structure will remain unchanged.
We could raise the rating to reflect a reintroduction of cross-county guarantees and substantially higher utilisation by owners, significantly increasing the scale of operations.
We could lower the rating to reflect any changes in the ownership profile or a decline in credit quality among the combined owner pool. We could also lower the rating due to any change in financial and/or operational guarantees.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | AA- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N1 |
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.