Shortline operator Patriot Rail, the business-facing name of NA Rail, is going to the debt markets for refinancing, prompting all three ratings agencies to weigh in on its issue.
Three ratings on the same issue and company at the same issue is unusual. Companies often are satisfied with one or maybe two. But all three were published this week.
The debt issue in question is a $440 million offering to pay down existing debt, pay a dividend to shareholders and cover transaction fees. The ratings agencies also took into account Patriot’s plan to substitute a $40 million senior secured revolving credit facility with a five-year, $50 million senior secured RCF.
Ratings analyses published by Moody’s (NYSE: MCO), Fitch Ratings and S&P Global Ratings (NYSE: SPGI) normally do not include information such as revenue or income for privately owned companies. But the Moody’s report pegged Patriot Rail’s revenue at $198 million in 2024. S&P S&P said it expects Patriot Rail’s revenue to grow 4% to 6% this year.
The agencies’ ratings of NA Rail stretched out over three notches. What S&P calls its Long Term Issuer rating was set at B-, affirming its existing rating. Moody’s was the equivalent of one notch higher at B2 on its Corporate Family Rating – also an affirmation.
Fitch was the highest at B+ for its Issuer Default Rating. That was a first-time rating on Patriot Rail from Fitch.
There was an unusual divergence on the rating of the actual debt issue. Fitch gave a notably higher rating of BB, three notches above the B2 rating from Moody’s and four above the B- from S&P. When a borrower is rated by multiple ratings agencies, the ratings tend to be equivalent or at most one notch apart.
All the ratings are deep in non-investment-grade territory.
Patriot Rail’s website lists 31 individual shortline railroads owned by the company. The bulk of them are in the Midwest. A map of the company’s operations can be found here.
Moody’s described Patriot Rail’s revenue “scale” as “modest,” featuring some level of concentration in moving packaging and paper. It also said Patriot has less competition with intermodal railroads, so it is less exposed to truckload competition.
In a disclosure about its finances, Moody’s said Patriot has a “strong” operating margin that it expects to remain above 25%.
Fitch said it expects that free cash flow will be in the high-single-digit to low-double-digit range, which equates to about $15 million to $30 million.
Fitch described Patriot’s network as “established” and “geographically diverse.” As well as noting its “limited exposure” to intermodal competition, and by extension trucking, Fitch said Patriot’s traffic is “domestic-focused” and has “moderate customer and end market concentration relative to other operators.” Fitch said Patriot had “operational and cash flow risk profiles to be more consistent with the BB category,” a possible reason why its rating was the highest among the three agencies for the actual debt issue.
