UK: Rolling stock leasing companies’ business models, risk profiles and financial positions could be affected by the move to concessions for operating passenger train services under the Williams-Shapps Plan for Rail, according to Fitch Ratings.
‘The proposals do not imply any direct change for the role of ROSCOs in the sector or their private status, but several factors that will be important for lessors’ longer-term creditworthiness are yet to be clarified’, Fitch said on May 21.
‘These include the tenor of service contracts, details of how fleet will be tied to contracts, whether counterparties will be private or publicly backed, tendering and pricing mechanisms, and the pace of fleet renewal.’
Fitch’s assessment of the risk profile of ROSCOs is premised on business model stability, with long-term contracts providing high and stable utilisation, predictable cash flow and low residual value risk.
Fitch said it would assess the ratings impact of the proposed changes as more details emerged. Potentially negative credit implications could include shorter-term contracts and planning horizons, pressure on ROSCOs’ revenue, volatility of lease rates or utilisation, increased fleet re-leasing and cascading. Potential positive credit implications could include a decrease in re-leasing and utilisation risk if fleets are fixed for longer terms, counterparty risk if the government replaces private operators in leasing contracts, and concentration risk if counterparties remain private but grow in number.
