Moody's downgrades Brunswick Rail

Moody's Investors Service said it downgraded Brunswick Rail Ltd.'s corporate family rating to B1 from Ba3, its probability of default rating to B1-PD from Ba3-PD and the $600 million eurobonds issued by Brunswick Rail Finance Ltd. to B1 from Ba3. The outlook is negative.

The downgrade reflects Moody's view that Brunswick Rail's financial metrics, which have weakened beyond thresholds for the Ba3 rating, will not substantially recover over the next 12 to 18 months because of the persistently weak pricing environment in the company's core Russian market and the company's ambitious growth strategy, which effectively prioritizes fleet expansion over deleveraging.

The negative outlook reflects Moody's concern that further pricing pressure in a challenging macroeconomic environment could hurt Brunswick Rail's revenues and earnings.

In addition to the challenging market environment and weakened financial metrics, Brunswick Rail's rating reflects the company's small size on a global scale, its customer concentration, a degree of refinancing risk related to a sizable debt maturity in October and its overall exposure to an emerging market operating environment, the agency said.

More positively, Brunswick Rail's rating factors in the company's robust cash-generating business model, solid profitability, modern railcar fleet, $150 million preferred shares placement with EBRD and expansion capex flexibility, the agency said.

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