DBRS Assigns New Instrument and Recovery Ratings to RTL-Westcan

DBRS has today assigned an Issuer Rating of B (high) to RTL-Westcan Limited Partnership (RTL-Westcan or the Company) and a BB (low) rating to its Senior Secured Debt. The trends are Stable. Pursuant to DBRS’s leveraged finance rating methodology, a recovery rating of RR3 has been assigned to the Company’s Senior Secured Debt, which corresponds to the BB (low) rating. The Issuer Rating largely reflects RTL’s moderate-to-high business and financial risk profiles, mainly related to its high-leverage, cyclical truck hauling operations and modest scale, partly offset by its strong market positions and free cash flow generation.

RTL-Westcan is among the largest niche bulk commodity truck haulers in western Canada, with a top-three position in each of its core markets. The Company has a diversified mix of customers across several different end-markets, many of which are global leaders in their respective industries (with no customer accounting for more than 12% of sales). Fuel accounts for the largest share of RTL-Westcan’s hauling revenue, which provides a degree of stability relative to more seasonal commodities. The Company has also increased its exposure to end-markets that have complementary seasonal demand peaks, which helps to maintain utilization rates through the year. While the economic recession and subsequent drop in freight volumes contributed to materially lower sales and earnings in F2009, RTL-Westcan did manage to generate positive free cash flow. High depreciation, which is a function of the Company’s large owned fleet of tractors and trailers and is well above capex, was largely responsible for this free cash flow, and helps to reduce the impact of weak net earnings on cash flow generation.

RTL-Westcan’s operating results are sensitive to economic cycles, as indicated by the decline in F2009 operating results. The Company is highly exposed to conditions in western Canada; a sustained downturn in this region would have a negative impact on its financial profile. Volumes from the Company’s Hauling business (which accounts for the majority of consolidated sales), and activity in its Aircraft and Construction divisions, were materially lower over the past year, chiefly due to the recession and weaker commodity market conditions. The volatility in operating results adds financial risk, particularly given RTL-Westcan’s high leverage, modest scale and likelihood for future acquisitions. Including the recent purchase of ECL Transportation Ltd. and corresponding debt financing, DBRS expects debt-to-EBITDA at above 4.0 times and total debt-to-capital over 75% on a pro forma basis as of the end of F2009. The rating trend is Stable, as economic conditions appear to have stabilized and the Company is expected to use free cash flow toward debt repayment over the near term. Key risks to the ratings include weaker-than-expected economic conditions and large contract losses that could result from intensifying price competition, although this is not considered likely.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating Leveraged Finance, which can be found on our website under Methodologies, and an internal DBRS methodology on the transportation industry.

This is a Corporate rating.