Trane Technologies outlook revised to positive by Moody’s Ratings
Investing.com -- Moody’s Ratings has updated the ratings outlook for Trane Technologies plc (NYSE:TT) and its rated subsidiaries from stable to positive, while affirming the company’s A3 senior unsecured ratings. This change impacts Trane Technologies Global Holding Co. Ltd., Trane Technologies Company LLC, Trane Technologies Luxembourg Finance S.A., and Trane Technologies Financing Limited, all of which are direct or indirect subsidiaries of Trane Technologies. Furthermore, Trane Technologies’ long-term issuer rating was also affirmed at A3. The short-term commercial paper ratings of Trane Technologies Financing Limited and Trane Technologies Holdco Inc. were also affirmed at Prime-2.
The revision to a positive outlook is based on Moody’s expectation that Trane will maintain a robust credit profile, backed by an EBITDA margin of around 20% and strong cash generation. The ratings agency also anticipates the company’s debt-to-EBITDA ratio will remain under 2.0x over the next 12-18 months, barring any significant debt-funded acquisitions. Trane’s healthy bookings growth in 2024 and a high backlog of $6.75 billion offer a degree of revenue visibility. Furthermore, Moody’s expects Trane to continue a balanced financial policy, funding share repurchases from internal cash generation.
The rationale for Trane Technologies’ A3 senior unsecured ratings includes the company’s large revenue base, recognized brand, geographic diversity, and strong cash generation. Trane Technologies has a solid market position in the global heating, ventilation, and air conditioning (HVAC) equipment and services end market. Moody’s expects the company’s exposure to the commercial and residential HVAC markets, as well as transport refrigeration, to continue providing business diversity. The company’s strong liquidity and balanced capital allocation policy, with a debt/EBITDA ratio below 2.0x, also support Moody’s credit view.
However, Trane Technologies’ businesses are cyclical, especially its residential and transport refrigeration business. Moody’s believes the company’s residential HVAC business has largely normalized after the high demand following the COVID pandemic. The transport refrigeration business is expected to improve by year-end after a cyclical downturn. Despite facing continuous inflation and high interest rates, Trane Technologies is expected to counter these pressures with modestly positive pricing actions and increased operating leverage on a growing top-line driven by healthy demand.
Moody’s mentioned that an upgrade of the ratings could occur if Trane Technologies sustains its operating earnings improvement and strong cash generation, along with continued demonstration of a well-balanced financial policy with a debt/EBITDA ratio at or below 2.0x. On the other hand, a downgrade could happen if there is a decline in operating performance and cash flow, loss of end-market diversity, or more aggressive financial policies including large debt-financed acquisitions and/or shareholder returns that push the debt/EBITDA ratio towards 3.0x.
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