KBRA Affirms Atlas Corporation’s BB+ Issuer Rating

KBRA affirms the BB+ issuer rating of Atlas Corp. (Atlas, or the “Company”), a global asset management company based in Vancouver, BC, focused on assets in the maritime sector, energy sector and other infrastructure verticals. The rating Outlook is Stable.

Atlas’ issuer rating is primarily driven by the BB+ issuer rating of Atlas’ largest wholly-owned operating subsidiary, Seaspan Corporation (Seaspan), which accounts for the significant majority of Atlas’ consolidated business, balance sheet and earnings (representing 91% of consolidated Adjusted EBITDA in Fiscal Year 2022). Therefore, in the absence of material debt obligations at the Atlas holding company level, the rating is closely tied to the issuer rating of Seaspan. The rating also considers, to a lesser degree, Atlas’ smaller operating subsidiary, APR Energy (APR), which accounted for 9% of consolidated 2022 Adjusted EBITDA. The rating reflects the solid operating history, experienced management and diverse quality assets at Seaspan as well as at APR, in addition to Atlas’ diverse funding sources, solid liquidity profile and significant unencumbered assets. As of December 31, 2022 (FYE2022), Atlas had a low leverage level of 1.5x Debt-to-Equity and solid liquidity driven by strong operating cash flow and available credit lines at Seaspan.

Atlas’ largest operating subsidiary, Seaspan, has a leading market position in the global containership leasing industry, with its fully delivered fleet representing approximately 13% of the fully delivered leased global fleet by TEU count, stable cash flows generated through long-term charters, solid liquidity profile and diverse funding sources. As of FYE2022, Seaspan had 189 vessels in its fleet, including 58 newbuilds with full funding commitments delivering through December 2024. Seaspan’s customer base is diversified across the largest container liners, albeit with some customer concentration inherent in the consolidated liner industry. As of FYE2022, Seaspan has $18 billion of gross contracted cash flows on its charters with an average remaining length of 7.7 years on a TEU-weighted basis. KBRA views the solid contracted revenue base favorably as it provides revenue stability which helps to mitigate the historical cyclicality of the shipping industry.

Seaspan also demonstrates consistent operating performance and solid financial metrics through various market cycles and disruptions. It has maintained stability in its operations with a strong average vessel utilization of 99% since 2005, and a utilization of 98% during the Covid-19 pandemic. Seaspan has adequate liquidity supported by its strong operating cash flow generation, available credit lines and solid access to the capital markets. As of FYE2022, Seaspan had 38 unencumbered vessels with an NBV of $1.85 billion. Seaspan’s leverage has been stable at approximately 1.5x debt-to-equity over the past few years, which is consistent with the Company’s target level of 50-60% debt-to-tangible-assets. The ratings are constrained by the inherent high customer concentration in leading liner companies, the growing global fleet orderbook that poses future recharter risk, as well as the cyclical nature of the shipping industry.

APR Energy operates one of the largest full turnkey mobile aeroderivative turbine fleets in the world along with a small legacy exposure to diesel generators. Utilization decreased in 2022, primarily due to turbine contracts rolling off and smaller participation in the Mexico markets. At the end of 2022, APR completely exited from the unprofitable legacy Argentina market and undertook new contracts in Brazil and in the US. Utilization is expected to improve with the movement towards the larger and more environmentally sustainable aeroderivative turbines and away from the legacy diesel generators. While APR has had some earnings volatility historically, it represents a small part of Atlas’ consolidated operations so potential earnings volatility in this business is less material to the rating and mitigated by Seaspan’s relative stability.

Rating Sensitivities

The rating Outlook is Stable; therefore, a rating upgrade in the near future is not expected. Atlas’ issuer rating, in the absence of material debt at the Atlas holding company level, is closely tied to the rating of Seaspan as Seaspan represents most of Atlas’ consolidated balance sheet and earnings. A future stand-alone debt issuance at the Atlas holding company level could be notched lower than the issuer rating depending on structural subordination and mitigants. Significant growth of APR or deterioration of its financial metrics that materially impact Atlas’ credit profile and credit metrics could negatively impact the rating of Atlas. Seaspan’s demonstrated stability of earnings metrics over time (particularly post newbuild absorption), maintenance of lower leverage levels, further diversification of funding, and significant increase in unencumbered assets could lead to an upgrade. A sustained downturn in global trade which leads to financial stress of a large customer without explicit government backing, decline in utilization rate or charter rates, such that earnings or leverage metrics materially deteriorate, or a material decrease in unencumbered assets could lead to a downgrade. If the proportion of Atlas’ consolidated business represented by Seaspan declines significantly, this could negatively impact the rating. Changes in financial policies at the Atlas holding company level such that the operating companies’ capital or liquidity positions are impacted, could also lead to negative rating pressure.

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Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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