hard · Corporate Credit Analysis
Solaris Energy is an investment-grade utility with an EBITDA of $500M and a total debt of $2,000M (4.0x leverage). Peak-to-Trough Ltd is a cyclical steel manufacturer with the same EBITDA and leverage.
Why might Solaris Energy be rated BBB+ while Peak-to-Trough is rated BB-?
- The steel manufacturer's higher ROIC makes the debt more dangerous to hold
- The steel industry inherently has a lower LGD than the utility sector
- Utilities are always rated investment grade regardless of leverage ratios
- Solaris Energy has lower business risk due to predictable demand and regulated cash flows
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