OREANDA-NEWS. Fitch Ratings says that Australia-based equipment lessor Emeco Holdings Limited's (Emeco; B+/Negative) acquisition of Rentco, one of Australia's largest lessors of road haulage trucks and trailers, provides some protection to Emeco's overall credit profile amid the slump in its core mining business. However, Fitch believes that the challenges Emeco faces over the next 24 months due to the prolonged mining industry downturn are more significant than any benefits from the Rentco acquisition.

Rentco has a broad exposure to several market sectors in Australia that typically track GDP growth cycles rather than the investment- and commodity cycles that Emeco's core mining business follow. Fitch estimates that Rentco's leverage is low, with net debt to EBITDA of 1.5x, which will benefit Emeco's consolidated financial profile. Rentco's debt does not include covenants that restrict its earnings and cash reserves from being paid out to Emeco if the need arose. Rentco's fleet includes about 1,500 trailers and 185 prime movers, as well as a nationwide network of depots that allow it to service its fairly young fleet efficiently.

On 13 March 2015, Emeco announced that it has entered into an agreement to acquire 100% of Rentco. The acquisition is based on an equity value of AUD53m, part of which will be paid up-front, another part will be paid over three years and the last part will be paid in shares. Rentco's shareholders could receive a further AUD23m over a span of three years if its management meets pre-agreed EBITDA targets. Fitch currently does not expect this additional AUD23m "earn-out" to be a drain on Emeco, as it will likely be funded via Rentco's own operating cash flows.