Pacific National Holdings Pty Ltd.

The stable outlook reflects our expectation that PN's strong competitive position in the Australian rail industry, planned transformation initiatives, and recent cash preservation to protect the balance sheet in the face of economic headwinds will result in credit metrics consistent with the current ratings. In addition, the outlook reflects our expectation that PN's free operating cash flow would remain positive and FFO-to-debt ratio would remain at 17%-19% over the next few years. The outlook also incorporates our belief that management will take steps to preserve the credit metrics in the event of materially worse or sustained economic weakness. This could occur through measures such as control on dividends, management of capex, or a combination of these. The rating could come

...Pacific National's disciplined approach to shareholder distributions to preserve cash and moderation of capital expenditure (capex) should maintain funds from operations (FFO) to debt at 17%-19% over the next few years. With its FFO-to-debt metrics having deteriorated to 18.7% in fiscal 2020, from 23.7% in fiscal 2019, Pacific National Holdings Pty Ltd (PN) is likely to continue to retain cash given the current uncertain operating environment attributable to the pandemic, similar to many other companies. We expect that the company will prudently manage its distributions subject to operating performance. We also continue to expect the company will actively manage capex over at least fiscal 2021. These factors should allow cash funding of capex, fairly steady debt levels, and mitigate a material decline in PN's credit metrics. The company's continued focus on transformation initiatives would relieve some stress on the metrics given the challenging operating environment. The extent of any...

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