Moody’s Investors Service last week downgraded Sunstate Equipment Rental’s corporate family and probability of default ratings to B2 from B1. Moody’s also downgraded Sunstate’s 10.5 percent senior second lien notes due 2013 to Caa1 LGD 5 from B3 LGD 5.

Moody’s said the downgrades reflect the company’s small size, regional concentration and deterioration in operating performance that began in the second half of 2007 with weakening construction markets in the Southwestern United States.

However, Moody’s said, despite the soft operating outlook, Sunstate has a good liquidity profile. Also management plans significantly reduced fleet spending in 2008 and 2009 to address the lower expected equipment utilization rates. Moody’s said its rating outlook reflects concern that the weak construction markets impacting Sunstate will likely continue into 2009, making it difficult for the company to generate enough free cash flow to reduce leverage in 2008 and 2009.

Based in Phoenix, Sunstate is No. 12 on the new RER 100.