DBRS Confirms CNH Global and Case New Holland at BBB (low)

DBRS has today confirmed the Senior Unsecured Debt ratings of CNH Global N.V. and Case New Holland Inc. (collectively, CNH or the Company) at BBB (low). The confirmation follows the change in the Company’s ownership from Fiat S.p.A. (Fiat) to Fiat Industrial S.p.A. (Fiat Industrial) as a result of the demerger of the Fiat group. With the demerger, all of the Company’s financing arrangements (i.e., debt and participation in cash management pools) with Fiat treasury subsidiaries were repaid or assigned to Fiat Industrial. With respect to the new parent company, DBRS considers Fiat Industrial’s ownership to be neutral to the Company’s ratings; noting that as CNH continues to be 11% held by public shareholders, it remains unlikely that the Company would dividend substantial funds to Fiat Industrial. The ratings reflect CNH’s sound business profile given its position among the global leaders in agricultural equipment in addition to being a major construction equipment manufacturer.

The confirmation also incorporates the solid balance sheet of the Company’s industrial operations (after certain adjustments, outlined below) and sound liquidity position, with access to capital markets being readily re-established over the past couple of years. The trend of the ratings is Stable, in line with DBRS’s opinion that the Company’s performance should continue to track positively as conditions across most of the Company’s end markets are expected to improve over the near- to medium-term. With this rating action, CNH’s ratings have been removed from Under Review with Developing Implications, where they were placed on July 22, 2010.

DBRS notes that the Company’s revenues and earnings improved significantly in 2010 (albeit remaining below historically high levels prior to the global economic downturn). The stronger performance incorporates higher volumes amid improving industry conditions in both Agricultural Equipment (which represents the significant majority of industrial revenues), and Construction Equipment (although volumes of the latter still remain substantially below historical norms, reflecting ongoing depressed residential construction levels in the important U.S. market). CNH’s competitive position has been holding firm as global market share remained constant in both industrial segments.

DBRS recognizes that CNH’s current coverage-based credit measures may seem at the lower end of the range commensurate with the ratings (although this partly reflects industry conditions that, despite some recent improvement, remain lacklustre). However, the Company’s balance sheet is solid. While total indebtedness and gross debt-to-total capitalization appear significant, DBRS notes that the Equipment Operations (i.e., the combined operations of the Agricultural Equipment and Construction Equipment divisions) borrow substantial amounts for the financial services segment; such sums are effectively set off in the form of inter-segment notes receivables. Additionally, CNH sources debt from its parent, Fiat Industrial; however, this is currently more than offset by CNH deposits in Fiat Industrial’s cash management pools. After adjusting for these two items, DBRS observes that leverage of the Equipment Operations is modest, with total adjusted debt-to-total capitalization amounting to 18.2% as of March 31, 2011; as of the same date, taking into account all cash balances, the Equipment Operations had a substantial net cash position of $1.9 billion.

DBRS notes that the Company’s liquidity has been significantly bolstered after being somewhat impeded in 2008 through early 2009 by the global financial crisis. While the asset-backed securities (ABS) market still remains a key component of CNH’s funding strategy, access to that market has been effectively restored. DBRS also notes that the Company successfully tapped public capital markets to repay most of its debt sourced with former parent Fiat (in addition to refinancing other debt obligations). As of March 31, 2011, the Company had approximately $8.9 billion (excluding inter-segment notes receivable) in cash, cash equivalents and available credit.

DBRS expects the Company’s results to continue improving in 2011, in line with an assumed ongoing recovery in both Agricultural Equipment and Construction Equipment. Performance is likely to be further bolstered by CNH’s broad product range (including many new/refreshed models) and its increasing geographic diversification, with a growing presence in key emerging markets. Furthermore, the long-term fundamentals of the dominant Agricultural Equipment segment remain very positive; growing population and wealth worldwide effectively necessitate higher crop production, which in turn supports stronger demand for agricultural equipment.

DBRS expects the ratings to remain constant over the near- to medium-term. However, in the event that the Company’s forecasted performance improvement does not meet expectations and coverage-based credit measures are adversely impacted, this could result in negative rating implications.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating the Industrial Products Industry, which can be found on our website under Methodologies.