DBRS Confirms CNH Industrial N.V. at BB (high), Trend Changed to Positive

DBRS Limited (DBRS) confirmed the Issuer Rating of CNH Industrial N.V. (CNHI or the Company) at BB (high) and changed the trend to Positive from Stable. The change in trend recognizes that the Company’s overall credit profile has improved, as evidenced by its strengthening financial profile. The positive trend also reflects DBRS’s view that, even though the Company’s operating results have only been strengthening over the past year, the rating could be upgraded by one notch to BBB (low) if the Company continues to demonstrate that the current improvement in operating results and the resultant financial profile is sustainable over the next six to 12 months.

The strength of the agricultural equipment business (AE) continues to be the primary factor supporting the Company’s investment-grade business profile. Recent progress in boosting profitability of the commercial vehicles business (CV) and expanding the external customer base of the powertrain business (PT) adds to CNHI’s business strength. Growing contributions from CV and PT lessen the reliance on AE, strengthening the overall resilience of CNHI’s business model. However, the weak performance in the construction equipment business (CE) remains a concern.

CNHI reported stronger than anticipated operating results in the last twelve months ended September 30, 2017, despite still-challenging conditions in its AE. Stronger EBITDA and cash flow from operations, coupled with debt reductions during the last few years, have strengthened all key debt coverage ratios (as defined by DBRS) and the resultant financial profile. Additionally, PT has also made better than expected progress in increasing margins and expanding sales to external customers. These positives are partially offset by the fact that the agricultural equipment market, especially in the NAFTA region, the largest market in the world, has been in decline since 2014. DBRS notes that market conditions in NAFTA appear to be stabilizing and AE is well-positioned to benefit from such recovery in that sector.

DBRS does not expect the Company to make any meaningful debt reduction in the next few years. Hence, the Company needs to maintain its operating performance at current levels to support a financial profile in the BBB rating range. DBRS could upgrade the Issuer Rating by one notch to BBB (low) if the Company can demonstrate the current improvement in its operating results is sustainable on a go-forward basis. Conversely, if the Company’s financial profile weakens and falls back to the 2016 levels, the trend could return to Stable.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Industrial Products Industry and Rating Companies in the Automotive Manufacturing and Supplier Industries, which can be found on dbrs.com under Methodologies.

The rated entity did initially participate in the rating process. DBRS had access to the accounts and other relevant documents of the rated entity.

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