DBRS Removes Ratings of Deere & Company from UR-Dev. and Confirms Its Long-Term Ratings at “A” and CP Ratings at R-1 (low), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Deere & Company (Deere or the Company) and its subsidiaries at “A” with a Stable trend following the Company’s December 1, 2017, statement that it has completed the acquisition of Wirtgen Group (Wirtgen), as announced on June 1, 2017. This confirmation reflects the fact that the Company completed the acquisition of Wirtgen as planned. DBRS expects that the adjusted debt-to-EBITDA ratio (as defined by DBRS) will fall below 2.0 times (x) over the next few years and thus is acceptable for an “A” rating. With this rating action, the long-term ratings of Deere and its subsidiaries are removed from Under Review with Developing Implications where they were placed on June 2, 2017. Furthermore, DBRS has confirmed the Commercial Paper ratings of all entities at R-1 (low) with a Stable trend based, in part, on Deere’s significant financial reserves.

DBRS notes that the acquisition of Wirtgen, a global leader in manufacturing road construction equipment, modestly strengthens Deere’s business profile. Wirtgen will diversify and enhance the scale of Deere’s construction equipment business. Wirtgen’s product portfolio is complementary to Deere’s existing construction equipment offering and establishes Deere as the global industry leader in road construction equipment. Additionally, Deere’s margins are expected to benefit from both Wirtgen’s higher-margin operations and synergies generated from combining the operations.

Deere’s operating performance in F2017 (year ended October 31) improved markedly from F2016. Even though the Company raised $1.0 billion to prefund the Wirtgen acquisition, DBRS estimated that the adjusted debt-to-EBITDA ratio (as defined by DBRS) in F2017 was about 2.00x (2.15x in F2016). In addition, in its fourth-quarter earnings release, Deere forecast stronger results in F2018, with equipment sales up by 22% on a year-over-year basis and net income at about $2.60 billion ($2.16 billion in 2017). Consequently, DBRS anticipates that the adjusted debt-to-EBITDA ratio and Deere’s financial risk profile will continue to strengthen in F2018 and remain compatible with the “A” ratings.

DBRS notes that Deere’s business profile remains at the “A” rating level despite modest improvement because of the Wirtgen acquisition. Hence Deere needs to significantly increase its key credit metrics and its financial profile to the high end of the “A” rating range through either strong improvement in operating results and/or debt reduction on a sustained basis for further positive rating actions. Conversely, a reversal of the current improvement in operating results and/or a meaningful increase in debt levels, which weakens the financial profile to the BBB rating range, on a sustained basis, could lead to negative rating actions.

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.

The principal methodologies are Rating Companies in the Industrial Products Industry, Global Methodology for Rating Finance Companies, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

The ratings of Deere & Company, John Deere Canada Funding Inc., John Deere Capital Corporation and John Deere Financial Inc. & John Deere Credit Inc. & John Deere Canada ULC are endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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