DBRS Upgrades the Issuer Rating of CNH Industrial N.V. to BBB (low), Changes Trend to Stable

DBRS Limited (DBRS) upgraded the Issuer Rating of CNH Industrial N.V. (CNH or the Company) to BBB (low) from BB (high) and changed the trend to Stable from Positive. The upgrade recognizes the Company’s stable business profile and strengthened financial risk profile, which is now solidly in the BBB rating range. Additionally, DBRS anticipates CNH’s operating results will continue to improve, albeit modestly, supported by positive conditions in most of its key markets over the next few years. DBRS expects the Company’s financial profile to remain within the current rating range and support a stable rating for the foreseeable future.

CNH reported steady improvement in operating results through 2017, reversing a declining trend. DBRS recognized the improvement in CNH’s financial profile and changed the trend on the rating to Positive from Stable (See press release dated November 28, 2017, for details). Additionally, DBRS stated that the rating could be upgraded to BBB (low) if the Company demonstrates that the improvement in operating results and financial profile is sustainable over the next six to 12 months. Since the last rating action, CNH has maintained its improving trend. In Q1 2018, all business segments reported much stronger operating results versus the same prior period; higher volume sales, positive pricing and benefits from cost-reduction initiatives led to the increase despite higher material costs and the negative impact from foreign exchange. Additionally, CNH paid off the EUR 853 million of high coupon debt that matured in March 2018 with cash on hand. The stronger operating results and a lower debt level boosted all key credit metrics (as defined by DBRS) to well within the BBB rating range. The improvement in the Company’s financial profile has exceeded DBRS expectations. Furthermore, CNH expects the positive market conditions to persist through 2018 and has increased modestly its guidance on net sales to $28 billion from between $27 billion and $28 billion, and adjusted diluted earnings per share (as defined by CNH) from $0.62 to $0.67 per share to $0.65 to $0.67 per share.

DBRS anticipates supportive conditions in most key markets (business segments and sales regions) through 2018 and operating results at CNH to continue to improve modestly. However, growing trade tensions between the United States and its key trading partners, especially China, are a concern, and further escalation of trade actions among the world’s large economies could impede or even reverse the positive momentum in the global economy and weigh on CNH’s performance. Nevertheless, DBRS notes that the Company’s wide geographic footprint and its significant presence in Europe and South America should help moderate the impact of any trade actions between China and the United States, and CNH’s financial profile has a modest cushion enabling it to absorb some deterioration during a downturn and remain acceptable for the current rating. Furthermore, CNH could strengthen its financial profile by repaying the EUR 547 million debt maturing in March 2019 with cash and be in a better position to weather a sharp deterioration in its markets caused by unexpectedly significant trade disputes. DBRS would consider taking negative rating actions if CNH’s financial profile weakened to the BB range over an extended period.

DBRS notes that the above press release was amended on November 19, 2018, to remove an unnecessary disclosure. The amendment was minor and would not impact the understanding of the reader.

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

The principal methodologies are Rating Companies in the Industrial Products Industry (February 2018) and Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2017), which can be found on dbrs.com under Methodologies.

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

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

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