DBRS Confirms PACCAR at AA (low) and R-1 (middle), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating of PACCAR Inc at AA (low) and the Senior Unsecured Debt and Commercial Paper ratings of PACCAR Financial Ltd. (together with PACCAR Inc, PACCAR or the Company) at AA (low) and R-1 (middle), respectively. All trends are Stable. The confirmation of the ratings is supported by PACCAR’s robust business profile as a global premium truck manufacturer with a strong market position in North America and Europe, outstanding brand strength and superb operating efficiencies. The ratings also consider the Company’s solid financial risk profile and its exceedingly conservative financial policy.

PACCAR delivered solid operating performance in 2018 as expected, with revenues and operating profits, excluding financial services operations, surging 21.7% and 30.2% year over year (YOY), respectively. Truck deliveries grew 19.0% YOY to 189,100 units in 2018, primarily driven by strong demand in North America, while Europe and other regions also achieved moderate growth. PACCAR’s market share in Class 8 trucks in the United States and Canada remained firm at 29.4%, albeit slightly weaker than the 30.7% in 2017. The Company attained record market share of 16.6% in the over-16-tonne truck market in Europe (15.3% in 2017). In the medium-duty truck segment, PACCAR outperformed the industry in North America, whereas in Europe the deliveries were weaker than the previous year. Moreover, PACCAR continued to expand its aftermarket parts business, with revenues increasing 15.4% to reach a record $3.8 billion in 2018, mainly as a function of a higher population base of PACCAR trucks and engines in the market and good marketing efforts. Operating margins for the Company’s industrial operations improved to 10.8% in 2018 from 10.1% in 2017 due to higher price realizations from both trucks and aftermarket parts and slightly lower selling, general and administrative expense as a percentage of sales. PACCAR’s financial services also achieved good revenue and earnings growth, mainly as a function of higher average earning asset balances and higher interest rates.

The global truck industry is expected to continue to grow modestly in 2019. The Stable trends reflect DBRS’s expectation that PACCAR’s outstanding credit metrics will persist at their current levels for the medium to long term due to the Company’s extremely low leverage and conservative financial policy. Given that PACCAR’s ratings are already at a very high level compared with its peers, DBRS sees limited potential for a positive rating action in the medium term. Conversely, in the event of a severe industry downturn or a marked shift in the Company’s financial policy, there could be negative rating implications, although DBRS believes that to be highly unlikely. DBRS notes that PACCAR’s strong balance sheet and liquidity position will allow the Company to withstand a meaningful deterioration in market demand.

DBRS notes that the above press release was amended on August 29, 2019, to add a disclosure necessary for European Union endorsement under the Notes section. 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 Automotive Manufacturing and Supplier Industries (October 2018), DBRS Criteria: Guarantees and Other Forms of Support (January 2019) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019), which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, DBRS used “Rating Companies in the Automotive Manufacturing and Supplier Industries” as the primary rating methodology in determining the rating of the parent company, PACCAR Inc. Subsequently, “DBRS Criteria: Guarantees and Other Forms of Support” was applied in determining the rating of PACCAR Financial Ltd., which benefits from a Keep Well Agreement from PACCAR Inc. The Keep Well Agreement, in combination with DBRS’s assessment of additional implicit support considerations, including (but not limited to) business, reputational and financial factors that are deemed likely to motivate a parent or affiliated company to support its subsidiary issuer, result in a flow-through of PACCAR Inc’s rating to PACCAR Financial Ltd. Lastly, DBRS used “DBRS Criteria: DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers” to determine PACCAR Financial Ltd.’s Commercial Paper rating.

The last rating action on this transaction took place on April 10, 2018, when the ratings of the Company were confirmed.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Cathy Cheng, Assistant Vice President, Industrials & Natural Resources
Rating Committee Chair: Charles Halam-Andres, Managing Director, Industrials & Natural Resources
Initial Rating Date: September 19, 2000

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada