DBRS Confirms Rating on CNH Industrial N.V. at BBB (low) with Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating on CNH Industrial N.V. (CNHI or the Company) at BBB (low) with a Stable trend. The confirmation reflects that CNHI has performed in line with DBRS’s expectations and that the Company’s credit profile remains commensurate with the current rating. DBRS anticipates that CNHI will face headwinds in 2019, such as a slowing global economy caused by heightened trade tension between China and the United States. Nevertheless, DBRS notes that CNHI’s financial profile, which is at the high end of the current rating range, has some cushion to absorb a deterioration in its operating performance; therefore, DBRS expects the Company’s rating to remain stable, despite challenging market conditions in the near term.

CNHI has a diversified business portfolio. The Company’s overall business risk assessment (BRA), which is a combination of its four industrial businesses – Agricultural Equipment (AG), Construction Equipment (CE), Commercial and Specialty Vehicles (CV) and Powertrain (PT) – is within the current rating range. AG is CNHI’s largest business and is among the global leaders in the sector. AG’s BRA is much better than the other three businesses and is the key supporting the overall BRA. Furthermore, business diversification, a wide geographical footprint and improving operating efficiency from executing the World Class Manufacturing program all contribute to maintaining CNHI’s business profile at the current level for the foreseeable future.

Operating performance at CNHI has been improving since 2016 with all business segments reporting a modest increase in net sales and profits. More importantly, the Company has actively deleveraged its balance sheet, boosting all key credit metrics to the high end of the current rating range in 2018. DBRS notes that the recent impasse in the China-U.S. trade negotiation and the tit-for-tat tariff actions have weighed on the global economy and the U.S. farm sector in particular. Nevertheless, DBRS anticipates that the two countries will arrive at an agreement by the end of 2019 or mid-2020, at the latest, prompted by the grave consequences of a prolonged conflict on their respective economies. Under this scenario, DBRS expects continued, albeit modest, improvement in CNHI’s operating performance over the next few years.

However, DBRS would consider taking negative rating actions if CNHI’s key credit metrics weaken dramatically, although not anticipated, such as the adjusted debt-to-EBITDA (as defined by DBRS) weakening to nearly 3.5 times (x) on a sustained basis from 2.08x in 2018. Conversely, DBRS may consider taking positive rating actions if the Company’s financial profile strengthens to near the low end of the “A” rating range on a sustained basis.

Notes:
The principal methodologies are Rating Companies in the Industrial Products Industry (February 2019) and Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2018), 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.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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