Fitch cuts key long-term rating for Navistar
Fitch said its negative outlook for Navistar stems from worries about whether it will be able to continue shipping trucks during the transition period, which will require the use of a limited supply of emissions credits and the payment of non-conformance penalties.
The Associated Press
7/11/2012
CHICAGO — Fitch Ratings on Monday cut its long-term issuer default rating for Navistar International Corp. and its financing subsidiary to "B+" from "BB-," citing concerns about the heavy truck and engine maker's free cash flow and liquidity.
Fitch also cut its rating for Navistar's senior subordinated convertible debt to "B-" from "B'' and affirmed its rating for the company and financing subsidiary's senior unsecured debt at "BB-." The outlook is negative.
The changes push Navistar's ratings further into non-investment grade of "junk" territory.
The ratings service said it expects Navistar's free cash flow and liquidity to be lower than originally expected for the near to medium term, as a result of recently announced changes to its engine strategy.
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Navistar has struggled this year amid uncertainty about whether its Class 8 engine, which is used in the largest commercial trucks, will get Environmental Protection Agency approval.
The company said Friday that it was in talks with the EPA on a plan that will allow it to continue shipping trucks while it makes a transition to a new emission-reducing technology that will bring it into compliance with EPA requirements. The new technology is expected to be available beginning early next year.
Navistar, based in Lisle, Ill., didn't provide any financial details of the plan, except to say it will require more product development, resulting in additional short-term costs.
Fitch said its negative outlook for Navistar stems from worries about whether it will be able to continue shipping trucks during the transition period, which will require the use of a limited supply of emissions credits and the payment of non-conformance penalties.
The ratings service said it also has concerns about Navistar's low margins, large pension obligation and the execution risks related to the engine transition. It noted that the company's ratings could be downgraded again if warranty costs don't stabilize and eventually improve, or if free cash flow doesn't improve enough to keep Navistar's liquidity at a stable level.
Kevin Jones of The Trucker staff can be reached for comment at kevinj@thetrucker.com.
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