Morningstar last week announced it is initiating credit coverage of CNH Global with an issuer rating of BB-. The company is almost 90-percent owned by Fiat, which recently announced it would be splitting apart its industrial and automotive businesses.
“We will be monitoring this situation as it evolves over the course of the year but do not expect it to affect our rating,” Morningstar said. “Our rating reflects CNH's good positioning in certain markets but its inability to generate sustainable economic profits against the likes of competitors Deere and Caterpillar. Further, management has indicated that it does not specifically seek investment-grade ratings, as it often uses the asset-backed securities market to fund itself.”
CNH typically generates more than two thirds of its revenue from agricultural equipment and holds the second position in global market share, while its construction equipment business is a distant third behind Cat and Komatsu. High leverage and weak projected cash flows relative to obligations are driving Morningstar’s poor and very poor Cash Flow Cushion and Solvency Score, respectively, weighing on the ratings. CNH's finance subsidiary is also a rating negative, as this unit has been performing much worse than its primary competitors.