Fitch Affirms Caterpillar and Caterpillar Financial at 'A'; Outlook Stable
KEY RATING DRIVERS
The ratings for CAT consider CFSC on an equity basis. The ratings incorporate CAT's global presence, competitive market positions in construction and mining machinery, broad product line, diverse customer base, and an established and well-capitalized independent dealer network. CAT has a high level of financial flexibility and is capable of generating strong free cash flow (FCF). These factors are important in coping with highly cyclical end markets and supporting the company's Financial Products business which primarily includes CFSC.
Fitch estimates debt/EBITDA could increase to around 1.5x or slightly higher by the end of 2015 compared to nearly 1.4x at the end of 2014 and 1.0x as recently as 2012. Fitch views the increased level as weak for the ratings. The increase reflects the impact of an extended downturn in CAT's key mining equipment market and the negative impact of low oil prices on the company's construction equipment and engine and turbine businesses. A temporary period of relatively weak credit metrics related to cyclicality in these markets is incorporated in the ratings, and Fitch expects CAT will reduce costs and manage debt levels to support solid metrics over the long term, including debt/EBITDA below 1.5x.
FCF in 2014 was higher than expected by Fitch due to a further decline in working capital requirements and to lower capital expenditures which have dropped by approximately half during the past two years. In 2015, Fitch estimates FCF, excluding dividends received from CFSC, will decline to a range of \\$600 million - \\$700 million, compared to \\$3.7 billion in 2014. The anticipated decline is due to the impact of lower sales volumes and margins projected in 2015 as well as higher dividend payments, partly offset by additional inventory reductions, lower restructuring costs, and slightly lower pension contributions. Fitch also assumes capital expenditures will increase modestly in 2015 from a low level, although CAT currently expects capital spending to be unchanged in 2015.
FCF would be higher when including dividends from CAT's Financial Products business which Fitch classifies as investing cash flows. These dividends totaled \\$470 million in 2014 and could be at least as much in 2015. FCF as defined by Fitch also excludes changes in receivables sold to CFSC.
Rating concerns center on large payments to shareholders including share repurchases and dividends. The company repurchased \\$4.2 billion of shares in 2014 and had approximately \\$7.5 billion of remaining capacity at the end of the year on its existing repurchase program. Repurchases were largely funded from high FCF associated with lower working capital requirements and a \\$1.2 billion net increase in debt in 2014. Fitch believes share repurchases will be substantially lower in 2015 as FCF declines, and that CAT will have financial capacity to reduce debt slightly.
Other rating concerns involve legal and tax matters. The IRS has proposed taxes and penalties totaling approximately \\$1 billion for the 2007-2009 period which could possibly be followed by increases for subsequent periods. The IRS's proposed adjustment relates to profits at a CAT subsidiary in Switzerland. The amount of an eventual resolution is uncertain and the process could be lengthy which would allow CAT to generate additional cash flow to help fund any required payments. There are also investigations into conduct at CAT's Progress Rail business regarding business practices and potential violations of environmental laws that could result in penalties or fines.
CAT's revenue declined in each of the past two years and could decline in 2015 by high single digits. The extended downturn is longer than usual and is related to a confluence of several trends including low prices for commodities that affect demand for CAT's mining equipment, slow construction activity outside the U.S., and the negative impact of low oil prices on orders for CAT's engines and for construction equipment in oil-producing regions. Anticipated declines in inventories at CAT and its dealers during 2015 will pressure near term results but should position the company to boost production when demand recovers.
Fitch expects margins will be substantially lower in 2015 across all segments due to lower sales volumes, partly offset by lower restructuring charges. CAT estimates it will incur restructuring charges of approximately \\$150 million in 2015, down from \\$441 million in 2014 that were primarily related to workforce reductions in Europe. CAT could realize incremental savings from restructuring of around \\$100 million in 2015.
CAT's liquidity (excluding CFSC) at Dec. 31, 2014, as calculated by Fitch, totaled \\$8.7 billion, including cash of \\$6.3 billion, and credit facility availability of approximately \\$2.9 billion, offset by \\$510 million of current maturities of long-term debt and \\$9 million of short-term debt. CAT estimates much of its overseas cash would be available for use in the U.S. without incurring significant U.S. taxes. Long-term debt is well-distributed, with annual maturities not exceeding \\$900 million during the next five years. Other cash requirements include pension contributions that CAT estimates at \\$190 million in 2015, down from \\$520 million in 2014. At the end of 2014, pension plans were underfunded by \\$4.4 billion (79% funded).
Credit facility availability of \\$2.9 billion is the internal allocation of CAT's consolidated \\$10.5 billion facilities to the equipment business. CAT can revise the allocation of these facilities between CFSC and its equipment businesses at any time. The facilities consist of a \\$3.15 billion 364-day facility that expires in September 2015, a \\$2.73 billion facility that expires in September 2017, and a \\$4.62 billion facility that expires in September 2019.
Under intercompany agreements, as of Dec. 31, 2014, CAT may borrow up to \\$1.29 billion from CFSC (\\$414 million outstanding) and CFSC may borrow up to \\$2.31 billion from CAT (\\$1.1 billion outstanding) on a short-term basis. In addition, CFSC provides a \\$2 billion committed credit facility to CAT which expires in 2019.
CFSC also purchases, at discount, dealer and customer receivables from CAT. Outstanding receivables balances purchased by CFSC totaled nearly \\$3.2 billion at Dec. 31, 2014. Fitch classifies changes in these amounts as financing cash flows at CAT's manufacturing business.
CATERPILLAR FINANCIAL SERVICES CORPORATION
CFSC's ratings are equalized with CAT's ratings, reflecting Fitch's view of CFSC as a core subsidiary of CAT based on the 100% ownership, shared brand name, importance of CFSC to achieving CAT's strategic objectives and the Support Agreement between the two entities. The Support Agreement requires CAT to maintain 100% ownership of CFSC, maintain CFSC's net worth at not less than \\$20 million, and maintain CFSC's fixed-charge coverage at not less than 1.15x or higher on an annual basis.
Beyond these support-driven considerations, Fitch also considers CSFC's solid operating performance and very strong asset quality performance counterbalanced by elevated leverage levels relative to stand-alone finance companies, but consistent with similarly rated captive finance peers, as well as its reliance on wholesale funding sources.
CFSC's operating performance remained solid in 2014, after hitting lows in 2009 when weak global economic conditions contributed to an increase in credit costs and lower origination volumes. Revenues increased by \\$100 million to \\$2.89 billion in 2014 compared to 2013, while pre-tax profits improved by \\$59 million to \\$753 million over the same time period. Top line revenues benefitted from portfolio growth, modestly offset by lower financing rates. New retail financing volume declined modestly to \\$12.68 billion in 2014, or 3% from 2013, driven by lower volume in Mining and Asia, partially offset by increases in North America.
Asset quality performance has remained relatively stable, with delinquencies (30+ days) of 2.17% of receivables at Dec. 31, 2014, compared to 2.47% a year ago. Full-year net write-offs were 0.35% of the average annual retail portfolio in 2014, compared to 0.46% in 2013. As a result of portfolio growth over the last several years, Fitch expects receivable seasoning will yield some modest asset quality deterioration over time, but not at levels seen during the last economic downturn.
CFSC's balance sheet leverage, which is calculated by Fitch as debt-to-tangible equity, is expected to be within CFSC's historical range of 7.0x-8.0x as of Dec. 31, 2014, which is consistent with captive finance peers but higher than many stand-alone finance companies. Fitch does not anticipate any significant changes in CFSC's overall capital structure. Should funding requirements increase, Fitch believes CAT would inject additional capital into the finance arm, as necessary, to manage CFSC's overall leverage profile.
CFSC relies on the global debt capital markets and various bank funding programs to provide liquidity for its operations, as well as support from CAT. The company's ability to consistently access the global capital markets demonstrates the strength of CAT's brand and franchise. Fitch believes CFSC's comprehensive funding platform, in combination with the financial strength of its parent, is consistent with other captive finance companies.
KEY RATING DRIVERS - Caterpillar Financial Australia Limited (CFAL), Caterpillar International Finance Limited (CIF) and Caterpillar Finance Corporation (CFC)
CFAL, CIF and CFC are wholly-owned subsidiaries of CFSC. The ratings of the subsidiaries reflect the unconditional and irrevocable guarantee provided by CFSC for full repayment of obligations under the subsidiaries' various borrowing facilities. The guarantee is viewed as the strongest form of parental support, which in Fitch's view, enhances the rating linkages between CFSC and its subsidiaries. As a result, the IDRs and issue ratings of the subsidiaries are linked to those of CFSC.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Caterpillar Inc. include:
--Cyclical downturn continues through 2015 in CAT's mining, energy, and international construction equipment markets; a significant recovery does not occur until 2017 or later.
--EBITDA margins decline by approximately 100 basis points (bps) due to lower volumes, partly offset by restructuring.
--FCF declines well below \\$1 billion as a result of weaker operating results and a smaller positive impact from lower working capital requirements.
--Cash deployment is directed toward modest share repurchases and debt reduction.
--Any cash impact from proposed tax increases and penalties by the IRS do not occur before 2016.
--CAT maintains its market share through the current industry downturn.
RATING SENSITIVITIES
Caterpillar Inc.
The ratings or Outlook could be negatively affected if:
--Weak operating cash flow or high cash expenditures contribute to materially higher leverage, including debt/EBITDA consistently above 1.5x. Fitch expects debt/EBITDA will typically remain near 1.25x or below, and funds from operations (FFO) adjusted leverage will be near a range of 2.0x or below, except during periods of cyclical weakness;
--Market share declines materially in key product lines or geographic regions;
--Margins remain permanently lower after end market demand improves;
--CAT experiences poor execution on its operating strategies including restructuring and inventory and supply chain management.
Cyclicality in CAT's machinery markets limits the potential for a positive rating action. However, developments that Fitch would view as positive for CAT's credit profile include:
--An increase in the company's geographic and product diversification and in the proportion of relatively stable parts and services revenue;
--Meaningful market share growth in emerging markets;
--Lower peak financial leverage during down-cycles (debt/EBITDA well below 1.5x) and stronger FCF through the business cycle;
--Effective product development.
CFSC and Designated Subsidiaries
Positive rating momentum would be limited by Fitch's view of CAT's credit profile, as CFSC's ratings and Outlook are linked to that of its parent. Fitch cannot envision a scenario where the captive would be rated higher than its parent.
Conversely, negative rating actions for CFSC could be driven by a change in the perceived relationship between CAT and CFSC. For example, if Fitch believed that CFSC had become less core to CAT's strategic operations and/or adequate financial support was not provided to the captive finance company in a time of need. In addition, consistent operating losses, a material change in balance sheet leverage, and/or deterioration in the company's liquidity profile, any of which alters CFSC's perceived risk profile and/or requires the injection of regular financial support from CAT, could also drive negative rating actions.
The ratings cover approximately \\$10 billion of debt at CAT as of Dec. 31, 2014 and more than \\$29 billion of unsecured debt at CFSC, before considering intercompany loans.
RATINGS
Fitch has affirmed the following ratings:
Caterpillar Inc. (CAT)
--IDR at 'A';
--Senior unsecured bank credit facilities at 'A'.
--Senior unsecured notes at 'A';
--Short-term IDR at 'F1';
--Commercial paper (CP) at 'F1'.
Caterpillar Financial Services Corporation
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--Senior unsecured notes at 'A';
--Senior unsecured bank facilities at 'A';
--CP at 'F1'.
Caterpillar Financial Australia Limited
--Short-term IDR at 'F1';
--CP at 'F1'.
Caterpillar International Finance Limited
--Long-term IDR at 'A';
--Senior unsecured notes at 'A';
--Senior unsecured credit facilities at 'A'.
Caterpillar Finance Corporation
--Long-term IDR at 'A';
--Senior unsecured credit facilities at 'A'.
Комментарии