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Rating Action:

Moody's affirms Navistar's ratings; Outlook changed to Stable

07 Dec 2020

New York, December 07, 2020 -- Moody's Investors Service, ("Moody's") affirmed Navistar International Corp.'s (Navistar) ratings including its B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating, B2 third lien secured notes and B3 senior unsecured rating. Moody's also affirmed the rating of its major operating subsidiary, Navistar, Inc. with senior secured term loan at Ba2 and the industrial revenue bonds at B3. The outlook has been changed to stable from negative and the SGL-3 Speculative Grade Liquidity Rating is unchanged.

The affirmation of Navistar's ratings and the stable outlook reflect the company's improving prospects for 2021 given the stabilization in the heavy duty trucking market, and adequate liquidity position with approximately $1.6 billion of cash as of July 31, 2020.

Traton SE has agreed to purchase Navistar, with a closing anticipated sometime in mid-2021 subject to normal regulatory approvals. Should Navistar's debt be repaid upon the closing or if Navistar will not provide sufficient financial information or if Traton does not provide sufficient support for the debt, Moody's would withdraw Navistar's ratings.

The following ratings are affected by today's actions:

Ratings Affirmed:

..Issuer: Navistar International Corp.

.... Corporate Family Rating, Affirmed B2

.... Probability of Default Rating, Affirmed B2-PD

....Senior Secured Regular Bond/Debenture, Affirmed B2 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

..Issuer: Navistar, Inc.

....Senior Secured Bank Credit Facility, Affirmed Ba2 (LGD2)

..Issuer: Illinois Finance Authority

....Senior Unsecured Revenue Bonds, Affirmed B3 (LGD5)

Outlook Actions:

..Issuer: Navistar International Corp.

....Outlook, Changed To Stable From Negative

..Issuer: Navistar, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Navistar's ratings reflect its long-term exposure to the cyclical north American trucking market, very high financial leverage with debt to EBITDA expected to be over 10x at year end, and the negative impact to demand from the coronavirus outbreak, which will pressure earnings and cashflow into 2021. However, Navistar is a leading producer of medium and heavy duty trucks, has adequate liquidity (improved since the beginning of the year with cash from a $600 million bond issuance), and has continued operational progress including improved market share, reduced warranty expense and lowering its cost structure which will allow Navistar to remain solidly competitive despite the demand headwinds it has faced. Moody's believes that Navistar's operational improvements, along with its adequate liquidity profile, will provide it with the resources needed to improve its performance in 2021 when demand is expected to rebound.

Navistar's operational progress is also shown through the success it has achieved from the engineering and cost sharing joint-venture with Traton SE, which held an approximate 17% ownership interest in Navistar. Traton SE's planned acquisition of Navistar will result in Navistar benefitting from being part of a larger and well capitalized company. Furthermore, there should be procurement savings and more efficient research and development investments related to powertrain and emissions systems.

Navistar's liquidity is adequate with $1.6 billion of cash as of July 31, 2020 along with less than $100 million of debt maturing over the next 12 months. Navistar is likely to complete 2020 with negative free cash flow of about $500 million, and still be modestly negative in 2021. Navistar has a $125 million ABL facility that is generally used for issuing letters of credits.

The Ba2 senior secured term loan rating at Navistar Inc., the major operating subsidiary of Navistar, reflects the obligation's first priority lien on the majority of Navistar's operating assets. The B3 rating of Navistar International's unsecured notes, one notch below the CFR, benefits from a Navistar Inc. guarantee but the most junior claim of the liabilities.

The B2 rating of Navistar International's $600 million of third-lien secured notes (now effectively second-lien following the October 2020 extinguishment of the 2nd lien position of the Industrial Revenue Bonds) reflects an upstream guarantee from Navistar Inc., and a priority of claim position that is junior to the Ba2 rated senior secured term loan but ahead of the senior unsecured. The claim is effectively a second priority after the senior term loan after release of certain collateral that supported industrial development bonds. The B2 rating reflects a one-notch downward override of the Loss Given Default outcome given the relative expected recovery.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects expectations that Navistar will continue to strengthen its competitive position and improve its credit metrics over the next 12-18 months while sustaining an adequate liquidity profile.

Navistar's ratings could be downgraded if the company is not on track to restoring 2019-level financial metrics by 2021. Factors that would contribute to a downgrade include: 1) a cash burn that exceeds $500 million during 2020; 2) market share erosion in key product segments; or 3) any material weakening in the company's liquidity profile.

The ratings could be upgraded if the company is on a clear trajectory to achieve the following metrics: EBITA margins above 7%, debt to EBITDA sustained below 5x and EBITA/Interest above 3x. Specific support from Traton of the Navistar debt could also lead to an upgrade of the debt ratings.

Navistar's primary ESG risk is environmental due to its exposure to increasingly burdensome emissions regulations covering its trucks and buses. The company continues to make the investments necessary to remain in compliance with these regulations. The company's governance practices have enabled it to pursue successful operating strategies and prudent financial policies.

Navistar International Corp. is one of the largest manufacturers in the US and Canadian market for buses, medium, severe service, and heavy duty trucks. The company generated approximately $8 billion in revenues (excluding financial services) during the last twelve months ending July 31, 2020.

The methodologies used in these ratings were Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079, and Captive Finance Subsidiaries of Nonfinancial Corporations published in August 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1183459. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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