DBRS Confirms Long-Term Ratings of Caterpillar Inc. at “A,” and CP Ratings at R-1 (low) with Stable Trends

DBRS Limited (DBRS) confirmed the ratings of Caterpillar Inc. and its subsidiaries (the Company or CAT) at “A” and R-1 (low). All trends are Stable. The ratings confirmation reflects that the Company’s business and financial profiles continue to be commensurate with the current ratings. DBRS notes that CAT has a stable business profile and its financial profile has strengthened such that it is able to absorb a modest deterioration and still be within the current rating range. Hence, DBRS expects the Company’s ratings to remain stable in the foreseeable future.

CAT has a strong business profile: It is a market leader in its businesses supported by broad product offerings, strong technical capabilities and a solid distribution network. DBRS notes that the Company’s success in executing the Operating and Execution model (O&E) to boost operating efficiency and growing the more stable services business to lower the cyclicality of its operations could strengthen its business profile modestly. Nevertheless, CAT’s business profile is expected to remain in the “A” range over the foreseeable future.

Despite the uncertainty surrounding the China–U.S. trade negotiations, the demand for construction equipment, particularly in the United States, has been positive. The return of global mining companies investing in growth projects has also added to the demand for equipment. Furthermore, the trend of companies keeping an aging equipment fleet operating at high utilization rates boosted maintenance and repair activities and the demand for parts. Positive market conditions and benefits from executing the O&E model led to a sharp improvement in operating results and associated credit metrics in 2018. The improving trend extended to Q1 2019. Furthermore, DBRS anticipates the positive momentum in the markets to carry through to 2019 and 2020. Higher volume sales and further efficiency gains are expected to support continued improvement in CAT’s operating performance. However, the outcome of the ongoing China-U.S. negotiations remains a wild card. Any escalation of trade actions by the United States and the tit-for-tat reaction from China could easily derail global economic growth and dampen the demand for equipment. Despite negotiations reaching an impasse recently, DBRS still anticipates that an agreement will be reached by the end of 2019 or the middle of 2020 at the latest, because of the potential severe consequences on the Chinese and the U.S. economies associated with escalating tariffs.

DBRS notes that the Company will need to strengthen its financial profile to the AA range to warrant consideration for positive rating actions, assuming a stable business profile. Conversely, a sharp deterioration in its key credit metrics, such as the debt-to-EBITDA ratio going higher than 2.0 times on a sustained basis, may lead to negative rating actions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Industrial Products Industry (February 2019), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (March 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), 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.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had 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.

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