DBRS Morningstar Confirms Issuer Rating of CNH Industrial N.V. at BBB (low) With a Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the Issuer Rating of CNH Industrial N.V. (CNHI or the Company) at BBB (low) with a Stable trend.

KEY RATING CONSIDERATIONS

The rating action reflects that the Company has performed in line with expectations and that the Company's credit profile (a combination of its business and financial profile) is commensurate with the current rating.

The rating is supported by (1) CNHI’s size, which allows for scale efficiency; (2) geographical diversification; (3) brand recognition; and (4) a sizeable financial services operation, with a geographically well-diversified receivables portfolio. DBRS Morningstar’s BBB (low) rating also incorporates the following risks: (1) the Construction Equipment and Commercial & Specialty Vehicles (CV) segments face strong competition; (2) highly cyclical demand; (3) volatile materials pricing; (4) reliance on the asset-backed securities market as a substantial component of CNHI’s funding strategy; and (5) emerging market risk.

DBRS Morningstar expects CNHI’s financial profile to strengthen and be within the current rating range by the end of 2021. Furthermore, DBRS Morningstar expects continuing improvement in CNHI’s operating results and financial profile in 2022, justifying the Stable trend.

RATING DRIVERS

DBRS Morningstar does not expect to take any positive rating actions in the near term because the Company is still in recovery mode. Nevertheless, DBRS Morningstar would take positive rating action if the Company strengthens its business profile, such as by successfully executing the Transform2Win program, and the Company’s financial profile strengthens to the high end of the BBB range. However, DBRS Morningstar would take negative rating actions if CNHI's operating results fail to restore the debt-to-EBITDA ratio (as defined by DBRS Morningstar) to below 3.5 times and the cash flow-total debt ratio (as defined by DBRS Morningstar) to above 20% by the end of 2021 and if the spinoff of the On-Highway businesses unexpectedly weakens the Company's credit profile.

RATING RATIONALE

The advent of the Coronavirus Disease (COVID-19) pandemic has impeded the Company’s progress in achieving the Company’s 2020–24 business plan, Transform2Win, which details functional and segment strategies as well as associated performance targets. DBRS Morningstar expects the Company to make steady progress in executing the Transform2Win plan as the impact of the coronavirus diminishes. DBRS Morningstar notes that achieving the stated performance targets in the Tranform2Win plan will strengthen the Company’s business profile. In addition, the Company’s plan to spin off the On-Highway (CV and powertrain) businesses initially scheduled for early 2021 has been delayed because of the pandemic and is now scheduled for Q1 2022. DBRS Morningstar notes that CNHI has a strong position in the agricultural equipment industry and the Company’s business profile will be stronger on a net basis despite losing some operating scale and business diversity after spinning off the less profitable On-Highway businesses because of the strong market position of its agricultural equipment business.

Operating results at CNHI in 2020 were depressed by lower demand and reduced operating levels in all its businesses. Additionally, all key debt coverage ratios were further weakened by additional debt raised to bolster the Company's liquidity during the downturn caused by the pandemic. After an initial sharp decline, the global economy progressively recovered throughout 2020 and the roll-out of vaccines has quickened the pace of recovery in some advanced economies, notably the U.S. Furthermore, a firming farm economy fueled by rising grain prices has led to stronger demand for agricultural equipment. With market conditions turning positive, CNHI reported strong results in Q1 2021. DBRS Morningstar anticipates CNHI's operating results to strengthen through 2022, supporting a full recovery of its financial profile.

DBRS Morningstar, in its base case scenario, assumes (1) the GDP in the major developed economies in Europe will grow by 3.8% in 2021 and 3.8% in 2022 and in the U.S. will grow by 5.0% and 3.0% respectively; (2) the farm economy in the U.S. will remain buoyant in 2021 and stabilize in 2022; and (3) the spinoff of the On-Highway businesses to be completed at the end of 2022 despite the current target for completion in Q1 2022. Under this scenario, DBRS Morningstar expects favourable market conditions to boost operating results in all CNHI's industrial businesses in 2021 and 2022. Under the base case, DBRS Morningstar anticipates CNHI's financial profile to strengthen in 2021 to within the current rating range.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodologies are Rating Companies in the Industrial Products Industry (29 January 2021; https://www.dbrsmorningstar.com/research/372944) and Rating Companies in the Automotive Manufacturing and Supplier Industries (22 October 2020; https://www.dbrsmorningstar.com/research/368670), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021; https://www.dbrsmorningstar.com/research/373262) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (2 November 2020; https://www.dbrsmorningstar.com/research/369167).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include the Company’s SEC filings and information posted on its website. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: YES

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/379321.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Giuseppe Fresta, Vice President
Rating Committee Chair: Charles Halam-Andres, Managing Director
Initial Rating Date: 24 October 2013
Last Rating Date: 9 June 2020

DBRS Ratings GmbH, Sucursal en España
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-- Rating Companies in the Industrial Products Industry (29 January 2021; https://www.dbrsmorningstar.com/research/372944)
-- Rating Companies in the Automotive Manufacturing and Supplier Industries (22 October 2020; https://www.dbrsmorningstar.com/research/368670)
-- DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (2 November 2020; https://www.dbrsmorningstar.com/research/369167)
-- DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021; https://www.dbrsmorningstar.com/research/373262)

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.