(The following statment was released by the rating agency)
NEW YORK, Oct 31 - Standard & Poor's Ratings Services said today it placed its double-'B' corporate credit ratings on Navistar International Corp., and its subsidiary Navistar Financial Corp., a leading North American producer of heavy- and medium-duty trucks, on CreditWatch with negative implications. The CreditWatch listing is the result of Standard & Poor's concerns that the loss or postponement of the Ford Motor Co. V6 diesel engine business, combined with heavy cash outlays associated with the recently announced $456 million restructuring charge and continued challenging end market conditions, could pressure the credit profile and cash flow. Additionally, the company has approximately $200 million in manufacturing debt maturities it needs to refinance in the next 12 months, which heightens financial risk.
In the past Navistar has tried to diversify to help reduce its exposure to the cyclical swings in the truck market, as evidenced by its role as a leading supplier of mid-range diesel engines to Ford. However, Navistar announced that Ford no longer considers the V6 diesel engine program viable and commencement of Navistar's production is very uncertain. The company has indicated that this decision by Ford does not affect Navistar's supply of V8 engines to Ford. Accordingly, Navistar is taking a $120 million to $130 million after-tax charge associated with assets directly related to the V6 program. "The longer-term impact of this event on Navistar's engine strategy is unclear, as the V6 program had been viewed as a significant factor in its engine growth strategy," said Standard & Poor's credit analyst Eric Ballantine.
Elements of the $456 million restructuring charge include costs associated with the closing of the Chatham, Ont., heavy-duty truck facility, and the ceasing of operations at its body plant located in Springfield, Ohio; asset write-downs related to the company's V6 diesel engine program with Ford; and costs related to exiting the Brazilian domestic truck market. Cash outlays associated with this charge are significant and come at a time when cash generation is weak as a result of soft market conditions.
Navistar continues to experience very challenging end market conditions. The company's key end markets, heavy-duty and medium-duty trucks, are expected to continue to experience very weak demand over the near term, reflecting the reluctance by trucking customers to place orders for new trucks during the current soft economic conditions in the U.S.
Standard & Poor's will meet with Navistar's management to assess its long-term engine strategy, its ability to cope with present business conditions, its plans to refinance near-term debt maturities, and the impact of the proposed restructuring charge on the company's cash flow and liquidity.