Fitch also said Navistar’s rating outlook has been changed from “stable” to “negative.” The ratings anticipate the issuance of $300 to 400 million of five-year senior notes in an imminent Rule 144A offering. Navistar president & CEO John R. Horne announced on May 16 that the company planned to take this action.
Fitch has also downgraded the senior unsecured debt ratings of Navistar Financial Corp. (NFC) from BBB to BBB- and its senior subordinated debt rating from BBB- to BB. Fitch said the downgrade is a result of declining trends in NFC's capitalization and certain asset quality measures.
The change in Navistar's Rating Outlook reflects slightly higher debt levels than previously expected, as well as a growing concern that the environment in the North American heavy-duty truck market may continue to be very difficult for a longer time span than in previous economic cycles.
Fitch said it believes Navistar's level of used truck inventory is relatively much lower than the industry average, but the lingering pricing pressure caused by the inventory overhang of competitors with a larger share in this segment is a concern, particularly as the number of units coming off lease may grow going forward due to the record industry volumes in 1998 and 1999.
Fitch also noted that Navistar does not plan to have a “total redesign” of its heavy trucks until 2004, so its pricing relationships and cost improvements will not be aided soon by the kind of major change that a platform redesign can offer.
However, the affirmation of Navistar's debt ratings reflect the strength and fundamental profitability of Navistar's medium-duty truck, mid-range engine and parts businesses, Fitch said.
