Fitch Rates Navistar's Proposed Bank Facility 'BB-'; Rating Watch Negative.
NEW YORK -- Fitch has assigned a 'BB-' rating to Navistar International Corp.'s (NAV) proposed $1.3 billion senior unsecured credit facility. Fitch also withdraws the 'BB-' rating on NAV's senior unsecured notes, the 'B' rating on NAV's senior subordinated debt, and the senior unsecured debt rating at Navistar Financial Corp., all of which have been substantially retired. Fitch expects to withdraw the 'BB-' rating on NAV's existing credit facility upon the closing of the new $1.3 billion facility. Fitch's existing ratings on NAV and Navistar Financial Corp. (NFC) are as follows:
Navistar International Corp.
--Issuer default rating (IDR) 'BB-';
--Senior unsecured bank facility 'BB-'.
Navistar Financial Corp.
--Senior unsecured bank lines 'BB-';
All of NAV's and NFC's ratings remain on Rating Watch Negative. The ratings cover approximately $2.5 billion in debt. Resolution of the Watch status will be contingent on the filing of audited financial statements and the outcome of the ongoing SEC investigation. Further material delays in filing, material restatements of financial position or worse-than-expected operating results could lead to a review of the rating for a downgrade.
NAV's ratings reflect the company's extended delayed filings of audited financial statements, the scale and uncertainty of any adjustments that may be required to the historical financials from fiscal years 2002 through 2004 and for the first nine months of fiscal 2005, and the potential for limited access to external capital that is aggravated by the potential delisting of NAV's stock from the New York Stock Exchange. A variety of accounting issues will be addressed with the re-filings. In 2006, NAV changed auditors, extending the timetable for the resolution of the restatements.
Navistar's new $1.3 billion credit facilities will consist of a $1.1 billion term loan and a $200 million synthetic revolving credit facility, which will be fully drawn upon closing. The transaction is expected to close the week of Jan. 15, and the proceeds will be used to repay the remaining amount outstanding under the existing loan facility. The new facilities will reduce interest payments slightly and will extend the maturity to 2012, which will give NAV funding through the next emission requirement in 2010.
Navistar's truck shipments increased 13.7%, or 17,801 units, in fiscal year 2006, but its engine shipments were off slightly due to slowing Ford F series truck sales. NAV's un-audited year-end 2006 cash balance was $1.2 billion, positioning the company well for the heavy duty truck downturn that is expected this year. Navistar has indicated that capital expenditures in 2007 will be between $250 million-$300 million and that cash flow from operations will be stronger than in 2004, when it was $315 million. Free cash flow in 2007 could be negative due to the downturn, continued competitive pricing pressures and high commodity costs, but liquidity remains adequate to finance modest negative cash flow prior to an anticipated rebound in end-demand.
Navistar's underfunded pension position will continue to be a meaningful claim on cash flow over the intermediate term. Higher required contributions in later years could coincide with a cyclical decline in operating cash flows, potentially limiting Navistar's capacity to produce free cash flow.