CHICAGO (AP) -- Fitch Ratings lowered its ratings of Navistar International Corp. Friday and put it on watch for future downgrades after the U.S. truck and engine maker reported an unexpected loss.
Navistar is facing a number of challenges. Its stock price has fallen since the start of the month when it reported a second-quarter loss, cut its full-year forecast and announced a management change. That, while the company is still struggling to win regulatory approval for one of its new engines, which is critical to its future.
This week, Navistar tried to avert any takeover moves by adopting a poison pill that would prevent outsiders from gaining a stake of 15 percent or more in the company. Navistar did this after hedge fund MHR Fund Management LLC last week disclosed that it now holds 13.6 percent of the company's shares, an even larger position than billionaire activist investor Carl Icahn's stake of 11.9 percent.
Fitch said that the recent changes introduce some uncertainty about the company's long-term operating and financial policies.
The rating agency lowered the company's long-term debt rating and senior unsecured notes rating one notch in junk-grade territory to "BB-" from "BB" and said it remains on rating watch negative. It lowered the rating on its senior subordinated notes to "B'' from "B+".
Fitch said it could take the company off watch for further downgrades if the Environmental Protection Agency determines Navistar's new engine meets emission requirements. But a decision against the engine could mean another downgrade in the future.
The rating agency is concerned about the company's high costs, low margin, slower sales in some key markets and overall poor financial performance.
Navistar shares were down sharply in morning trading but rebounded in afternoon trading, up 57 cents, or 2.2 percent, to $27.02. The stock has traded between $20.21 and $58.50 in the past 52 weeks.
- Fitch Ratings