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PACCAR Financial Europe B.V. -- Moody's assigns A1 issuer rating to PACCAR; affirms A1 and P-1 ratings of captive finance subsidiaries; outlook stable

·15 min read

Rating Action: Moody's assigns A1 issuer rating to PACCAR; affirms A1 and P-1 ratings of captive finance subsidiaries; outlook stableGlobal Credit Research - 31 Aug 2022New York, August 31, 2022 -- Moody's Investors Service ("Moody's") assigned an A1 issuer rating to PACCAR Inc ("PACCAR") and affirmed the ratings of PACCAR's captive finance subsidiaries, including the A1 long-term and Prime-1 short-term ratings of PACCAR Financial Corp., PACCAR Financial Europe B.V. and PACCAR Financial Plc. The outlook is stable.The rating actions reflect PACCAR's competitive position in the market for medium- and heavy-duty trucks, the company's industry-leading return on assets, conservative financial policies, as well as the support agreements between PACCAR and its captive finance subsidiaries.Assignments:..Issuer: PACCAR Inc.... Issuer Rating, Assigned A1Affirmations:..Issuer: PACCAR Financial Corp..... Commercial Paper, Affirmed P-1....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1....Senior Unsecured Regular Bond/Debenture, Affirmed A1....Senior Unsecured Shelf, Affirmed (P)A1..Issuer: PACCAR Financial Europe B.V.....Senior Unsecured Commercial Paper, Affirmed P-1....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1....Senior Unsecured Regular Bond/Debenture, Affirmed A1....Other Short Term, Affirmed (P)P-1..Issuer: PACCAR Financial Plc....Senior Unsecured Commercial Paper, Affirmed P-1Withdrawals:..Issuer: PACCAR Inc ....Senior Unsecured Medium-Term Note Program, Withdrawn, previously rated (P)A1 Outlook Actions: ..Issuer: PACCAR Inc ....Outlook, Remains Stable ..Issuer: PACCAR Financial Corp.....Outlook, Remains Stable..Issuer: PACCAR Financial Europe B.V.....Outlook, Remains Stable..Issuer: PACCAR Financial Plc....Outlook, Changed To No Outlook From StableRATINGS RATIONALEThe A1 rating of PACCAR and its captive finance subsidiaries considers the company's leading position in the North American and European market for medium- and heavy-duty trucks with a competitive product offering derived from a continuous focus on product quality and innovation. Although the adoption of zero emission trucks is still at an early stage, PACCAR developed a range of battery electric trucks for local and regional applications and continues the development of hydrogen-based powertrains for long haul transportation.The company's efficient operating model generates an industry-leading return on assets and provides greater resiliency during cyclical downturns, further aided by a conservative financial policy with no funded debt maintained at the manufacturing operations.The ratings also incorporate the strategic importance of the captive finance subsidiaries for PACCAR's truck manufacturing operations, as well as the support agreements between PACCAR and each of the captive finance subsidiaries. Although short-term obligations represent about 50% of total debt, PACCAR has adequate cash and committed credit facilities to cover these obligations, if needed. Further, PACCAR's captive finance subsidiaries benefit from ample capital and maintain disciplined underwriting standards that result in low net charge-offs.Moody's expects that liquidity on a consolidated basis remains very good, supported by $4.7 billion in cash and marketable securities, $3 billion of committed credit facilities and an estimated $1.4 billion in free cash flow, after quarterly dividends only.The stable outlook anticipates that demand for PACCAR's medium- and heavy-duty trucks remains healthy, despite a growth slowdown in the US and European economies. PACCAR's EBITA margin will improve as manufacturing inefficiencies from supply chain disruptions abate, the production rate of PACCAR's new vehicle line-up increases, and the profitable parts business continues to grow.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded with a meaningful diversification away from the very cyclical demand for new commercial trucks and into businesses that would support the generation of an EBITA margin that approaches the mid-teens. A material increase in the proportion of revenues generated from aftermarket parts could aid in achieving greater diversification.The ratings could be downgraded if PACCAR were to alter its long-standing conservative financial policy, possibly from a more aggressive distribution policy or acquisition strategy. The ratings could also be downgraded if the EBITA margin is sustained below 10% or if free cash flow remains below $750 million. An erosion in the company's liquidity could also cause a rating downgrade, including a decrease in the amount of cash and committed revolving credit facilities relative to PACCAR's short-term debt obligations.The methodologies used in these ratings were Manufacturing published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74970, Captive Finance Subsidiaries of Nonfinancial Corporations published in August 2019 and available at https://ratings.moodys.com/api/rmc-documents/63561, and Finance Companies Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/65543. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.PACCAR Inc is one of the world's leading manufacturers of medium- and heavy-duty trucks that are marketed under the Kenworth, Peterbilt and DAF nameplates. Revenue for the last 12 months ended June 2022 was $23.9 billion, exclusive of revenue from financial services.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Rene Lipsch VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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