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04 September 2019 by jbchevrel

CNH Industrials NV (CNHIIM) designs, produces and sells trucks, buses, agricultural and construction equipment, and engines/transmissions for those vehicles. The name is a member of Main s31 and was before that a rather regular member in the XOver since s16. CNHIIM presented its ‘Transform 2 Win’ plan this week, a strategic update. The key takeaway was the separation of ‘On-Highway’ (sls $13B adj EBIT $0.5B) and ‘Off-Highway’ (sls $16B adj EBIT $1B) assets to create two listed entities by Jan-21. This is still subject to the accustomed approvals and will be structured as a spin-off of ‘On-Highway’ to shareholders (pro-rata allocation) which should secure efficient access to capital markets from Day One while the plan aims to protect the current Investment Grade credit rating at ‘Off-Highway’ from Day One and improve thereafter by deleveraging. CNHIIM also announced plans to improve profitability and become net debt free by 2021, from $0.3B mid-point of this year’s guidance. Gross leverage target is 1.0x by 2024 from 2.0x at the end of last year. Today the CDS was virtually unmoved this week, S&P said they view it as neutral for credit. The company maintained its commitment to retain the Investment Grade rating, in particular in the ‘Off-Highway’. While the details of the transaction remain to be seen, it is worth noting that the CDS might be a good vector for a short, given it is ~50bp rich compared to cash. Elsewhere it was a risk-on session mainly thanks to the easing of political tensions in Hong Kong, Italy and the UK. Data weren’t as weak as consensus expected in China and Europe, where we got AUG and AUG F S&C PMIs respectively.