Fitch Affirms Caterpillar and Caterpillar Financial at 'A'; Outlook Stable

  Fitch Affirms Caterpillar and Caterpillar Financial at 'A'; Outlook Stable

Business Wire

CHICAGO -- February 15, 2013

Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and long-term
debt ratings at 'A' for Caterpillar Inc. (CAT), Caterpillar Financial Services
Corporation (CFSC), and CFSC's subsidiaries including Caterpillar Financial
Services Australia LTD. Fitch has also affirmed the companies' short-term
ratings at 'F1'. The Rating Outlook is Stable. A full list of ratings follows
at the end of this release.

KEY RATING DRIVERS

The ratings for CAT, with CFSC on an equity basis, reflect the company's low
leverage, solid liquidity, competitive market positions in its global
Machinery and Power Systems (M&PS) businesses, diverse customer base,
operating discipline, and an established and well capitalized dealer network.
Fitch estimates debt/EBITDA at Dec. 31, 2012 was 1.0x on a preliminary basis,
roughly flat compared to the previous two years.

Credit concerns include CAT's cyclical end markets, a slowdown in mining
associated with weak global economic growth, excess industry capacity that
could pressure margins until demand improves, competitive pressure in emerging
regions, negative free cash flow (FCF) in 2012, and CAT's sizeable net pension
obligation. CAT also faces risks related to the development of Tier 4
emissions technology for off-road vehicles, but CAT is on track for on-time
compliance.

Near term results and credit metrics could be negatively affected by weak
demand in the company's construction and mining machinery markets. CAT's
backlog declined to approximately $20 billion at the end of 2012 from $30
billion one year earlier as orders for mining equipment began to slow in
mid-2012. Capital spending by mining companies could be down well into 2013 or
2014. Global construction activity remains slow, but orders improved in the
fourth quarter of 2012 amid indications that the market is stabilizing or
beginning to improve, including certain residential and non-residential
markets in the U.S. and in China.

Segment operating margins improved by approximately 90-100 bps in 2012 but may
decline in 2013 due to lower sales and related operating inefficiencies.
However, Fitch believes CAT is adjusting effectively to weaker demand through
significant inventory reductions, lower capital spending, and the use of its
CAT Production System and Lane Strategy. CAT reduced its inventory by $2
billion in the fourth quarter of 2012, and dealers also cut inventory levels.
CAT expects dealers to reduce inventory again in 2013 in excess of $1 billion,
of which a large portion would be mining equipment. As a result, CAT's
financial results could be weak in the first quarter, but these actions should
set the stage for better results later in the year.

Free cash flow after capital expenditures and dividends (FCF) was negative by
more than $800 million in 2012. FCF in 2012 was substantially lower than
Fitch's forecast, largely due to lower-than-anticipated sales, higher
inventory, and a significant reduction in accounts payable associated with
production cuts intended to bring inventory in line with demand. Negative FCF
also included the impact of substantial pension contributions and an $800
million increase in capital expenditures. However, actual capital expenditures
were approximately $600 million below original plans. In 2013, Fitch estimates
FCF will increase materially, potentially to around $2 billion or more, as CAT
reduces inventory and as cash requirements for accounts payable stabilize.
Also, pension contributions may be lower than the high level in 2012.

Fitch believes large acquisitions are unlikely in the near term while CAT
continues to integrate acquisitions completed during the past 18 months or so,
including Bucyrus, MWM, and the remaining 33% of CAT Japan. CAT bought ERA
Mining Machinery Limited for $697 million in May 2012. ERA's operating
subsidiary, Siwei, makes hydraulic roof supports for the underground coal
mining market in China. In January 2013, CAT announced a $580 million goodwill
impairment charge for Siwei related to accounting misconduct that occurred
over several years prior to its acquisition by CAT. The charge represents a
setback, but CAT remains focused on expanding its presence in China which is
important to CAT's growth and competitive position over the long term.

Other changes in CAT's operations include the divestiture of Bucyrus'
distribution business to various CAT dealers. The value of such divestitures
totaled $973 million through the first nine months of 2012, and further
divestitures are pending. In addition, CAT sold 65% of its third-party
logistics business in July 2012 for $541 million as the business was not
strategically important.

In 2012, the company planned to contribute $1 billion ($625 million required)
to its pension plans, including $570 million to domestic plans and $430
million to international plans. The contribution, together with positive asset
returns, should help offset the negative impact of lower discount rates on
CAT's pension liabilities. At the end of 2011, CAT's net pension obligations
totaled nearly $6.3 billion and were 67% funded.

CAT's liquidity (excluding CFSC) at Dec. 31, 2012, as calculated by Fitch,
totaled $4.3 billion, including cash of $3.3 billion and credit facility
availability of $2.75 billion, offset by $1.7 billion of short term debt and
long term debt maturities. The $2.75 billion of credit facility availability
is the internal allocation to M&PS of CAT's consolidated $10 billion
facilities. CAT can revise the allocation of these facilities between CFSC and
its manufacturing businesses at any time. The facilities consist of a $3
billion 364-day facility that expires in September 2013, a $2.6 billion
facility that expires in September 2015, and a $4.4 billion facility that
expires in September 2017. CAT has $796 million of other committed and
uncommitted lines, not including facilities available to CFSC.

Under inter-company agreements as of Sept. 30, 2012, CAT may borrow up to
$1.66 billion from CFSC ($372 million outstanding) and CFSC may borrow up to
$2.45 billion from CAT ($209 million outstanding) on a short-term basis. In
addition, CFSC provides a $2 billion committed credit facility to CAT which
expires in 2019. CFSC also purchases, at discount, dealer and customer
receivables from CAT. Outstanding receivables balances purchased by CFSC
totaled nearly $3.0 billion at Sept. 30, 2012 compared to $3.2 billion at the
end of 2011. Fitch classifies changes in these amounts as financing cash flows
at CAT's manufacturing business.

CATERPILLAR FINANCIAL SERVICES CORPORATION

At CFSC, operating performance has benefited from improved financing volume
and a reduction in credit costs. Retail originations increased 23% in 2012 and
net income was up 14%. Fitch expects originations to continue to rebound from
recent lows driven primarily by growth in its international markets and in the
Caterpillar Power Finance and Mining operating segments.

Asset quality performance has improved and is trending below historical
averages, with delinquencies (30+ days) declining to 2.26% of receivables at
Dec. 31, 2012, compared to 2.89% a year ago. This compares favorably to peak
year-end delinquencies of 5.54% in 2009 and a five-year average of 3.69%.
Fitch believes some additional improvement in asset quality is possible, but
expects relative stability in the near term.

CFSC's capitalization is consistent with similarly rated peers. CFSC's debt to
tangible equity ratio was 8.13x at Sept. 30, 2012, up from 7.35x at Dec. 31,
2011 following a 9.5% increase in finance receivables. With the increase over
the last few years, CFSC's leverage is at the high end of the historical range
of 7.0x - 8.0x. While Fitch does not anticipate any significant changes in
CFSC's overall capital structure, should the company's funding requirements
increase unexpectedly, Fitch believes CAT would inject additional capital as
necessary to manage CFSC's overall leverage.

CFSC relies on a number of global debt capital markets and funding programs to
provide liquidity for its operations, as well as support from CAT in the form
of funding agreements. The company's ability to access the global capital
markets demonstrates the strength of CAT's brand and franchise. Fitch believes
CFSC's comprehensive funding platform, in combination with the financial
strength of its parent, is consistent with its existing ratings.

Fitch views CFSC as core to CAT's overall franchise and as such CFSC's ratings
are linked to those of CAT. The financial relationship between CFSC and CAT is
governed and defined by a Support Agreement which requires CAT to maintain
100% ownership of CFSC, maintain CFSC's net worth at not less than $20
million, and maintain CFSC's fixed-charge coverage at not less than 1.15x or
higher on an annual basis.

RATING SENSITIVITIES

A positive rating action is unlikely in the near term due to risks associated
with cyclicality in CAT's end markets. However, potential developments that
could lead to a positive rating action over the long term include a reduced
impact from cyclicality on financial results if CAT increases its geographic
and product diversification or increases the proportion of more-stable
services revenue. Other positive factors could include market share growth in
emerging markets, lower peak financial leverage during downcycles, and
effective product development, including successful introductions of new
emissions technology.

Positive rating momentum for CFSC will be limited by Fitch's view of CAT's
credit profile, as CFSC ratings and Outlook are linked to that of its parent.
Fitch cannot envision a scenario where the captive would be rated higher than
its parent.

The ratings or outlook could be negatively affected if financial results are
substantially impaired by weak demand in CAT's machinery end markets, poor
execution of the company's operating strategies, a material decline in the
company's market share in key product lines or geographic regions, or
aggressive cash deployment that results in higher leverage.

Negative rating action for CFSC could be driven by a change in the perceived
relationship between CAT and CFSC, such as if Fitch believed that CFSC has
become less core to CAT's strategic operations or adequate financial support
was not provided in a time of crisis. Additionally, a change in profitability
leading to operating losses, material change in balance sheet leverage, and/or
deterioration in the company's liquidity profile could also lead to negative
rating action.

The ratings cover approximately $10 billion of debt at CAT as of Dec. 31, 2012
on a preliminary basis, and more than $29 billion of unsecured debt at CFSC as
of Sept. 30, 2012.

Fitch has affirmed the ratings as follows:

Caterpillar Inc. (CAT)

--IDR at 'A';

--Senior unsecured notes at 'A';

--Short-term IDR at 'F1';

--Commercial paper (CP) at 'F1'.

Caterpillar Financial Services Corporation (CFSC)

--IDR at 'A';

--Senior unsecured notes at 'A';

--Short-term IDR at 'F1';

--CP at 'F1'.

Caterpillar Financial Services Australia

--Short-term IDR at 'F1';

--CP at 'F1'.

Additional information is available at www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Finance and Leasing Companies Criteria' (Dec. 11, 2012);

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

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Contact:

Fitch Ratings
Primary Analyst (Caterpillar Inc.)
Eric Ause
Senior Director
+1-312-606-2302
Fitch Ratings, Inc.
70 Madison Street
Chicago, IL 60602
or
Secondary Analyst
Craig Fraser
Managing Director
+1-212-908-0310
or
Committee Chairperson
Jason Pompeii
Senior Director
+1-312-368-3210
or
Primary Analyst (Caterpillar Financial Services Corporation)
Johann Juan
Director
+1-312-3339
Fitch Ratings, Inc.
70 Madison Street
Chicago, IL 60602
or
Secondary Analyst
Paul Ryndak
Director
+1-312-368-3194
or
Committee Chairperson
Meghan Neenan
Senior Director
+1-212-908-9121 x1121
or
Media Relations
Brian Bertsch
+1-212-908-0549
brian.bertsch@fitchratings.com
 
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