New York, November 18, 2008 --Moody's Investors Service assigned an A1 long-term rating and stable outlook to PACCAR Inc's (PACCAR) newly-established medium-term note (MTN) program. This is the first time that Moody's has rated the debt of PACCAR. The newly-assigned A1 rating is equivalent to the existing A1 ratings assigned to PACCAR's wholly-owed captive finance subsidiaries - Paccar Financial Corporation (PFC) and Paccar Financial Europe B.V. (PFE). The ratings of PFC and PFE are based on their strategic importance in providing wholesale and retail financing for PACCAR's US and European operations, and on formal support agreements from PACCAR that are enforceable by the holders of PFC and PFE debt. As a result of these strategic, operational and financial relationships, the long-term ratings of PACCAR, PFC and PFE will likely remain closely linked.
PACCAR's A1 rating and stable outlook reflect the company's highly competitive position in the North American and European medium and heavy duty truck markets, and the strong capitalization and underwriting standards of its financial service operations. In addition, Moody's expects that PACCAR's industrial operations, which have been largely debt free, will maintain a modestly leveraged capital structure following any issuances under the MTN program.
PACCAR's industrial operations have demonstrated consistent strength in the global medium and heavy-duty truck market. The company has broad geographic diversification with a revenue distribution of 36% from the US, 41% from Europe, and 23% from the rest of the world. In addition, it has achieved steady gains in market share in all key regions since 1997. Moreover, its return measures have been very robust relative to those of competitors in the medium and heavy duty truck sector, particularly during past cyclical downturns. Finally, the company has steadily expanded its parts and service business which will represent an important and sustainable source of revenues and earnings during cyclical downturns.
PACCAR's consolidated financial service operations, with total assets of $10.7 billion, are well capitalized with a September 2008 ratio of total debt to equity of only 3.3:1. This reflects an exceptionally strong capital base. Moreover, the operation's ratio of accounts past due 30 days remains under 3%, and reserves for credit losses approximates 2%.
At September 2008, the principal liquidity requirement of PACCAR's consolidated operations is the need to fund $3.5 billion in commercial paper and short-term bank loans and approximately $2 billion in current maturities of long-term debt. The principal liquidity sources available to cover this $5.5 billion in requirements include $1.9 billion in cash and marketable securities, $3 billion in committed credit facilities, and free cash flow that has approximated $200 million for the LTM through September 2008. Moody's anticipates that issuances under PACCAR's MTN program will help to reduce outstanding amounts of short-term debt. These issuances, combined with the company's cash balances, committed credit facilities, and free cash generation should provide adequate coverage of PACCAR's debt coming due over the next twelve months.
As a result of the of the formidable competitive and financial position of PACCAR's global truck operations, the sound capitalization and asset quality of its financial services operations, and the company's adequate liquidity profile, Moody's expects that the performance of PACCAR, PFC and PFE will remain solidly supportive of an A1 rating despite the current downturns in the US and European truck sectors. PACCAR Inc, headquartered in Bellevue, Washington, is the world's third-largest heavy-truck manufacturer.