Caterpillar Inc.

The stable outlook reflects our view that despite a meaningful contraction in demand in 2020, Caterpillar has a sufficient cushion in its credit metrics to withstand near-term pressure. We expect that end-market conditions will stabilize in 2021, which--combined with ongoing cost discipline--will enable the company to maintain funds from operations (FFO) to debt above 30% over the next 12-24 months. We could lower the rating if Caterpillar's operations are pressured to the extent that its FFO-to-debt ratio declines to less than 30%, or if cash flow generation weakens significantly. This could occur if the company's end markets continued to weaken or if it incurred sizeable cash outflows. We could also consider a downgrade if the credit quality of the company's

...Although we believe challenging end-market demand conditions will significantly reduce Caterpillar's revenue and earnings in 2020, the company's credit measures should maintain some cushion relative to our downgrade thresholds. Specifically, Caterpillar's S&P Global Ratings-adjusted funds from operations (FFO)-to-debt ratio was 117% as of the end of 2019, which is well above our 30% downside trigger. This provided the company with a healthy cushion to withstand the current weakness in its construction, mining, and oil and gas end markets. We expect the company's FFO-to-debt ratio to decline to 40%-55% in 2020 and improve in 2021. We expect Caterpillar's operating performance will begin to recover over the next 12 months, but it will take a few years for revenues to return to 2019 levels. Overall, we expect increased economic activity to benefit Caterpillar's end markets in 2021, though some markets will recover faster than others. For instance, the company's performance within U.S. residential...

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