TRATON SE

The stable outlook reflects our expectation that TRATON will successfully execute its margin and cash flow preservation measures and pursue a conservative financial policy, ensuring adjusted FFO to debt of about 30% at year-end 2020 and above 60% at year-end 2021. We could lower the rating if we were to downgrade VW while revising downward our SACP on TRATON. The latter could follow a drop in adjusted FFO to debt well below 60% with no prospect of near-term recovery. Ratings upside could arise if the company's operating performance improves. This would be on the back of meaningful progress under its integration plans translating to a strengthening of industrial adjusted EBITDA margin to at least 10% and FOCF to debt of

...TRATON SE's industrial business credit metrics will weaken materially in 2020, but recover in 2021 in our base case. We expect adjusted EBITDA margin will fall to about 3% from 9% in 2019 (see chart 1), causing adjusted FFO to debt to fall to about 30% in 2020 from 200% in 2019, provided that capex for 2020 is at about 1 billion. We believe that TRATON's operating performance will be particularly affected by lower demand owing to the global recession from the pandemic. In addition, MAN is still in a parallel production phase of deploying new trucks, which is holding back margins, and the company has disbursed in February 2020, 1.4 billion in cash because of terminating the domination and profit and loss transfer agreement (DPLTA) with its parent Volkswagen. Based on that, in our base-case scenario, we expect only break-even or even slightly negative reported operating profit for the industrial business, down from 1.7 billion in 2019. This implies that the loss reported by MAN will be balanced...

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