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TEXT-Moody's may cut Navistar Int'l ratings

(The following statment was released by the rating agency)

Approximately $1.16 Billion of Debt Securities Affected.

NEW YORK, Oct 30 - Moody's Investors Service is reviewing the Ba1 ratings of Navistar International Corporation and Navistar Financial Corporation (NFC) for possible downgrade. The review is prompted by the prolonged downturn in Navistar's truck and engine operations, the cash outflow associated with the company's just-announced restructuring program, and the decision by Ford Motor Company to not utilize Navistar's V6 diesel engine that was designed to Ford's specifications -- Navistar had devoted considerable capital to a facility that was expected to produce these engines under an exclusive, long-term supply agreement.

The review is focusing on: 1) the degree to which Navistar's already-weak debt protection measures will be further eroded by this more challenging operating environment; 2) the time frame over which the restructuring program, in combination with a newly signed contract with the UAW, will lower Navistar's breakeven point, improve longer-term operating efficiency, and support a recovery in earnings and cash generation; 3) the company's plan to refinance approximately $200 million in manufacturing-company debt that matures in early 2003; 4) Navistar's ability to minimize the rate of cash burn and to preserve an adequate cash/liquidity cushion for its manufacturing operations through 2003; and 5) NFC's ability to preserve its current level of access to various committed borrowing facilities including the ABS market. Ratings under review are: Navistar International Corp.: senior unsecured debt rated Ba1, and subordinated debt rated Ba2.

Navistar Finance Corporation: senior unsecured debt and medium term notes rated Ba1, and subordinated debt rated Ba2. For the nine months to July, 2002, Navistar's industrial operations generated an operating loss of approximately $150 million and a cash burn (after working capital and capital expenditures) of roughly $500 million. Moreover, the industrial company's debt burden (including about $400 million in sale-leasebacks) is high at $1.3 billion. A significant portion of Navistar's cash burn has been due to a large increase in working capital as inventory was built up in advance of new model launches, and as the company implemented temporary shifts in production schedules. The company expects that this build up will be reversed quickly. As Navistar enters another year of weak market demand, its principal source of liquidity and financial flexibility will be its $454 million in cash and marketable securities.

NFC's leverage position and losses remain high. Debt-to-equity (adjusted for ABS transactions) exceeds 10:1 at July 31, 2002. Although losses-to-liquidations remain at elevated levels, this ratio, as well as delinquency rates, have been declining during recent quarters. NFC currently has adequate ability to support Navistar's retail and wholesale sales activities due to the availability under a committed revolving credit facility and various committed ABS facilities. We expect the company will remain in compliance with the covenants contained in these facilities. Navistar International Corporation, headquartered in Chicago, IL, is a holding company whose sole subsidiary is International Truck and Engine Corporation, a leading North American producer of heavy-duty and medium-duty trucks as well as school buses. Navistar Financial Corporation, the wholly-owned captive finance subsidiary of Navistar International Transportation Corp., provides wholesale and retail financing for Navistar's trucks.