Moody's Lifts Outlook on Joy Global (JOY) to Positive; Ratings Affirmed

Moody's Investors Service changed the outlook of Joy Global Inc. (Joy) to positive from stable. Moody's also affirmed all other ratings, including Ba3 Corporate Family Rating (CFR), probability of default rating (PDR) of Ba3-PD, Speculative Grade Liquidity rating of SGL-2 and senior unsecured bond rating of Ba3.

Affirmations:

.... Corporate Family Rating, Ba3

.... Probability of Default Rating, Ba3-PD

.... Speculative Grade Liquidity Rating, SGL-2

.....Senior Unsecured Regular Bond/Debentures, Ba3 (LGD4)

Outlook Actions:

....Outlook, Changed To Positive From Stable

RATINGS RATIONALE

The outlook change follows the company's announcement that it has entered into a definitive merger agreement under which Komatsu America Corp, a subsidiary of Komatsu Ltd. (A2, stable), will acquire Joy in a transaction valued at $3.7 billion including Joy's outstanding debt.

Joy's Ba3 CFR continues to reflect its strong profitability and cash flow metrics, leading market position in several mining equipment product segments, large installed base of equipment, the stability and higher profitability of its service revenue stream, and its global presence and market position in growing emerging markets. The company's rating is constrained by its dependence on volatile commodity markets and the highly cyclical mining industry, which remains weak and has led to substantially reduced demand for the company's new original equipment. The rating also reflects Joy Global's substantial exposure to one commodity (coal) but recognize Joy's strategic initiative to diversify their products and technologies into industrial minerals and hard rock end markets.

The positive outlook reflects our expectation that the merger, expected to close by mid-2017 will improve the company's credit profile, as it will be controlled by a larger, more diversified, and financially stronger parent entity. Komatsu Ltd. is Japan's largest and the world's second-largest manufacturer of construction machinery and mining equipment by sales. The company is also one of the leading global manufacturers of various types of industrial machinery -- such as large-scale presses -- and vehicles, such as forklifts. An upgrade would be considered upon successful closing of the transaction, with the magnitude of ratings movement dependent upon any changes in capital structure and the extent of support provided by the parent.

The Speculative Grade Liquidity rating of SGL-2 reflects our expectation that the company will continue to maintain good liquidity over the next twelve months. Joy's liquidity position is supported by its $161 million cash balance as of April 29, 2016 and substantial borrowing availability on its $850 million unsecured revolving credit facility. As of April 29, 2016, the company had $112.1 million of standby letters of credit outstanding. The credit facility has financial covenants in place, which the company recently amended to allow additional headroom in light of weakening metrics. We believe that if business conditions continue to deteriorate, the headroom under covenants will tighten.

A positive rating action would be considered if we expected stand-alone Debt/EBITDA, as adjusted, to be sustained below 4x and/or if the merger with Komatsu was successfully consummated, with an expectation of ongoing support from the parent.

A downgrade would be considered if the Komatsu merger was to be terminated and if Debt/EBITDA, as adjusted, was expected to be above 4.5x on a sustained basis, and/or if liquidity were to deteriorate.

The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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