S&P Downgrades Joy Global (JOY) to 'BBB-'; Outlook Negative

Standard & Poor's Ratings Services said that it has lowered its corporate credit rating on Joy Global Inc. (NYSE: JOY) to 'BBB-' from 'BBB'. The outlook is negative.

At the same time, we lowered our issue-level ratings on the company's senior unsecured debt to 'BBB-' from 'BBB'.

"The downgrade reflects our expectation that Joy's credit measures will continue to weaken in 2016 because of reduced demand for its mining equipment," said Standard & Poor's credit analyst Svetlana Olsha. We estimate that the company's funds from operations (FFO)-to-debt ratio will remain below 30% in both 2016 and 2017. Although we believe that demand for new mining equipment will remain weak in 2017, we expect that Joy's operating performance will stabilize during the year as the company should benefit from increased demand for equipment servicing after a period of maintenance deferrals.

Our negative outlook on Joy reflects the risk that the company's end markets may not begin to stabilize next year or that its credit ratios will deteriorate by more than we expect in 2016.

We could lower our ratings on Joy if we determine that the weakness in the company's end markets is more secular than cyclical, resulting in unfavorable medium- and long-term growth prospects in those markets. Also, we could lower the ratings if weaker-than-expected macroeconomic conditions and commodity prices for coal, iron ore, and copper depress the long-term demand for the company's equipment and cause its FFO-to-debt ratio to drop below 20% for a sustained period.

We could revise our outlook on Joy to stable if we expect that the company's FFO-to-debt ratio will remain above 20% and believe that its long-term prospects will improve, either due to a cyclical rebound in a number of the company's markets or because it has diversified its business away from the coal markets.

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