TEXT-Fitch cuts Navistar's IDR to 'BB-'

June 22 - Fitch Ratings has downgraded the long-term IDRs for Navistar
International Corporation (NAV) and Navistar Financial Corporation (NFC)
to 'BB-' from 'BB'. The ratings remain on Rating Watch Negative. A full rating
list is shown near the end of this release.

The downgrade reflects:

--Heightened risks surrounding certification of NAV's emissions compliant
engines;
--Higher than anticipated warranty costs on engines;
--Delayed improvement in NAV's market share of medium and heavy duty trucks in
the U.S. and Canada; and
--Low margins.

These developments contributed to a material loss in first half-2012 (1H'12) and
could pressure NAV's cash flow and liquidity. Manufacturing debt/EBITDA
increased materially, to slightly above 4 times (x) at April 30, 2012, from 2.4x
at Oct. 31, 2011. Fitch believes this level may remain elevated compared to
recent levels.

Fitch expects to resolve the Negative Rating Watch after the Environmental
Protection Agency (EPA) determines whether or not NAV's EGR engine technology
meets emissions requirements. If certification is denied or substantially
delayed, NAV's competitive position and financial performance could be impaired,
and the company may be required to reconsider its engine strategy.

NAV's ratings may remain at heightened risk for a downgrade if warranty costs
don't stabilize and eventually improve. Other possible factors that may
precipitate a downgrade are if free cash flow doesn't recover sufficiently to
support liquidity, or if NAV encounters additional execution issues with respect
to its integration strategy and expansion overseas. In addition, activist
investors have accumulated approximately 25% of NAV's common shares in recent
months. This introduces some uncertainty about long term operating and financial
policies.

Conversely, Fitch may resolve the Negative Rating Watch with an affirmation if
NAV's emission compliant engines receive timely certification by the EPA. Also
supporting a possible future rating affirmation will be if engine quality
improves materially, operating margins improve, NAV manages commodity costs
effectively, and the company's market share recovers.

Weak financial performance reported by NAV in 1H'12 reflected large warranty
charges, higher commodity costs for steel and rubber and the negative impact of
lower sales of military trucks and parts. Also factoring into the performance
were weaker results in Brazil associated with engine pre-buying in 2011 and a
transition to contract engine manufacturing for a large customer, start-up and
restructuring costs in certain businesses. Other factors included ongoing
consolidation of engine and truck engineering operations, and the relocation of
NAV's headquarters.

NAV's performance could improve during 2H'12 due to seasonality, operating
improvements associated with ongoing integration and restructuring actions, and
the elimination of special warranty charges (largely non-cash) and certain
one-time costs. However, Fitch believes NAV will be challenged to achieve
profitability for the full year. Fitch views NFC as neutral to the rating. NFC
is performing as expected by Fitch, including steady progress with respect to
capitalization and asset quality.

NAV's market share for medium and heavy duty trucks in the U.S. and Canada has
been slow to improve. The delay can be partly attributed to NAV's strategy of
producing its own engines which it initially introduced at a measured pace. In
addition, there are possible customer concerns about NAV's emissions compliant
engines surrounding engine quality and delayed certification by the EPA. NAV
estimates emission credits will run out for heavy duty engines in 2012 and
medium duty engines in 2013.

Manufacturing free cash flow (FCF) in 1H'12 was negative $388 million. This
reflected low margins and capital expenditures which remain higher than average
as NAV integrates its engineering functions, invests in a research center and
engine testing facility, and realigns other parts of its business. Fitch
estimates FCF could break even or be slightly positive in 2H'12, though it will
remain negative for the full year. Fitch's estimate assumes NAV's emission
compliant engines are certified in the near term. This would allow NAV to
continue selling its heavy duty engines.

NAV's manufacturing FCF is constrained by recurring pension contributions. NAV's
net pension obligations totaled $1.8 billion (approximately 57% funded) at the
end of 2011. NAV expects to contribute $190 million to the plans in 2012. Of
this amount, $82 million was contributed during the first half of the year.
Between 2013 and 2015, NAV estimates it will be required to contribute at least
$210 million annually.

Liquidity is currently adequate. However, it could become a concern if
performance doesn't improve, or if temporary cash requirements, such as higher
working capital requirements for used-truck inventories, do not reverse. At
April 30, 2012, Navistar's liquidity, excluding NFC, included $681 million of
cash and marketable securities. This is down from nearly $1.2 billion at Oct.
31, 2011, and $192 million of availability under a $355 million asset-based
credit facility ('ABCL') that matures in 2016.

In June 2012, NAV borrowed an additional $138 million under the ABCL. Liquidity
is offset by $230 million of manufacturing debt due within one year. NAV
repurchased a combined $200 million of shares in fiscal 2011 and the first half
of fiscal 2012. Fitch anticipates further repurchases will be minimal in the
near to medium term until NAV resolves concerns about engine certification and
low margins.

NFC's financial performance is generally in line with Fitch's expectations.
Profitability has declined slightly in the six-months ended April 30, 2012 due
to the run-off of NFC's retail portfolio. The retail balance is expected to
decline further over the next several years due to NFC's agreement with GE
Capital in 2010 as the primary funding source for the company's retail portfolio

Asset quality continues to improve and provisioning volatility has declined as
NFC focuses on its relatively lower risk wholesale portfolio. NAV's
capitalization is consistent with similarly rated captives, and Fitch expects
leverage to improve and stay below historical levels due to reduced financing
needs as a result of NFC's exit from retail financing. In fourth quarter-2011,
NFC completed a significant refinancing of its credit facilities. Fitch believes
the refinancing of its credit facilities may mitigate any potential near-term
liquidity concerns.

Due to NFC's close operating relationship and importance to the parent, its
ratings are directly linked to those of the ultimate parent. The relationship is
governed by the Master Intercompany Agreement. There is a requirement referenced
in the NFC credit agreement requiring Navistar, Inc. or NAV to own 100% of NFC's
equity at all times.

Fitch's ratings cover approximately $2 billion of debt at NAV and $2.5 billion
of outstanding debt at its Financial Services segment, the majority of which is
at NFC, as of April 30, 2012.

Fitch has downgraded the ratings for NAV and NFC as follows:

Navistar International Corporation
--Long-term IDR to 'BB-' from 'BB';
--Senior unsecured notes to 'BB-' from 'BB';
--Senior subordinated notes to 'B' from 'B+'.

Cook County, Illinois
--Recovery zone revenue facility bonds (Navistar International Corporation
Project) series 2010 to 'BB-' from 'BB';

Illinois Finance Authority (IFA)
--Recovery zone revenue facility bonds (Navistar International Corporation
Project) series 2010 to 'BB-' from 'BB';

Navistar Financial Corporation
--Long-term IDR to 'BB-' from 'BB'.
--Senior unsecured bank credit facilities to 'BB-' from 'BB'.

The ratings remain on Rating Watch Negative.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Finance and Leasing Companies Criteria' (Dec.12, 2011);
--'Rating Linkages in Nonbank Financial Subsidiary Relationships' (Nov. 29,
2011);
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Finance and Leasing Companies Criteria
Rating Linkages in Nonbank Financial Subsidiary Relationships
Global Financial Institutions Rating Criteria