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Yesterday, the proposed offering of senior unsecured notes by Cummins Inc. (CMI - Analyst Report) was assigned an “A3” rating by Moody’s Investors Service of Moody’s Corporation (MCO - Analyst Report). The rating agency also bestowed a “(P)A3” on the company’s shelf registration for senior unsecured debt.

Further, Moody’s affirmed the senior unsecured rating of Cummins at “A3” and maintained a stable outlook on all the ratings. The company plans to issue senior unsecured notes worth $1 billion to buy back the residual equity stake in its partly-owned U.S. and Canadian distribution operations, apart from using the proceeds for general corporate needs.

The ratings were based on the financial liquidity of Cummins along with the expectations that the purchase of the balance equity stake in the distribution operations will boost its competitive strength in North America. The purchase is also expected to maintain the strong credit metrics that are required for the “A3” rating.

As Cummins has held a partial stake in the U.S. and Canadian distribution operations for a long time, the acquisition should not pose any integration issues. Moreover, the company is expected to earn good returns on the investment.

Cummins is a leading worldwide designer, manufacturer and distributor of diesel and natural gas engines, electric power generation systems and engine-related components, fuel systems, controls and air handling systems. Currently, Cummins retains a Zacks Rank #3 (Hold).

Other stocks that are performing well in the industry include American Axle & Manufacturing Holdings Inc. (AXL - Analyst Report) and Weichai Power Co. Ltd (WEICY). Both are Zacks Rank #1 (Strong Buy) stocks.

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