In the industrials sector, significant debt financed capital investment has been directed toward feeding the commodity bubble – from iron ore, copper mines and rail networks, to oil well service and agriculture equipment.
Losses on project financing and equipment backed lending may prove to be a big surprise later in 2015 and beyond, particularly at captive finance companies like Caterpillar Financial.
The cessation of credit available for commodity-related equipment sales and remarketing of used equipment may also lengthen and deepen the downturn. We have estimated that approximately 10% of sector sales go to commodity-related capital equipment, with many highly visible companies facing much more significant exposure.
The bottom line here is the commodity correction should drive a prolonged blow back into several segments of Industrial equipment and finance.
