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Announcement:

Moody's places Finmeccanica's Baa2 ratings on review for downgrade

Global Credit Research - 16 Jul 2012

New York, July 16, 2012 -- Moody's Investors Service has today placed on review for downgrade the Baa2 ratings of Finmeccanica SpA (Finmeccanica) and its guaranteed subsidiaries Finmeccanica Finance SA and Meccanica Holdings USA, Inc.

Today's action follows the weakening of the Italian government's creditworthiness, as captured by Moody's downgrade of Italy's government bond ratings to Baa2 on 13 July 2012. For more details on the sovereign action, please refer to the press release on www.moodys.com.

RATINGS RATIONALE

"The review reflects our increased concerns about (1) Finmeccanica's ability to successfully execute its operational restructuring and asset disposition plans in a more challenging economic environment, and (2) the implicit level of support for the company from the Italian government," says Russell Solomon, a Moody's Senior Vice President and lead analyst for Finmeccanica. Finmeccanica currently carries a fundamental baseline credit assessment, or BCA, of 10 (Baa3 equivalent level), with its rated debt elevated by one notch to Baa2 in accordance with Moody's Government Related Issuer Methodology.

Finmeccanica's key credit metrics have been weak for the rating category, with high financial leverage and poor profitability measures. The company's performance has been adversely affected by significant restructuring activities and related financial accounting charges as the company tries to reduce inefficiencies and improve core profitability. Moody's believes that the deteriorating macroeconomic environment both in Italy and in the broader European markets could further weigh on Finmeccanica's business and financial results and renders more uncertain its ability to achieve anticipated proceeds from asset disposals.

The company generates around 20% of its sales within Italy, a substantial portion of which are defence-related. The budget for the Italian Ministry of Defence has been under increasing pressure for the past year and may be subject to further cuts, notwithstanding reports of a planned reversion to higher levels (or at least stabilisation) beginning 2013. Compounding in-country headwinds is Finmeccanica's heavy exposure to defence spending levels for the whole of continental Europe, and the US and UK more broadly, which are also experiencing meaningful downward pressure. These high-level risks have been somewhat mitigated to date by the large size and scope of the company's business operations, and specifically the revenue predictability associated with its multi-year backlog, as well as its good liquidity profile.

Finmeccanica has proposed approximately EUR1 billion of asset sales to be executed by the end of 2012, the proceeds from which would be applied to debt reduction. However, with increasingly difficult market conditions, Moody's believes that the timing, value and ultimate execution of prospective asset sales is subject to heightened risk. Moreover, requisite credit profile strengthening also relies heavily on consistent improvement in operating performance that may be more difficult to realise given expectations of increasingly challenging market conditions.

The review will assess Finmeccanica's near-term ability to reverse recent negative operating performance trends and restore its credit profile to levels more appropriate for its assigned rating category. The review will also focus on the pace and scope of Finmeccanica's various restructuring activities and targeted monetisation of non-core assets and their potential short-to-medium term impact on the company's financial profile.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Finmeccanica was the Global Aerospace and Defense Industry rating methodology, published in June 2010. Other methodologies used include the Government-Related Issuers Methodology, published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Rome, Italy, Finmeccanica SpA is one of Italy's largest industrial conglomerates and receives approximately half of the country's annual defence outlays. Finmeccanica is concentrated in the defence electronics and aerospace (helicopters and aircraft) markets and has interests in the transportation (train signalling systems) and energy sectors. The company reported revenues of just over EUR17 billion for the 12 months ended 31 March 2011.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places Finmeccanica's Baa2 ratings on review for downgrade
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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