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Rating Action:

Correction to Headline, March 23, 2011 Release: Moody's downgrades Volvo Auto Bank Deutschland to Baa3/P-3/D+; outlook negative

23 Mar 2011

Frankfurt am Main, March 23, 2011 -- Moody's Investors Service has today downgraded the long-term deposit ratings of Volvo Auto Bank Deutschland GmbH (VAB) by one notch to Baa3 from Baa2 and its bank financial strength rating (BFSR) to D+ from C-. The bank's short-term rating is also downgraded to P-3 from P-2. The outlook on all ratings is negative.

The downgrades are driven primarily by concerns regarding the bank's future business strategy, its strategic ownership interest and related risk profile following the sale of Volvo Car Corporation to Chinese Zhejiang Geely Holding Group.

The rating action concludes the review for downgrade initiated on 29 January 2009 and which was further extended on 13 August 2010.

RATINGS RATIONALE

BANK FINANCIAL STRENGTH RATING

VAB's BFSR of D+, which translates into a baseline credit assessment (BCA) of Baa3, reflects (i) the decline in franchise value given the low market shares of Volvo cars in Germany (slightly below 1% currently from 2% historically) and Switzerland (Volvo CH: 2,5%, Ford CH: 5,9%); (ii) the existing risk concentrations of the dealer franchise; (iii) the modest recovery of the bank's financial profile compared with its European peers in 2010; and (iv) a funding profile that depends on the continued membership in the deposit insurance scheme.

Following the sale of the industrial assets of Volvo Car Corporation (unrated) by its owner Ford Motor Group (Ford, rated Ba2/positive) to Chinese Zhejiang Geely Holding Group (Geely, unrated), Moody's is concerned about VAB's strategic positioning within the Ford group, its strategic and operating independence and potential future support from its owner Ford. In Moody's view, Ford's strategic interest in VAB was better aligned before the sale of Ford's Volvo cars division and as a result, believes that these uncertainties are better reflected in a downgrade in VAB's BFSR to D+. The rating agency will continue to monitor VAB's relationship with its owner and the impact on its franchise value and risk positioning.

Moody's positively notes that as per VAB's preliminary unaudited results, its financial performance stabilised during 2010. VAB's pre-tax profit increased to EUR32 million (2009: EUR20 million), reflecting VAB's further expansion into leasing activities and a recovery in the bank's profitability metrics. Moody's remains comfortable with VAB's sound asset and liability management and strategic liquidity reserve of unconstrained cash in excess of EUR100 million. Simultaneously, the rating agency points to VAB's funding reliance on the German private placement market and the benefits from the bank's membership in the German deposit insurance fund. In Moody's view, VAB's membership in the deposit insurance fund is key to supporting the bank's future ability to access long-term market funds and Moody's also believes that continuing commitment of VAB's parent to this membership is essential for VAB's liquidity and funding needs.

LONG-TERM DEPOSIT RATINGS

The downgrade of the long-term deposit ratings is directly linked to the downgrade of the bank's BFSR, given its lack of meaningful external support. Moody's considers the probability of ongoing support from its ultimate parent, Ford, as remote given the disposal of Volvo Cars to privately owned Chinese Geely in 2010 and the limited strategic fit of VAB with Ford going forward.

SHORT-TERM DEPOSIT RATINGS

VAB's short-term ratings were downgraded to P-3 from P-2 in line with Moody's guidelines for short-term ratings and given the downgrade of the long-term ratings to Baa3. Moody's believes that the bank's liquidity remains supported by its matched funding profile, which would allow a balanced asset run-off relative to its liability structure. Moreover, VAB maintains a strategic liquidity reserve and an asset portfolio eligible for ECB repo liquidity.

NEGATIVE OUTLOOK

The negative outlook on the BFSR and Baa3 long-term deposit ratings reflects the uncertainty regarding VAB's future strategic positioning within the Ford group and its operational independence from its current owner, Ford.

Negative pressure on the ratings of VAB could emerge, if the poor sales of Volvo cars in Germany is sustained or even intensifies, or if VAB's financial situation deteriorates. Alternatively, any actions that might weaken VAB's relative strategic and operational independence from its owner could have negative rating implications for both the BFSR and VAB's deposit ratings.

An upgrade of VAB's BFSR and long-term ratings is currently not envisaged. Positive rating pressure could result over time from a diversification of revenue and income streams supported by ongoing sound financial performance.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

The last rating action on Volvo Auto Bank Deutschland GmbH was implemented on 29 January 2009, when Moody's downgraded its long-term ratings to Baa2 from A3.

The principal methodologies used in this rating were "Bank Financial Strength Ratings: Global Methodology", published in February 2007, "Incorporation of Joint Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", published in November 2009."

Headquartered in Cologne, Volvo Auto Bank Deutschland GmbH had total assets of EUR2.4billion and reported shareholders' equity (including minority interests) of EUR157 million as of the end of 2010 (according to unaudited results).

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Frankfurt am Main
Claude Raab
Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Correction to Headline, March 23, 2011 Release: Moody's downgrades Volvo Auto Bank Deutschland to Baa3/P-3/D+; outlook negative
No Related Data.
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