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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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